Canada’s Deputy Prime Minister and Finance Minister Chrystia Freeland delivered the 2024 Federal Budget in the House of Commons on April 16, 2024. The budget proposes more than $52.9 billion in new spending over the next five years. To partially cover these spending commitments, the budget is also proposing to increase the inclusion rate on annual capital gains above $250,000 for individuals and on all capital gains by corporations and trusts from one-half to two-thirds.

The budget was focused on Canadian individuals and businesses still feeling the impacts of a prolonged period of high inflation and interest rates—as well as overarching economic uncertainty and affordability issues. Below is an analysis of the major measures and their implications.

The KPMG Federal Budget 2024 webcast highlights measures announced in the federal budget and their implications. Guest speaker Bill Morneau, former Minister of Finance for Canada shared his perspective in discussion with Business Journalist Jacqueline Hansen. 

Budget 2024 analysis

The following analysis provides key considerations for the upcoming budget that may impact Canadians and businesses.

Personal and private enterprise tax  | The green transition | Productivity and innovation | Housing and affordability | International tax policy

Personal and private enterprise tax

  • Increase to the capital gains inclusion rate for trusts, corporations and certain individuals
  • Increase to the Lifetime Capital Gains Exemption (LCGE)
  • Introduction of the new Canadian Entrepreneurs’ Incentive
  • Updates to the Alternative Minimum Tax (AMT) proposal, including concerns surrounding the treatment of charitable donations
  • Clarification on Employee Ownership Trusts (EOTs)

One of the most significant measures announced in the 2024 budget was the proposed increase to the capital gains inclusion rate, from one-half (50 per cent) to two-thirds (66.67 per cent) for trusts and corporations, and from one-half to two-thirds on the portion of capital gains realized in the year that exceeds $250,000 for individuals. The budget also increases the Lifetime Capital Gains Exemption (LCGE) to $1.25 million (from $1,016,836), with indexation resuming in 2026. (Both of these tax measures apply to dispositions that occur on or after June 25, 2024.) The budget also introduces a Canadian Entrepreneurs’ Incentive that allows an individual taxpayer to use a one-third capital gains inclusion rate for the disposition of qualifying shares, subject to a lifetime limit of up to $2 million in capital gains per individual that will be phased in by increments of $200,000 per year, beginning January 1, 2025.

The budget makes further changes to the draft Alternative Minimum Tax (AMT) legislative proposals, which allow for fewer tax credits, deductions, and exemptions than under ordinary personal income tax rules. It’s a parallel calculation to the ordinary personal income tax and is intended to prevent higher income Canadians from excessively using deductions, credits, and other tax preferences to reduce their tax bill. Taxpayers will pay either regular tax or AMT—whichever is highest.

In response to concerns about how the previously announced changes would impact charities, the budget will now allow individual taxpayers to claim 80 per cent of the Charitable Donations Tax Credit when calculating AMT (instead of the previously proposed 50 per cent). The budget also includes amendments to exempt Employee Ownership Trusts (EOT) from AMT. 

Special tax rules for EOTs were introduced in the 2023 federal budget to provide an alternative business succession option for retiring business owners to transfer the business to employees. The 2024 budget clarified the conditions that must be satisfied to claim a temporary tax exemption on up to $10 million of capital gains that may be realized when a business is sold to an EOT.

For further details on how the budget impacts small-and-medium sized businesses (SMBs), see our insights here.

A green transition

  • Introduction of a new Electric Vehicle Supply Chain investment tax credit on the cost of buildings used in EV assembly, EV battery production, and cathode active material production
  • An extension of the Clean Technology Manufacturing investment tax credit to businesses involved with polymetallic extraction and processing
  • A Canada Carbon Rebate for qualifying businesses with fewer than 500 employees, which the budget estimates will impact about 600,000 small businesses
A circle graphic showing 27% to represent the percentage of Canadians with one or more disabilities. 90%

90% of business leaders agree all outstanding ‘green/clean’ economy business investment tax credits (for clean technologies, green projects, clean energy, and carbon capture) should be fast-tracked

Canada has committed to achieving carbon neutrality by 2050, with a net-zero economic plan that includes $93 billion in incentives intended to attract investments by 2034-35. However, it’s a tricky balance: While many business leaders agree that more support for climate investment is required, there is also concern about federal government expenditures overall.

In last year’s budget, the federal government announced a range of funding programs and tax measures for decarbonization. There wasn’t a lot of new information provided in the 2024 budget, but a new incentive was announced for the electric vehicle (EV) supply chain. While businesses that manufacture EVs will be able to claim the 30 per cent Clean Technology Manufacturing investment tax credit on new machinery and equipment, the 2024 budget also introduces a new 10 per cent Electric Vehicle Supply Chain investment tax credit. More details will be provided in the 2024 Fall Economic Statement.

Ongoing actions include delivering the previously announced major economic investment tax credits by the end of 2024, including the Carbon Capture, Utilization, and Storage investment tax credit; Clean Technology investment tax credit; Clean Hydrogen investment tax credit; Clean Technology Manufacturing investment tax credit; and Clean Electricity investment tax credit.

Productivity and innovation

  • A $2.4 billion package of measures to secure Canada’s AI advantage, including an AI investment tax credit
  • An injection of $600 million into the SR&ED program over four years, starting in 2025
  • A pilot project with Talent for Innovation Canada to build an R&D workforce in bio-manufacturing, clean technology, electric vehicle manufacturing, and microelectronics
A circle graphic showing 27% to represent the percentage of Canadians with one or more disabilities. 84%

84% of business leaders believe the process of applying for and receiving SR&ED tax credits needs to be simplified

Prior to the budget announcement, the Bank of Canada issued a warning about Canada’s weak labour productivity, which fell to 71 per cent of the U.S. The budget has attempted to address Canada’s productivity challenges, most notably with the AI investment tax credit aimed at accelerating the growth of the sector, promoting job creation, boosting productivity, and encouraging the development and adoption of AI.

The budget’s proposed AI funding measures include $2.4 billion to build and provide access to computing capabilities and technological infrastructure for Canada’s AI researchers, start-ups, and scale-ups; boost AI start-ups to bring new technologies to market; and accelerate AI adoption in critical sectors, such as agriculture, clean technology, health care, and manufacturing.

Consultations were launched earlier this year that proposed cost-neutral changes to modernize and simplify the Scientific Research and Experimental Development (SR&ED) program and to introduce a “patent box” regime, designed to keep intellectual property (IP) in Canada. While the budget proposes a $600 million investment SR&ED, it’s not clear how this funding could be used to boost research and innovation, but a second phase of consultations later this year aims to inform how this funding will be targeted. In the meantime, the budget proposes new measures that allow businesses to write off the full cost of investments in patents, data network infrastructure equipment, and other data processing equipment.

Housing and affordability

  • Investing $8.5 billion in new housing over the next five years
  • Launching Canada Builds for rental home construction, combining low-cost federal loans and provincial-territorial investments
  • Introducing new measures intended to benefit first-time homebuyers, such as increasing the withdrawal limit under the home buyers’ plan to $60,000 (from $35,000) for 2024
A circle graphic showing 27% to represent the percentage of Canadians with one or more disabilities. 94%

94% of business leaders believe that housing should be the top priority in the upcoming federal budget, calling it the biggest risk to the economy

Housing and affordability has been identified as a major risk to the economy, making recruitment more challenging and driving up employee wages. Ahead of the budget, the majority (94 per cent) of Canadian business leaders in our KPMG Business Survey – Federal Budget 2024 edition called it the biggest risk to the economy, with nearly nine in 10 (87 per cent) saying the rising cost of living, driven largely by housing costs, is forcing their business to pay more for labour and affecting their ability to attract and retain already-scarce talent.

Housing was a major theme in the 2024 budget, which proposed $8.5 billion in new spending and a strategy to ‘unlock’ 3.87 million new homes by 2031. An additional $15 billion was announced for the Apartment Construction Loan Program in 2025-26, bringing the program’s total to more than $55 billion. According to the government, these funds are expected to provide low-cost financing to build more than 131,000 new rental homes across Canada. Another $1 billion will be offered through the ongoing Affordable Housing Fund to launch a new Rapid Housing stream.

But there’s a strong need for public-private cooperation to help the current housing position. To encourage home builders to speed up the pace of new home construction, the government has passed legislation (Bill C-56) to remove the Goods and Services Tax (GST) through an enhanced rebate for new purpose-built rental housing (for qualifying projects). The budget also introduces an accelerated CCA of 10 per cent for new eligible purpose-built rental projects that begin construction on or after April 16, 2024 and before Jan. 1, 2031. It also provides potential relief from new interest deductibility limitations on certain financing for these projects.

International tax policy

  • A minor change to the waiver process for non-residents performing services in Canada
  • Introducing a crypto asset reporting framework, which would apply to 2026 and subsequent calendar years
  • Pressing ahead with the Digital Services Tax (DST) for large businesses, starting in the 2024 calendar year and retroactive to Jan. 1, 2022
A circle graphic showing 27% to represent the percentage of Canadians with one or more disabilities. 82%

82% of business leaders agree Canada should not unilaterally charge a digital services tax on U.S. companies, and should instead wait for an international consensus at the OECD

Overall, the 2024 budget did not introduce many changes to international corporate tax policy, but it did reaffirm the government’s intention to introduce a Digital Services Tax and Global Minimum Tax. The Organisation for Economic Co-operation and Development (OECD)’s project on Base Erosion and Profit Shifting (BEPS) has already had a significant influence on the Canadian and global tax landscape. The OECD’s Inclusive Framework on BEPS includes Pillar One, which would extend additional taxing rights to market jurisdictions over a portion of income belonging to the world’s largest and most profitable multinationals. Pillar Two seeks to impose a 15 per cent minimum tax rate on their profits, applicable to multinationals with annual revenues of at least 750 million euros.

The 2024 budget reaffirmed Canada’s commitment to the Pillar One multilateral treaty on taxing multinationals, which addresses the challenge of taxing global digital companies. However, work on this pillar is not advancing as quickly as anticipated, prompting the Canadian government to move forward with its own Digital Services Tax (DST). The DST would apply a three per cent tax to gross revenue derived from certain digital services, such as online marketplace services, social media services, user data revenue and digital advertising.

The budget also reaffirmed the government’s intention to introduce Global Minimum Tax legislation. Canada has committed to implementing the primary taxing rule in Pillar Two as of 2024, and has recently released draft legislation to enact a Canadian Global Minimum Tax Act. When in effect, the GMTA (and similar legislation in other countries) would impact companies in numerous ways: by possibly increasing taxes payable, requiring new financial statement disclosures, as well as increasing compliance costs and co-ordination requirements. 

Looking ahead: Next steps for you and your business

KPMG’s multi-disciplinary tax teams can help support you and your business in navigating the impacts of measures announced in this year’s federal budget, including planning considerations for the changes to the capital gains inclusion rate and opportunities for government funding and incentives. If you would like to connect with an advisor to discuss more about budget implications and next steps, please e-mail us.

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About the KPMG Business Survey - Federal Budget 2024 Edition

KPMG in Canada surveyed 534 Canadian companies between February 3 and February 27, 2024, using Sago's Methodify online research platform. All respondents are business owners or executive-level decision makers. Thirty-one per cent are leaders of companies with $500 million to $1 billion in annual gross revenue; 14 per cent, between $300 million to $499 million; 35 per cent, between $100 million and $299 million; 19 per cent, between $99 million to $10 million and the remaining one per cent, below $10 million. Seventy-five per cent of the companies are privately held and 25 per cent are publicly traded. Forty-two per cent are family-owned businesses.