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Federal budget aims to tax wealthy to offset spend on housing

New tax measures targeting wealthiest Canadians introduced in 2024 budget to help offset big spending on housing, but stand to further complicate tax system

The federal government’s 2024 budget focused on Canada’s housing and affordability crisis — and pays for it, in part, with a new tax measure.

The budget released April 16 committed to some $50 billion in new spending measures, about half of that covered by new tax measures and the other half from a better-than-expected revenue outlook and an additional $10 billion in debt. 

CPA Canada’s team of tax, policy and economics experts dug through the 500-page document to pull out the most relevant details for members of the accounting profession. 

Here’s a look at some of the key highlights:

Fiscal Responsibility

The government’s economic outlook includes increased revenues that are on par with the ‘upside’ of the government’s Fall Economic Statement,  which set the stage for the new spending. This spending offsets the increased revenues, says David-Alexandre Brassard, CPA Canada’s Chief Economist.

“The government has not steered away from its weak fiscal anchors, such as long-term reduction of debt-to-GDP ratio,” Brassard states. “It has not shown the fiscal discipline to ensure that an improved economic outlook results in reduced deficits. However, nominal GDP growth was sufficiently large to result in an overall decreasing debt-to-GDP ratio."

The government has chosen to increase spending by over $50 billion over five years, sprinkled across multiple priorities and has implemented an increased capital gain tax to keep the deficit increases to $10 billion.

Capital gains front and centre

Budget 2024 laid out plans to raise the annual inclusion rate for individuals’ capital gains of more than $250,000 from one-half to two-thirds. In addition, the inclusion rate for corporations and trusts will automatically rise to two-thirds, effective June 25.

The plan is aimed at wealthy Canadians, but members of the middle class, such as farmers, business owners or cottagers selling their assets could also be affected.

“We are relieved the government didn’t increase the capital gains inclusion rate in its entirety, but having this two-tiered system does, once again, add complexity into our income tax system,” says John Oakey, CPA Canada’s vice-president of tax. 

Other notable tax measures

Canadian Entrepreneur Incentive: The Canadian Entrepreneur Incentive is a $2 million lifetime limit that reduces the capital gains inclusion rate by half of the prevailing rate for qualifying share dispositions. In order to qualify, the corporation must be a small business corporation at the time of sale and a Canadian controlled private corporation for 24 months prior to sale while meeting other specific criteria. The lifetime limit will be phased in by increments of $200,000 per year, beginning on January 1, 2025, before ultimately reaching a value of $2 million by January 1, 2034.

Employer Ownership Trusts: The Federal government introduced some of the criteria for the $10-million exemption for individuals selling shares to an employer ownership trust. Draft legislation was not provided in the budget.

Clean energy investment tax credits: As part of the plan to provide investment tax credits for clean energy initiatives, the Polymetallic Extraction and Processing and Clean Electricity Investment Tax Credit proposals were announced in the budget. Draft legislation was not provided.

Alternative Minimum Tax: The proposed tax treatment of charitable donations will be revised to allow individuals to claim 80 per cent, instead of the previously proposed 50 per cent, of the Charitable Donation Tax Credit when calculating AMT.

For a more comprehensive summary of tax changes proposed in Budget 2024, see CPA Canada’s tax highlights

Canada's Housing Plan

Canada’s Housing Plan, announced last week, lays out the government’s strategy to build 3.87 million new homes by 2031. The plan includes $400 million to be added to the Housing Accelerator Fund , plans to convert public lands to housing under the new Public Lands for Homes Plan and an assortment of initiatives aimed at increasing rental apartments through the Apartment Construction Loans Program and launching Canada Builds.   

“There are limits to how much we can build,” Brassard cautions. “Although ambition is a noble thing, directing too much new spending into the housing sector risks further inflating construction costs and home prices, which could counteract the government’s affordability goals.”   

AI in the spotlight

The budget introduced a $2.4-billion package of measures that it says will accelerate job growth in Canada’s AI sector. The biggest investments the government announced is $2 billion to bolster Canada’s technological infrastructure with a focus on AI researchers, start-ups and scale-ups. Regional development agencies will be getting $200 million to accelerate AI in critical sectors, while $100-million is being set aside for NRC IRAP AI Assist Program  to help small and medium-sized businesses with AI solutions. 

To support workers who may be impacted by AI, the government is dedicating $50 million. The same amount will be set aside to ensure the safe development and deployment of the new technology. 

CPA Canada’s pre-budget recommendations called on the government to prioritize better AI regulation, including through the creation of a cabinet committee to handle the opportunities and challenges posed by the emerging technology.  

“This initiative is a step forward in the recognition of experts' calls for more regulation in this fast-growing space,” says Rosemary McGuire, CPA Canada’s vice-president of research, guidance and support. “We are supportive of policies that enhance trust and accountability in AI,” says McGuire. “It’s difficult to do this in isolation without having a co-ordinated, consistent and holistic approach across government.” 

Combatting financial crime

The government intends to introduce legislative amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), the Criminal Code, the Income Tax Act, and the Excise Tax Act. Among other things, the amendments would enable better information sharing between relevant authorities. Budget 2024 proposes to provide $1.7 million over two years, starting in 2024-25, to the Department of Finance to finalize the design and legal framework for the proposed Canada Financial Crimes Agency.

The full text of the budget is available here .  CPA Canada’s pre-budget submission and Tax Highlights documents are available here

Photo Caption: The ambitious Canada Housing Plan was a key component of the 2024 federal budget delivered on April 16.