Budget 2024 Measures Consultation Draft Note

Overview

Yesterday, Finance Canada released draft legislation to implement measures that were outlined in the 2024 Federal Budget. Some of these focus on areas that the government has labelled as “generational fairness,” including changes to the tax code to incentivize the buildout of housing. Other measures include the clean electricity investment tax credit, the inclusion of biomass in the Clean Economy Investment Tax Credits (ITCs), the increase in the capital gains inclusion rate, and the Canadian Entrepreneurs Incentive, which reduces the capital gains inclusion rate on certain types of small businesses.

The release of draft legislation means that the government is likely to include the necessary legislative changes in a second Budget Implementation Act (or a Fall Economic Statement) in the Fall sitting of Parliament, with the necessary regulatory changes likely to be published in Canada Gazette Part One in the Fall as well.
The Department of Finance Canada is looking for feedback from stakeholders on the following measures:

Housing Construction

• Removing the GST for co-operative housing built for the long-term rental market;
• Creation of a 10 per cent Accelerated Capital Cost Allowance, for projects beginning construction on or after April 16, 2024, and before January 1, 2031, and completed by January 1, 2036; and
• Modifying mortgage insurance rules for the addition of secondary suites to Canadians homes.
• See draft legislation enabling proposed measures here.

Economic Growth

• Creating the Canadian Entrepreneurs’ Incentive to reduce the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains;
• The new Clean Electricity Investment Tax Credit;
• Waste Biomass ITC: Expanding eligibility for the Clean Technology Investment Tax Credit and the Clean Electricity investment Tax Credit to include waste biomass to generate heat and electricity;
• Updates to the Clean Technology Manufacturing Investment Tax Credit regarding critical mineral development; and,
• The creation of a new Accelerate Capital Cost Allowance for businesses investing in IT infrastructure and productivity enhancing assets, for investments made by January 1, 2027
• See draft legislation enabling proposed measures here.

Tax Code Changes

• Increasing the capital gains inclusion rate from one-half to two-thirds on capital gains realized annually above $250,000 for Canadians and on all capital gains realized by corporations and most types of trusts, as of June 25, 2024;
• Increasing the Lifetime Capital Gains Exemption from $1 million to $1.25 million, as of June 25, 2024;
• Creating the Canadian Entrepreneurs Incentive which reduces the capital gains inclusion rate to 33.3% on a lifetime maximum of $2 million in eligible capital gains for certain types of small businesses.
• Exempting from taxation the first $10 million in capital gains realized on the sale of a business to an eligible Employee Ownership Trust or Worker Co-operative;
• Creating the Undertaxed Profits Rule, which implements a minimum effective tax rate of 15 per cent on multinational corporations’ profits wherever they do business;
• Providing exemptions from the Excessive Interest and Financing Expenses Limitation rules for purpose-built rental housing providers and regulated utility providers serving Canadians;
• Amending the Alternative Minimum Tax rules for the mining sector to allow Canadians to fully claim resource expense deductions,
• Ensuring renters are not held responsible for their non-resident landlords’ unpaid taxes; and,
• Clarifying bare trust reporting rules to significantly reduce the number of individuals with bare trusts who would have to file.
• See draft legislation enabling proposed measures here.

Financial Sector Changes

• Establish the Consumer-Driven Banking Framework;
• Amending the provisions in the Criminal Code that pertain to the criminal rate of interest and the intended impacts on predatory lenders;
• Advancing the next phase of the financial institutions’ statutes review.
• See consultation paper on the proposed measures here.

Next Steps

The consultation period will remain open until September 11, 2024, with comments to be sent to: Consultation-Legislation@fin.gc.ca.
They have also set up specific emails to receive feedback for specific measures. The corresponding emails are the following:

• Secondary Suites: consultation-housing-logement@fin.gc.ca
• Canada’s Consumer-Driven Banking Framework: obbo@fin.gc.ca
• Protecting Canadians from Predatory Lending: consultationconsumeraffairs.consultationconsommation@fin.gc.ca
• Financial Institutions’ Statutes Review: legreview-examenleg@fin.gc.ca