The 2024 Federal Budget (see link at bottom for complete budget) was released on April 16, 2024. The following are some of the key proposals announced.
Enhancements to Home Buyers’ Plan (“HBP”)
The budget proposes to increase the HBP limit from $35,000 to $60,000 to allow first-time home buyers to utilize the tax benefits of RRSP contributions to help finance first home purchases. This measure would apply to the 2024 and subsequent taxation years in respect of withdrawals made after Budget Day.
For taxpayers who withdraw from their HBP between January 1, 2022, and December 31, 2025, the repayment grace period is proposed to be extended by three years. This means first-time home buyers will have up to five years before starting repayments.
Lifetime Capital Gains Exemption (“LCGE”)
The income tax system provides an individual with a lifetime tax exemption for capital gains realized on the disposition of qualified small business corporation shares and qualified farm or fishing property. The current limit for 2024 is $1,016,836 and has been increasing annually with inflation.
The Budget proposes to increase the amount of the LCGE to $1.25 million of eligible capital gains. This measure would apply to dispositions that occur on or after June 25, 2024. Indexation of the LCGE to inflation would resume in 2026.
Capital Gains Inclusion Rate
The Budget 2024 proposes to increase the capital gains inclusion rate for capital gains realized on or after June 25, 2024. The rate will increase from one-half to two-thirds for individuals on the portion of capital gains realized in the year exceeding $250,000, including amounts received by an individual through a trust or a partnership.
The increased inclusion rate also applies to corporations however there is no $250,000 exemption. All gains realized after June 24, 2024 will be subject to the two thirds inclusion rate.
Transitional rules will apply for gains realized in tax years that begin before and end on or after June 25, 2024; two different inclusion rates would apply.
Tax Effect
BC individuals at the top marginal tax rate, with capital gains exceeding $250,000, will see a tax increase from 26.75% to 35.67%.
For corporations with capital gains after June 24, 2024 the tax rate increases from 25.33% to 33.77% (excluding the effect of any refundable taxes).
Loss Carry Back Timing
Net capital losses of prior years would continue to be deductible against taxable capital gains in the current year by adjusting their value to reflect the inclusion rate of the capital gains being offset.
For individuals or corporations with filing deadlines of April 30, 2024, and have capital losses that are available to be carried back to a prior year, immediate consideration should be given whether to instead carry the loss forward to claim against future capital gains with a higher inclusion rate.
Should I Trigger a Capital Gain Before June 25, 2024?
Stay tuned for our next newsletter release in May for a detailed review of factors to consider before triggering any significant capital gains.
2024 Full Budget:
https://budget.canada.ca/2024/report-rapport/tm-mf-en.html#a6
