The Canadian government has unveiled its federal budget for 2024. Finance Minister Chrystia Freeland has said the economic plan is geared around building more homes, making life more affordable, and creating more good jobs for Canadians.
The budget included a slew of regulatory measures that have sparked conversations across different sectors. From tax adjustments to updated labour standards, each change has implications for businesses and investors.
Karen DeBortolli (pictured), principal in the compliance practice at Gallagher Canada, spoke to Insurance Business Canada about the measures that could have the most significant impact.
“The past couple of budgets, particularly the pandemic-era budgets, were very focused on measures designed to keep Canadians safe and the economy running. This year was almost a return to pre-pandemic budgets in terms of the volume of measures,” observed DeBortolli, who participated in the initial reading of the budget on April 16.
Gallagher Canada highlighted several measures announced by the government:
The budget proposes amending the Income Tax Act to boost the tax on capital gains, also known as the inclusion rate, from half, or 50%, to two-thirds, or about 66.67%, effective June 25, 2024.
The new inclusion rate will apply capital gains realized annually above $250,000 for individuals and all capital gains realized for corporations and trusts.
The changes exclude capital gains from the sale of a taxpayer’s principal residence, incomings (including capital gains) earned in a tax-sheltered savings account, and pension income or capital gains earned by a taxpayer or their spouse from a registered pension plan.
At the same time, the budget called for the increase of lifetime capital gains exemption from $1,016,836 to $1.25 million from June 25, 2024. Increases will be indexed to inflation starting in 2026.
Budget 2024 also details the proposed CEI, which will reduce the inclusion rate to 33.3% on qualifying shares by eligible individuals on up to $2 million in capital gains over their lifetime.
The temporary measure, which will take effect between 2024 and 2034, is designed to provide extra tax incentives on capital gains dispositions to encourage entrepreneurship.
Finally, the budget details the government’s proposal to exempt the first $10 million in capital gains realized on the sale of a business to an employee ownership trust from taxation, subject to certain conditions.
“The main goal of the changes was to ensure more fairness in the tax code,” said DeBortolli. “The intent is to increase the tax burden on the highest-income earners while introducing specific incentives to target and encourage entrepreneurship and the adoption of employee ownership trusts.”
The proposals include a consultation on modernizing the qualified investment rules to improve their clarity and coherence, technical amendments to the Canada Pension Plan, and amendments to the Pension Benefits Standards Act requiring that the Office of the Superintendent of Financial Institutions (OSFI) publish plan investment information for large federally regulated pension plans.
“For employers, particularly large pension funds, it will be very interesting to see how a working group will look for ways to encourage pension funds to invest in Canadian projects,” said DeBortolli.
“One of the discussions was removing the 30% pension fund investment cap on domestic investments. Depending on how those proposals take shape, our large institutional pension funds would be very interested in investing in projects that will benefit their members’ plans and the Canadian economy.
“That could lead to changes in behaviour in terms of targeted investments or the amount of holdings in specific projects so that you could see some significant movement on that.”
To address the risks of tax evasion amid the growth of crypto-assets such as stablecoins and specific non-fungible tokens (NFTs), the government said it intends to implement the new Crypto-Asset Reporting Framework agreed by the Organization for Economic Cooperation and Development (OECD).
The budget also announced updates to the Common Reporting Standard (CRS) to tighten reporting standards and ensure new digital technologies cannot be used to avoid existing reporting requirements.
The new annual reporting requirements will apply to entities and individuals that are residents of or conduct business in Canada. The first reporting under the CARF and amended CRS will be due in 2027.
“There will be time, effort and expense required to set up these processes,” DeBortolli said. “But I think it’s the [result of the] effect of the rise of these types of businesses and the desire to ensure there’s protection.”
The government has said more details will be rolled out in the coming days. However, businesses and individuals must prepare to comply with the regulatory changes.
“The devil is in the details,” said DeBortolli. “As more information becomes available, it will be interesting to see how stakeholders adapt to these shifts in the regulatory landscape.”
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