Canada’s Economic and Financial Update – Fall 2024

On December 16, 2024, the federal government provided an update on Canada’s economic and financial situation.

Capital Gains Rollover for Investments

Under the Income Tax Act (“ITA”), individuals are allowed to defer tax on capital gains realized on the eligible disposition of certain qualified small business corporation shares, provided that the proceeds from the disposition are used to acquire eligible replacement shares within the year of disposition or within 120 days after that year.

The federal government proposes to relax this measure as follows:

• The period to acquire replacement shares would also include the entire year following the disposition of the shares;

• An eligible share would now include both common shares and preferred shares;

• The limit on the adjusted cost base of the assets of the small business corporation and related corporations would increase from $50,000 to $100,000.

These adjustments would apply to eligible dispositions occurring on or after January 1, 2025.

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Extension of the Accelerated Investment Incentive and Immediate Expense Measures

The Accelerated Investment Incentive allows taxpayers to claim an enhanced first-year depreciation deduction for eligible property acquisitions. This temporary measure began a phase-out in 2024, scheduled to end after 2027. The immediate expense measures for manufacturing and processing machinery and equipment, clean energy production and conservation equipment, and zero-emission vehicles are also being phased out on the same timeline.

The federal government proposes to fully restore the Accelerated Investment Incentive and the immediate expense measures for five years, with a four-year phase-out period after 2029:

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Immediate Expense Measures

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Clean Electricity Investment Tax Credit and Canada Infrastructure Bank

The Clean Electricity Investment Tax Credit is a refundable credit equal to 15% of the capital cost of eligible investments in equipment related to low-emission electricity production, electricity storage, and interprovincial and territorial electricity transmission. The capital cost of assets eligible for the credit can be reduced by government assistance received by the taxpayer.

The Economic Statement proposes to include the Canada Infrastructure Bank as an eligible entity for the Clean Electricity Investment Tax Credit and to introduce an exception so that financing provided by the Canada Infrastructure Bank does not reduce the capital cost of eligible property for credit calculation purposes.

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Scientific Research and Experimental Development (SR&ED) Tax Incentives Program

Under the SR&ED tax incentives program, eligible expenditures are fully deductible in the year incurred and are generally eligible for an investment tax credit.

The federal government therefore proposes the following improvements to the SR&ED program:

• Increase the annual expenditure limit for Canadian-controlled private corporations (CCPCs) eligible for the enhanced 35% investment tax credit from $3,000,000 to $4,500,000;

• Raise the phase-out thresholds for the enhanced credit based on previous year’s taxable capital from $10,000,000 to $15,000,000 (lower limit) and from $50,000,000 to $75,000,000 (upper limit);

• Expand the enhanced refundable tax credit to publicly traded Canadian corporations;

• Instead of determining CCPC eligibility for the enhanced SR&ED credit based on taxable capital, allow them the option to determine their expenditure limit based on gross revenue, as publicly traded corporations do;

• The Economic Statement proposes to restore eligibility for capital expenditures for both income deduction and investment tax credit components of the SR&ED program, essentially reinstating rules in place prior to 2014.

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Non-Profit Organization (NPO) Reporting Requirements

The federal government proposes several changes to reporting requirements for NPOs to improve transparency in the sector. As a reminder, an NPO must file an information return if the following conditions are met:

• Total passive income during the fiscal year exceeds $10,000;

• Total assets at the end of the previous fiscal year exceed $200,000;

• The NPO was required to file an information return in a previous year.

The Economic Statement proposes to amend the ITA to require NPOs with gross revenues exceeding $50,000 to also file an annual information return.

Additionally, NPOs that do not meet the above thresholds would be required to file a new simplified return containing basic information about the NPO.

These measures would apply to taxation years 2026 and onwards.

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Exclusion of the Canada Disability Benefit from Income Tax Calculation

The Canada Disability Benefit is a new federal program designed to support low-income, working-age taxpayers eligible for the disability tax credit, up to an amount of $2,400 per year.

The federal government proposes to exclude amounts received under this benefit from a taxpayer’s annual income calculation. This exemption would help ensure that benefits and income-tested programs are not reduced as a result of receiving the Canada Disability Benefit.

This measure would apply for taxation years 2025 and onwards.

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Series of Announcements Related to Housing Construction

The federal government proposes several new measures to stimulate housing construction in Canada, including the following:

• Doubling the loan limit under the Canada Home Construction Financing program to $80,000;

• Accelerating disbursement of low-cost funding to builders;

• Providing access to affordable housing funds for housing suppliers for preparatory work.

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For more information on the new measures announced in the Economic Statement, please contact your FBL representative.

Source: Department of Finance Canada, Fall 2024 Economic Statement