2025 Federal Budget Highlights

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2025 Federal Budget Highlights

On November 4, 2025, the budget was delivered by the Honourable François-Philippe Champagne, Minister of Finance and National Revenue.

The 2025 Federal Budget focuses on stability, simplicity, and long-term growth. There are no broad tax increases or major new spending programs. Instead, the government is emphasizing restraint, modernization, and productivity.

For individuals and business owners, the goal is clear: help Canadians access benefits more easily, encourage investment in innovation and clean energy, and update trust and estate rules to maintain fairness across the system.

Economic Overview

Canada’s federal deficit is projected at $78.3 billion for 2025–26. The government aims to stabilize the debt-to-GDP ratio while maintaining funding for priorities such as housing, defence, and clean energy.

Spending will focus on programs that improve productivity, while efficiency reviews across departments are expected to reduce overlap and administrative costs. This marks a shift toward sustainable fiscal management and practical, targeted investments.

Personal and Family Tax Measures

Several measures are designed to make life more affordable, particularly for first-time home buyers, caregivers, and lower-income households.

Eliminating the GST for First-Time Home Buyers

First-time home buyers will not pay the 5 percent federal GST on new homes priced up to $1 million. For new homes between $1 million and $1.5 million, a partial GST reduction applies. This change provides meaningful savings and makes new construction more accessible for Canadians entering the housing market.

Home Accessibility Tax Credit

Starting in 2026, expenses can no longer be claimed under both the Home Accessibility Tax Credit and the Medical Expense Tax Credit. The rule prevents duplicate claims but continues to support renovations that make homes safer and more accessible for seniors or individuals with disabilities.

Top-Up Tax Credit

To balance the reduction in the lowest federal tax bracket—from 15 percent to 14.5 percent in 2025, and 14 percent in 2026—the government introduced a Top-Up Tax Credit to preserve the value of non-refundable credits such as tuition, medical, and charitable amounts. This temporary measure, available from 2025 through 2030, ensures Canadians receive the same credit value even as rates decrease.

Personal Support Workers (PSW) Tax Credit

A new refundable tax credit equal to 5 percent of eligible income, up to $1,100 per year, will be available for certified personal support workers beginning in 2026. The measure acknowledges the importance of care professionals and provides direct relief to those in long-term and community-care roles.

Automatic Federal Benefits

Starting in 2025, the Canada Revenue Agency will begin automatically filing simple tax returns for eligible Canadians who do not normally file. This will allow low-income earners and seniors to receive benefits such as the Canada Workers Benefit, GST/HST Credit, and Canada Carbon Rebate automatically. Those with more complex financial situations will continue to file regular returns.

Registered Plans, Trusts, and Estate Planning

The budget introduces several changes affecting trusts and registered plans—key tools in long-term financial and estate planning.

Bare Trust Reporting Rules

Implementation of new bare trust reporting requirements has been delayed. The rules will now apply to taxation years ending December 31, 2026, or later. This postponement gives individuals, trustees, and professionals more time to prepare for the new filing obligations.

The 21-Year Rule for Trusts

Trusts—particularly most personal or family trusts—are generally considered to have sold and repurchased their capital property every 21 years (a “deemed disposition”). This rule prevents indefinite deferral of capital-gains tax on assets that grow in value.

When property is moved on a tax-deferred basis from one trust to another, the receiving trust normally inherits the original 21-year anniversary date so that tax timing does not reset.

Some estate-planning arrangements have transferred trust property indirectly—for example, through a corporation or a beneficiary connected to a second trust—so that the transfer did not appear to be trust-to-trust. These arrangements effectively extended the period before capital gains would be recognized.

Budget 2025 broadens the anti-avoidance rule to include indirect transfers. Any transfer of property made on or after November 4, 2025, that effectively moves assets from one trust to another will retain the original 21-year schedule.

For families that use trusts in estate or business-succession planning, this change reinforces the importance of reviewing structure and timing. Trusts remain valuable for asset protection, legacy planning, and income distribution—this update simply ensures consistent application of the 21-year rule.

Qualified Investments for Registered Plans

Beginning January 1, 2027, all registered plans—RRSPs, TFSAs, FHSAs, RDSPs, and RESPs—will follow a single harmonized list of qualified investments. Small-business shares will no longer qualify for new contributions, though existing holdings will remain grandfathered. The update simplifies compliance and clarifies which assets can be held in registered accounts.

Business and Investment Incentives

For business owners, Budget 2025 provides opportunities to reinvest, innovate, and modernize operations, with emphasis on manufacturing, research, and clean technology.

Immediate Expensing for Manufacturing and Processing Buildings

Businesses can now claim a 100 percent deduction for eligible manufacturing and processing buildings acquired after Budget Day and available for use before 2030. This full write-off improves cash flow and encourages earlier expansion. The benefit will gradually phase out after 2033.

Scientific Research and Experimental Development (SR&ED)

The refundable SR&ED tax credit limit has increased from $3 million to $6 million per year, effective for taxation years beginning after December 16, 2024. This expansion strengthens support for small and medium-sized Canadian businesses investing in innovation and technology.

Tax Deferral Through Tiered Corporate Structures

To prevent deferrals of tax on investment income, new rules will suspend dividend refunds for affiliated corporations with mismatched fiscal year-ends. This ensures consistent taxation within corporate groups and aligns refund timing with income recognition.

Agricultural Co-operatives

The tax deferral for patronage dividends paid in shares has been extended to December 31, 2030, continuing to support agricultural co-operatives and their members.

Clean Technology and Clean Electricity Investment Credits

Clean-technology and clean-electricity incentives have been expanded to include additional critical minerals—such as antimony, gallium, germanium, indium, and scandium—used in advanced manufacturing and renewable energy production. The Canada Growth Fund can now invest in qualifying projects without reducing the amount of credit companies can claim, keeping the incentive structure attractive for green investment.

Canadian Entrepreneurs’ Incentive

The government has confirmed it will not proceed with the previously proposed Canadian Entrepreneurs’ Incentive. The existing Lifetime Capital Gains Exemption remains unchanged and continues to apply to the sale of qualified small-business shares.

Tax Simplification and Repealed Measures

To simplify administration and reduce complexity, two taxes are being repealed:

– Underused Housing Tax, beginning in 2025

– Luxury Tax on aircraft and vessels for purchases made after November 4, 2025

In addition, the Canada Carbon Rebate will issue its final household payment in April 2025, with no rebates available for returns filed after October 30, 2026. These changes are meant to streamline compliance and eliminate programs that were costly to administer.

Government Direction and Spending Priorities

Beyond taxation, the budget sets out the government’s broader policy priorities.

Downsizing Government: A comprehensive efficiency review is underway to eliminate duplication across departments and generate long-term savings.

Cuts to Immigration: To ease pressure on housing and infrastructure, temporary-resident levels will be reduced by about 20 percent over two years, while maintaining pathways for essential workers.

Defence Spending: Canada will invest an additional $7 billion over five years to strengthen NATO participation, Arctic defence, and cybersecurity. By 2030, defence spending is expected to reach 1.8 percent of GDP.

Oil and Gas Emission Cap: A phased-in cap starting in 2026 will allow companies to meet targets through carbon-capture and clean-tech investments rather than penalties.

Final Thoughts

For individuals, the most relevant updates include GST relief for first-time home buyers, improved benefit access, and continued tax relief for caregivers and support workers. For business owners, the focus remains on productivity—through immediate expensing, expanded SR&ED credits, and clean-tech investment incentives. For families using trusts or inter-generational structures, the clarified 21-year rule reinforces transparency in estate planning.

If you’d like to review what these changes mean for you or your business, please get in touch. We can look at your goals and make sure you’re well prepared for the year ahead.

OAS Clawback 2025: What Retirees Need to Know About the Recovery Tax

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OAS Clawback 2025

If you’ve worked hard to build your retirement income, the last thing you want is to see your government benefits clawed back. Yet for many Canadians, the Old Age Security (OAS) recovery tax—commonly called the OAS clawback—can quietly reduce this valuable benefit.

Here’s how the recovery tax works in 2025, what happens if you delay OAS to age 70, and the strategies we use to help our clients minimize or avoid the clawback.

What is the OAS Recovery Tax?

OAS is a monthly benefit available to most Canadians aged 65 and older. However, once your income exceeds a certain level, the government recovers part or all of your OAS through the recovery tax.

This is calculated based on Line 23400 of your tax return—net income before adjustments. In 2025, the clawback begins when your income exceeds $93,454. For every dollar above that amount, you must repay 15 cents of your OAS.

If your income reaches approximately $151,668 (age 65–74) or $157,490 (age 75+), you could lose your entire OAS benefit for the year.

How Much is the OAS Benefit in 2025?

From July through September 2025, the maximum monthly OAS payment is:

  • $734.95 for individuals aged 65–74 (about $8,820 annually)

  • $808.45 for individuals aged 75+ (reflecting a 10% enhancement introduced in 2022)

These amounts are indexed quarterly to inflation and are subject to clawback if your Line 23400 income exceeds the threshold.

What Happens if You Delay OAS Until 70?

You can choose to delay receiving OAS up to age 70, increasing your monthly benefit by 0.6% for each month deferred—a total boost of up to 36% if you wait the full five years.

While a higher payment may sound appealing, it can also lead to larger OAS repayments if your income—including CPP, investment returns, or pension income—exceeds the recovery threshold. Delaying OAS often makes sense for healthy individuals who expect to live into their late 80s or beyond and have lower taxable income during the deferral period.

How the OAS Recovery Tax Works

Example: Alan is 68 and receives the maximum OAS: $8,820 annually. In 2025, the clawback threshold begins at $93,454. Alan’s line 23400 income is $100,000—that’s $6,546 over the clawback threshold. As a result, he must repay: $6,546 × 15% = $981.90

This leaves Alan with $7,838.10 in OAS benefits for the year. If he earns more, the repayment increases proportionally. Once Alan’s income reaches around $151,668 (if aged 65–74) or $157,490 (if aged 75+), his entire OAS would be clawed back.

The recovery tax calculation is automatic and appears on your Notice of Assessment each spring, adjusting your OAS payments for the following July–June period.

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Strategies to Reduce or Avoid the OAS Clawback

The good news? There are practical ways to lower your Line 23400 income without compromising your lifestyle. Here are some of the strategies we use to help our clients keep more of their benefits:

Use a TFSA for Retirement Income

Withdrawals from a Tax-Free Savings Account (TFSA) don’t count toward Line 23400. Drawing income from a TFSA instead of taxable accounts can help preserve your OAS and reduce your tax burden.

Manage RRIF Withdrawals

RRIF withdrawals are fully taxable and included in Line 23400. If you don’t need the full minimum withdrawal, we may recommend delaying full RRSP-to-RRIF conversion or converting just part each year starting at age 65. This can help smooth your income and avoid large spikes.

Delay OAS or Split Withdrawals Over Time

If you’re planning to delay OAS, we’ll help ensure you’re not unintentionally stacking income in the deferral years. Likewise, we can help you spread RRSP-to-RRIF conversions over several years to avoid unnecessary spikes in income.

Pension Income Splitting

If you’re married or in a common-law relationship, you can split up to 50% of eligible pension income with your spouse. This reduces your taxable income and can keep you below the clawback threshold—especially effective when one spouse earns significantly less.

Choose Tax-Efficient Investments

Not all investment income is taxed equally:

  • Capital gains: 50% taxable; more clawback-friendly

  • Eligible dividends: grossed up for Line 23400 purposes, potentially triggering more clawback despite the tax credit

  • Interest income: fully taxable and the least efficient for minimizing clawback

We can help structure your investments to be as clawback-friendly as possible.

Donate Securities Instead of Cash

Donating appreciated publicly traded securities directly to a registered charity eliminates the capital gains tax, reduces net income, and supports a cause—all while lowering recovery tax exposure.

Defer Large Income Events

Selling a property, realizing a large capital gain, or cashing a pension lump sum can push you into full clawback territory. If possible, we can help you plan these events to spread them over several years or delay them to a lower-income year.

Consider Leveraged Investing

Some higher-net-worth clients use leveraged investment strategies—borrowing to invest in tax-efficient, capital-gains-producing assets. Interest may be deductible, and investment income can be structured to reduce Line 23400. This is a high-risk strategy and something we’ll discuss carefully if appropriate.

Talk to Your Financial Advisor

Everyone’s income, retirement timing, and tax situation are unique. That’s why we take the time to understand your goals, project your Line 23400 income, explore different scenarios, and build a personalized strategy designed to minimize the recovery tax while keeping your lifestyle in mind.

The OAS recovery tax can quietly chip away at your retirement income—but it doesn’t have to. With the right guidance and a plan tailored to you, it’s possible to keep more of what you’ve worked so hard to earn.

If you’re already retired or approaching retirement, now is the perfect time to sit down and talk. Together, we’ll review where you stand, explore your options, and build a strategy that keeps more of your income working for you. We’re here to help you make the most of your retirement—let’s get started.

Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or tax advice. Always consult a qualified professional regarding your specific situation. We are not responsible for any actions taken based on this content.

Sources: Old Age Security Payment Amount – Government of Canada: https://www.canada.ca/en/services/benefits/publicpensions/old-age-security.html

Old Age Security Pension Recovery Tax– Government of Canada: https://www.canada.ca/en/services/benefits/publicpensions/old-age-security/recovery-tax.html 

Tax Tips for Filing Your 2024 Income Tax Return

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The deadline for filing your 2024 income tax return is April 30, 2025. Stay informed about the latest tax changes and benefits available to maximize your savings and ensure compliance. This guide outlines the key updates and important deductions and credits separated into sections for Individuals and Families, and Self-Employed Individuals.

For Individuals and Families

Alternative Minimum Tax (AMT)

  • Increased minimum tax rate and basic exemption threshold.

  • Modified calculation for adjusted taxable income affecting foreign tax credits and minimum tax carryovers.

  • Limited value on most non-refundable tax credits.

Canada Pension Plan (CPP) Enhancement

• The standard CPP contribution rate remains at 5.95% for both employees and employers on earnings up to $68,500 (the Year’s Maximum Pensionable Earnings or YMPE) in 2024.

• Additionally, employees and employers each contribute an extra 4% on earnings between the YMPE ($68,500) and the Year’s Additional Maximum Pensionable Earnings (YAMPE) of $73,200 in 2024.

Home Buyers’ Plan (HBP)

  • Withdrawal limit increased from $35,000 to $60,000 after April 16, 2024, with temporary repayment relief available.

Volunteer Firefighters and Search and Rescue Volunteers

  • Amounts increased from $3,000 to $6,000 for eligible individuals completing at least 200 hours of combined volunteer service.

Basic Personal Amount (BPA)

• For 2024, the Basic Personal Amount (BPA) has increased to $15,705 for taxpayers with net income up to $173,205.

• For taxpayers with net incomes above this amount, the BPA is gradually reduced, reaching a minimum of $14,138 at incomes of $235,675 or higher.

Short-term Rentals

  • Expenses related to non-compliant short-term rentals are no longer deductible after January 1, 2024.

Popular Tax Credits and Deductions

Canada Training Credit (CTC) Eligible taxpayers aged 26 to 65 can claim this refundable tax credit to cover a portion of eligible tuition and fees for training or courses to enhance their skills.

Canada Caregiver Credit (CCC) This non-refundable tax credit supports individuals caring for family members or dependents with a physical or mental impairment. The amount varies based on the dependent’s relationship, net income, and circumstances.

Child Care Expenses Child care expenses, such as daycare, nursery schools, day camps, and boarding schools, are deductible if incurred to enable a parent or guardian to work, pursue education, or conduct research.

Disability Tax Credit (DTC) The DTC provides a non-refundable tax credit for individuals with disabilities or their caregivers to reduce the amount of income tax payable. Applicants must have a certified disability lasting at least 12 months.

Moving Expenses Deductible moving expenses include transportation and storage costs, travel expenses, temporary living costs, and incidental expenses incurred when relocating at least 40 kilometers closer to a new work location, educational institution, or business location.

Interest Paid on Student Loans Interest paid on eligible student loans can be claimed as a non-refundable tax credit. The loans must be under federal, provincial, or territorial student loan programs.

Donations and Gifts Donations made to registered charities or other qualified organizations qualify for non-refundable federal and provincial tax credits. Typically, you can claim eligible amounts up to 75% of your net income.

GST/HST Credit The GST/HST credit is a quarterly refundable payment designed to offset the impact of sales tax on low to moderate-income individuals and families. Eligibility is automatically assessed based on your annual tax return.

For Self-Employed Individuals

CPP Contributions

  • Enhanced CPP contribution rate for self-employed individuals.

Filing and Payment Deadlines

  • Tax Return Deadline: June 16, 2025 (June 15 is Sunday).

  • Balance due must be paid by April 30, 2025.

Reporting Business Income

  • Report income on a calendar-year basis for sole proprietorships and partnerships.

Digital Platform Operators

  • New reporting rules requiring platform operators to collect and report seller information.

Mineral Exploration Tax Credit

  • Eligibility extended for flow-through share agreements signed before April 2025.

Need Assistance?

If you’re unsure about your eligibility for specific credits or deductions, reach out to your tax consultant or tax advisor for personalized guidance. They can help you optimize your tax return, maximize your savings, and ensure compliance with CRA regulations.

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Bank of Canada Announces Interest Rate Cut Amid Economic Uncertainty

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On March 12, the Bank of Canada announced another reduction in its benchmark interest rate, bringing it down to 2.75%. This decision comes as the Canadian economy faces ongoing pressures, including uncertainty surrounding U.S. trade policies, slower job growth, and persistent inflation concerns.

These rate adjustments aim to help stabilize the economy during this unpredictable time, providing support to consumers and businesses as policymakers navigate a challenging economic landscape.

Staying Focused Amid Market Fluctuations

During times like these, market uncertainty can feel overwhelming, but history has shown that markets tend to recover over time. While short-term fluctuations can be unsettling, a well-balanced and diversified approach helps manage risk and keeps you positioned for long-term success. The key is to remain patient and avoid making impulsive decisions based on temporary market movements.

We understand that recent market volatility, driven by changing trade policies and shifting interest rates, may cause concern about how your investments and finances could be affected. It’s natural to feel uncertain during periods of economic turbulence. However, it’s important to remember that markets have historically proven resilient, eventually recovering from downturns and periods of uncertainty.

Rather than reacting to day-to-day changes, it’s important to stay focused on the bigger picture. Market cycles come and go, and those who stay committed to a structured investment approach are often better positioned to navigate challenges and take advantage of future opportunities.

We’re Here to Support You

Your financial well-being remains our highest priority. If you have questions or concerns about your investments or if you’d simply like reassurance about your current strategy, please reach out. We’re always here to offer guidance, clarity, and support as you navigate these uncertain times.

Let’s connect—schedule a call with us today.

Source: Bank of Canada. “Bank of Canada Announces Interest Rate Cut Amid Economic Uncertainty.” 12 Mar. 2025. 

https://www.bankofcanada.ca/2025/03/fad-press-release-2025-03-12/

Stay Ahead in 2024: A Comprehensive Checklist for Federal Tax Updates

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With the upcoming 2024 Canadian tax rule changes, it’s important to review your financial strategies. We’ve identified the key changes that we expect to influence financial decisions for investors, business owners, incorporated professionals, retirees, and individuals with high income or net worth.


Capital Gains Inclusion Rate

Starting on June 25, 2024, the tax on capital gains is changing. Until now, you would only have to include half of your capital gains in your income for tax purposes. But after that date, you’ll have to include two-thirds of any capital gains over $250,000 on your tax return. This is also the case for employee stock options. 

Consequently, for corporations and trusts, they will have to include two-thirds of all their capital gains, no matter the amount. This is a significant change. 


Lifetime Capital Gains Exemption (LCGE)

The budget proposes increasing the LCGE for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. This change increases tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.


Alternative Minimum Tax (AMT)
The 2023 budget included updates to the AMT, suggesting revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.


Employee Ownership Trust (EOT)

The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met. 


Canadian Entrepreneurs’ Incentive

This new tax measure offers a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years. However, it’s important to know that not all businesses qualify—this doesn’t apply to businesses in professional services, finance, real estate, hospitality, arts, entertainment, or personal care.

Below is a checklist to help you navigate the tax adjustments and ensure your financial plans are updated and aligned with the new rules.


Investors

  • Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate.

  • Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.

  • Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.

  • Employee Stock Options: Adjust the timing of exercising stock options to align with the upcoming changes in inclusion rates.


Business Owners:

  • Corporate Investments: Assess the impact of increased inclusion rates on corporately held assets, exploring the timing of gains realization. Review trust-held investments. 

  • Lifetime Capital Gains Exemption: Maximize the benefits of the increased LCGE for qualifying business assets.

  • Employee Ownership Trust: Consider the advantages of transferring business ownership via an EOT.

  • Succession Planning: Update your succession plans to consider the potential impact of capital gains tax changes.

  • Entrepreneurs Incentive: Check if you are eligible to reduce capital gains taxes. 


Incorporated Professionals:

  • Investments: Assess both personal and corporate investments for the new inclusion rate. Determine the most tax-effective structure for holding and realizing gains from investments.

  • Succession Planning: Time the potential sale of your professional corporation to capitalize on the current LCGE.


Retirees:

  • Estate Planning: Update estate plans considering the impending increase in capital gains rates.

  • Life Insurance Coverage: Ensure life insurance is adequate to cover increased capital gains tax liabilities upon death.

  • Non-Registered Investments and Retirement Income: Review your strategy for non-registered investments to manage taxes on gains and adjust your retirement income plans to accommodate the upcoming changes in capital gains rates.


Individuals with High Income or Net Worth: 

  • Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate. Review trust-held investments. 

  • Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.

  • Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.

  • Charitable Contributions: Align your charitable giving strategies with the new tax benefits and AMT considerations.

Please reach out to us to review your financial strategy together and ensure it aligns with the upcoming changes. 

2024 Federal Budget Highlights

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On April 16, 2024, Canada’s Deputy Prime Minister and Finance Minister, Chrystia Freeland, presented the federal budget.

While there are no changes to federal personal or corporate tax rates, the budget introduces:

  • An increase in the portion of capital gains subject to tax, rising from 50% to 66.67%, starting June 25, 2024. However, individual gains up to $250,000 annually will retain the 50% rate.

  • The lifetime exemption limit for capital gains has been raised to $1.25 million. Additionally, a new one-third inclusion rate is set for up to $2 million in capital gains for entrepreneurs.

  • The budget confirms the alternative minimum tax changes planned for January 1, 2024 but lessens their impact on charitable contributions.

  • This year’s budget emphasizes making housing more affordable. It provides incentives for building rental properties specifically designed for long-term tenants.

  • Introduces new support measures to aid people buying their first homes.

  • Costs for specific patents and tech equipment and software can now be written off immediately.

  • Canada carbon rebate for small business.

Capital Gains Inclusion Rate

The budget suggests raising the inclusion rate on capital gains after June 24, 2024:

  • Corporations and trusts, from 50% to 66.67%.

  • Individuals, on capital gains over $250,000 annually, also from 50% to 66.67%.

For individuals, the $250,000 annual threshold that applies to net capital gains—the amount remaining after offsetting any capital losses. This includes gains acquired directly by an individual or indirectly through entities such as partnerships or trusts. Essentially, this threshold acts as a deductible, considering various factors to determine the net gains eligible for the increased capital gains tax rate.

Individuals in the highest income bracket, who earn above the top marginal tax rate threshold, will face a higher tax rate on capital gains exceeding $250,000 due to these changes. Furthermore, the budget modifies the tax deduction for employee stock options to align with the updated capital gains taxation rates yet maintains the initial 50% deduction for the first $250,000 in gains. Regarding previously incurred financial losses, the budget plans to adjust the value of these net capital losses from past years so that they are consistent with the current gains, upholding the uniformity with the new inclusion rate.

The budget outlines transitional rules for the upcoming tax year that straddles the implementation date of the new capital gains rates. If the tax year begins before June 25, 2024, but ends afterward, capital gains realized before June 25 will be taxed at the existing rate of 50%. However, gains accrued after June 24, 2024, will be subject to the increased rate of 66.67%. It’s important to note that the new $250,000 threshold for higher tax rates will only apply to gains made after June 24.

Consequently, for individuals earning capital gains beyond the $250,000 threshold and who fall into the highest income tax bracket, new rates will be effective as outlined in the table below. Specifically, this pertains to individuals with taxable incomes exceeding $355,845 in Alberta, $252,752 in British Columbia, $1,103,478 in Newfoundland and Labrador, $500,000 in the Yukon, and $246,752 in all other regions.

Further details and guidance on these new rules are expected to be provided in future announcements.

Lifetime Capital Gains Exemption

The budget proposes raising the Lifetime Capital Gains Exemption (LCGE) for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. Additionally, the exemption will once again be adjusted for inflation starting in 2026. This change aims to increase the tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.

 

Canadian Entrepreneurs’ Incentive

The Canadian Entrepreneurs’ Incentive is a new tax measure which provides a reduced inclusion rate on capital gains from the disposition of qualifying small business shares.

Qualifications for the incentive include:

  • Shares must be of a small business corporation directly owned by an individual.

  • For 24 months before selling, over half the corporation’s assets must be actively used in a Canadian business or be certain connected assets.

  • The seller needs to be a founding investor who held the shares for at least five years.

  • The seller must have been actively involved in the business continuously for five years.

  • The seller must have owned a significant voting share throughout the subscription period.

  • The incentive does not apply to shares linked to professional services, financial, real estate, hospitality, arts, entertainment, or personal care services sectors.

  • The shares must have been acquired at their fair market value.

  • The incentive allows for a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years.

This measure will apply to dispositions after December 31, 2024.

Alternative Minimum Tax (AMT)

The 2023 budget included updates to the AMT, with proposed changes outlined in the summer of 2023. The budget suggests revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.

Further proposed changes to the AMT include:

  • Permitting deductions for the Guaranteed Income Supplement, social assistance, and workers’ compensation benefits.

  • Exempting employee ownership trusts (EOTs) entirely from AMT.

  • Allowing certain tax credits, like federal political contributions, investment tax credits (ITCs), and labour-sponsored funds tax credit, to be carried forward if disallowed under the AMT.

These changes would take effect for tax years beginning after December 31, 2023. Additionally, the budget proposes technical amendments that would exempt specific trusts benefiting Indigenous groups from the AMT.

Employee Ownership Trust (EOT) Tax Exemption

The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met:

  • Sale of shares must be from a non-professional corporation.

  • The seller, or their spouse or common-law partner, must have been actively involved in the business for at least two years prior to the sale.

  • The business shares must have been solely owned by the seller or a related person or partnership for two years before the sale, and mainly used in active business.

  • At least 90% of the EOT’s beneficiaries must be Canadian residents after the sale.

  • If multiple sellers are involved, they must jointly decide how to divide the $10 million exemption

  • If the EOT doesn’t maintain its status or if the business assets used in active business drop below 50% at any point within 36 months after the sale, the tax exemption may be revoked.

  • For Alternative Minimum Tax purposes, the exempted gains will face a 30% inclusion rate.

  • The normal reassessment period for the exemption is extended by three years.

  • The measure now also covers the sale of shares to a worker cooperative corporation.

This exemption is valid for sales occurring from January 1, 2024, to December 31, 2026.

Home Buyers Plan (HBP)

The budget proposes enhancements to the HBP for 2024 and beyond, effective for withdrawals after April 16, 2024. These include:

  • Raising the RRSP withdrawal limit from $35,000 to $60,000 to support first-time homebuyers and purchases for those with disabilities.

  • Extending the grace period before repayment starts from two to five years for withdrawals made between January 1, 2022, and December 31, 2025, deferring the start of the repayment period and thereby providing new homeowners additional time before they need to commence repayments

Interest Deductions and Purpose-Built Rental Housing

The budget proposes a selective exemption from the Excessive Interest and Financing Expenses Limitation (EIFEL) rules for certain interest and financing expenses related to arm’s length financing. This exemption is for the construction or purchase of eligible purpose-built rental housing in Canada and applies to expenses incurred before January 1, 2036. To qualify, the housing must be a residential complex with either at least four private apartment units, each with its own kitchen, bathroom, and living areas, or 10 private rooms or suites. Additionally, at least 90% of the units must be designated for long-term rental. This exemption will be effective for tax years starting on or after October 1, 2023, in line with the broader EIFEL regulations.

Accelerated Capital Cost Allowance (CCA) – Purpose built rental housing

The budget introduces an accelerated CCA of 10% for new rental projects that start construction between April 16, 2024, and December 31, 2030, and are completed by December 31, 2035. This accelerated depreciation applies to projects that convert commercial properties into residential complexes or expand existing residential buildings that meet specific criteria under the EIFEL rules. However, it does not cover renovations to existing residential complexes.

Additionally, these investments will benefit from the Accelerated Investment Incentive, which allows for immediate depreciation deductions for properties put into use before 2028. Starting in 2028, the regular depreciation rules, including the half-year rule, will apply.

Accelerated Capital Cost Allowance (CCA)- Productivity-enhancing assets

The budget introduces immediate expensing for newly acquired properties that become operational between April 16, 2024, and December 31, 2026. This applies to specific categories such as:

  • Class 44- Patents and rights to patented information

  • Class 46- Data network infrastructure and related software

  • Class 50- General electronic data-processing equipment and software

Properties that are put into use between 2027 and 2028 will continue to benefit from the Accelerated Investment Incentive.

To qualify for this accelerated depreciation, the property must not have been previously owned by the taxpayer or someone closely connected to them, and it must not have been received as part of a tax-deferred deal. Also, if a tax year is shorter, the depreciation will be adjusted accordingly and will not carry over to the next year.

Canada Carbon Rebate for Small Businesses

The budget introduces a Canada Carbon Rebate for small businesses, offering a new refundable tax credit automatically. To be eligible, a Canadian-controlled private corporation must:

  • File a tax return for its 2023 tax year by July 15, 2024, for the fuel charge years from 2019-20 to 2023-24. For subsequent fuel charge years, it must file a tax return for the tax year that ends within that fuel charge year.

  • Employ 499 or fewer people across Canada during the year that corresponds with the fuel charge year.

The amount of the tax credit for each eligible business will depend on:

  • The province where the company had employees during the fuel charge year.

  • The number of employees in that province multiplied by a rate set by the Minister of Finance for that year.

  • The CRA will automatically calculate and issue the tax credit to qualifying businesses.

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Understanding Tax-Free Savings Accounts (TFSAs)

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A Tax-Free Savings Account (TFSA) is an investment vehicle available to Canadian residents. It offers numerous benefits, including tax-free growth of your investments and tax-free withdrawals. Before you decide to open a TFSA, it’s essential to understand the eligibility requirements, contribution limits, eligible investments, and withdrawal rules. 


Eligibility Requirements

To open a TFSA, you must be a resident of Canada with a valid Social Insurance Number (SIN) and be at least 18 years old. However, in some provinces and territories, the legal age to enter a contract (which includes opening a TFSA) is 19. The TFSA contribution room for the year an individual turns 18 is carried over to the following year if the individual resides in a jurisdiction where the legal age is 19.


Benefits

One of the primary benefits of a TFSA is that it allows your investments to grow tax-free. Any income you earn from your investments within the TFSA is not taxed, even upon withdrawal. This includes interest, dividends, and capital gains. 

Additionally, you can withdraw any amount from your TFSA at any time, and the withdrawals are tax-free. It’s important to note that withdrawing funds from your TFSA does not reduce the total amount of contributions you have made for the year. The amount withdrawn in a year will be added back to your TFSA contribution room at the beginning of the following year.


Contribution Limit

The annual TFSA dollar limit has varied over the years. From 2009 to 2012, it was $5,000; in 2013 and 2014, it was $5,500; in 2015, it increased to $10,000; from 2016 to 2018, it was $5,500; from 2019 to 2022, it was $6,000, and in 2023, it is $6,500. This annual limit will be indexed to inflation and rounded to the nearest $500. 

The maximum amount you can contribute to a TFSA is determined by your TFSA contribution room. This room is the sum of the TFSA dollar limit of the current year, any unused TFSA contribution room from previous years, and any withdrawals made from the TFSA in the previous year. 

Let’s look at two examples to better understand this:

Example #1: Carry Forward Unused Room to Your Current Contribution

In 2020, the annual TFSA contribution limit is $6,000. If you only contribute $5,000, you would have $1,000 of unused room. This unused room gets carried over to the next year. So, in 2021, the annual contribution room is $6,000, but because of the unused room from 2020, you actually have a total contribution room of $7,000 ($6,000 for 2021 + $1,000 carried over from 2020).

Example #2: Reclaim Your Contribution Room in the Following Year When You Make a Withdrawal

In 2021, you have $7,000 in contribution room and decide to contribute the full amount. However, you also decide to make a withdrawal of $1,000 in 2021. In 2022, the annual contribution limit is $6,000, but because of the withdrawal made in 2021, you actually have a total contribution room of $7,000 ($6,000 for 2022 + $1,000 withdrawn in 2021).

Please note that if you exceed your available TFSA contribution room at any time in the year, you will have to pay a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account.


Eligible Investments

The types of investments that are permitted in a TFSA are generally the same as those allowed in a Registered Retirement Savings Plan (RRSP). These include cash, segregated funds, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates, and bonds.


Withdrawals

As mentioned earlier, you can generally withdraw any amount from the TFSA at any time, depending on the type of investment held in your TFSA. However, if you decide to replace or re-contribute all or a part of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room. 

For example, if in 2023 you withdraw $1,000 from your TFSA and later in the same year decide to re-contribute that amount, you can only do so if your contribution room for 2023 allows for it. If it doesn’t and you re-contribute the $1,000 anyway, you will be considered to have over-contributed to your TFSA in that year. This will result in a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account


Beneficiary

When establishing a Tax-Free Savings Account (TFSA), you are given the choice to designate a beneficiary. This person will be the recipient of the investments within your TFSA in the event of your death. The assets inherited by the beneficiary are not considered income, and as such, are received tax-free. It’s important to note, though, that while the inherited amount is tax-free, the beneficiary will be responsible for any tax on earnings that the TFSA generates after the original account holder’s death. 


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First Home Savings Account (FHSA): What You Need to Know

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The First Home Savings Account (FHSA) is a savings plan designed for first-time home buyers in Canada, which allows them to save up to $40,000 tax-free. Contributions to an FHSA are tax-deductible, similar to Registered Retirement Savings Plans (RRSP). Additionally, income and gains earned inside the account and withdrawals are tax-free, like a Tax-Free Savings Account (TFSA).

In this article and accompanying infographic, we will provide you with the necessary information you need to know about FHSA, including eligibility requirements, contributions and deductions, income and gains, qualifying investments, withdrawals, and transfers.

Eligibility Requirements

To be able to open an FHSA, you need to meet all the following eligibility requirements:

  1. Residency: You must be an individual who is a resident of Canada.

  2. Age: You must be at least 18 and not reach 72 in the current year.

  3. First-time Home Buyer: You must be a first-time home buyer, which means that neither you nor your spouse had owned a qualifying home that was your principal residence at any point during the calendar year or the preceding four calendar years before the account was opened.

Contributions and Deductions

There are limits to the amount you can contribute to your FHSA.

  • The annual contribution limit is $8,000.

  • The lifetime contribution limit is $40,000.

If you do not contribute the full amount each year, the contribution room carries forward to the following year. However, carry-forward amounts only start accumulating after you open an FHSA for the first time, and they do not automatically begin when you turn 18.

Any excess contributions are subject to a penalty of 1% per month.

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Tax Deductions

By claiming contributions made to FHSA accounts as a deduction against all taxable income sources, the amount of taxable income for the year can be reduced, resulting in a decrease in the amount of taxes payable.

Suppose you choose not to claim the FHSA deduction in the year. In that case, you can carry forward the unused contribution amounts indefinitely and claim them as a deduction later, like RRSP deductions.

Qualifying Investments

Qualifying investments for an FHSA are like those allowed in RRSPs and TFSAs, including mutual funds, segregated funds, ETFs, stocks, bonds, and GICs.

Incomes and Gains

The income and capital gains earned in an FHSA are not included in your annual income for tax purposes and therefore are not deductible. This means that the investment can continue to grow and compound within the FHSA tax-free like a TFSA.

Qualifying Withdrawals

Withdrawals from an FHSA are subject to specific rules and conditions. Qualifying withdrawals made to purchase a home are tax-free but must meet specific criteria:

  • The person making the withdrawal must be a first-time home buyer and a Canadian resident.

  • They must also intend to use the property as their primary residence within one year of purchasing or building it.

  • The home being purchased must be in Canada, and a written agreement to buy or build the home must be in place before October 1st of the year following the withdrawal.

It is not possible to restore FHSA contribution limits by making withdrawals or transfers.

Transfers

Unused funds in an FHSA account following a qualifying withdrawal can be transferred tax-free to an RRSP or Registered Retirement Income Fund (RRIF) until the end of the following year from the year of the first withdrawal. Transfers do not affect the available RRSP contribution room, but the transferred funds will be taxable when withdrawn from the account.

It’s important to remember that there are limitations on how long you can keep your FHSA account. You must close your FHSA after you’ve held it for 15 years or by the end of the year in which you turn 71, whichever comes first.

If you’re considering opening an FHSA or saving for a home, we can help; contact us.