On April 16, 2024, Canadian Finance Minister Chrystia Freeland delivered the 2024 federal budget (“Budget 2024“). Budget 2024 proposes billions of dollars in new spending over the next 5 years to address a broad range of priorities, with emphasis on addressing the multitude of crises currently facing Canadians and promoting the federal government’s social policies in Canada and abroad. As usual, we have focused on the proposed tax measures, with a view to providing our clients and fellow advisors with a brief summary of the changes that are most likely to impact them, their families, and their businesses.

By far the biggest headline is the proposed increase to the inclusion rate for capital gains (i.e., the profit realized when capital property such as stocks, real property other than principal residences, and other investment property is sold) from the current inclusion rate of one-half (50%) to two-thirds (66.67%). This increase will apply to corporations and trusts, with no indication whether certain types of entities will be carved out (e.g., small business corporations or qualified disability trusts). It will also apply to capital gains realized by an individual (directly or indirectly through a partnership or trust) to the extent that such individual’s capital gains exceed $250,000 in any particular year, net of any available deductions such as current- and prior-year losses and the lifetime capital gains exemption (“LCGE“), if applicable. The inclusion rate for capital gains realized by individuals up to the $250,000 annual threshold will continue to be 50%. This increase is proposed to apply to capital gains realized on or after June 25, 2024.

Budget 2024 confirms that net capital losses carried forward from previous taxation years will be adjusted to reflect the inclusion rate of the capital gains against which they are claimed (i.e., a capital loss realized prior to June 25, 2024 would fully offset an equivalent capital gain realized on or after June 25, 2024). Presumably this means that a net capital loss of $50,000 from 2022, which would fully offset a taxable capital gain of $50,000 realized on June 24, 2024, could be claimed to fully offset a taxable capital gain of $66,667 realized on June 25, 2024, provided the latter capital gain was calculated based on the new inclusion rate.

In light of this proposed increase, corporations, trusts, and individuals who expect to realize significant capital gains in the future may wish to consider planning to realize inherent gains on capital property prior to June 25, 2024 in order to take advantage of the 50% inclusion rate, subject to such taxpayers’ personal economic circumstances and future plans for such capital property. Unless such taxpayers have available deductions, such planning would result in pre-paying capital gains tax (i.e., voluntarily incurring the tax liability before it would otherwise be due). However, such tax would be calculated based on the current inclusion rate rather than the increased rate of 66.67% and would increase the cost base of the particular capital property, thereby reducing the capital gain or increasing the capital loss that may be realized in the event of a future disposition of such property, when the increased inclusion rate may apply.

In an apparent effort to offset the impact of the proposed inclusion rate increase, Budget 2024 proposes to increase the LCGE from $1,016,836 for 2024 (which is annually indexed for inflation) to $1,250,000 for dispositions that occur on or after June 25, 2024 (with indexation to resume in 2026). Budget 2024 also introduces a new “Canadian Entrepreneurs’ Incentive”, designed to reduce the capital gains inclusion rate on dispositions of shares of a corporation after January 1, 2025 where certain criteria are met (notably, such share being disposed of by a founding investor of the corporation who held the share for a minimum of five years prior to disposition). The new incentive is proposed to be phased in by increments of $200,000 per year, to a maximum of $2,000,000 by 2034. Unfortunately, this delayed rollout, together with the detailed eligibility criteria to qualify, may reduce the effectiveness of this incentive in relieving the impact of the inclusion rate increase on many entrepreneurs who may wish to sell their businesses in the foreseeable future.

Finally, Budget 2024 confirms the federal government’s intention to proceed with two-and-a-half pages of previously announced tax and related measures, going back to 2019. Indeed, at least one previously proposed measure is included in Budget 2024, being the proposed changes to the alternative minimum tax (“AMT“), which were introduced in the 2023 federal budget (as discussed in our previous blog post: Federal Budget 2023: A Familiar Pattern). Budget 2024 proposes to move forward with the draft legislation released in August 2023 to amend the AMT, subject to certain revisions, including to allow individual taxpayers to claim 80% of their charitable donation tax credits (rather than the previously proposed 50%) when calculating their AMT liability. We sincerely hope the implementation and enforcement of the government’s long list of previously announced measures can be accomplished with greater success and significantly less cost to the Canadian taxpayer than the underused housing tax and enhanced reporting rules for bare trusts (the latter of which reportedly cost Canadians attempting to comply with the new rules almost $1 billion before the reporting requirement was waived by the Canada Revenue Agency on the last business day before the filing deadline).

As we fully digest the proposed tax measures set out in Budget 2024, we may find additional items of note, in which case we will post a supplementary summary. In the meantime, we encourage you to reach out to our tax team to discuss how the above proposals may impact you and determine whether any planning steps should be taken before June 25, 2024.


The foregoing information is for general discussion purposes only and should not be construed as legal advice to any one person or legal entity. If the issues discussed herein affect you or your structure, you are encouraged to seek specific legal advice.