What You Need to Know About Canada's Federal Budget 2024

Federal budget highlights for 2024

Ottawa announced $52.9 billion in new spending over the next 5 years—a significant jump from what was previously projected in a recent economic statement. This is one surprise amid many new proposed measures that could have big tax implications for Canadians.

According to the government, in order to make Canada's tax system fairer, it plans to raise $19.4 billion over the next 5 years to invest in building 4 million new homes, grow the economy, and increase everyday affordability for Canadians.

But it's important to understand key aspects of this new budget in order to take smart financial steps as a taxpayer. 

Canadian Entrepreneurs’ Incentive

For business owners looking to sell their company shares, there’s a new incentive to reduce the amount of capital gains tax you’ll pay. The Canadian Entrepreneurs’ Incentive reduces the capital gains inclusion rate when an individual sells qualifying shares of their company. 

In particular, this incentive provides for a capital gains inclusion rate that is half of the current inclusion rate. The lifetime limit will increase in increments of $400,000 starting in 2025 and will continue over the next 10 years until it reaches $2 million by 2029.

To qualify for the incentive, you must be a business owner in certain industries (not all industries are eligible) who owns a minimum of 5% of the company’s shares for any continuous 24-month period since the start of the business.

As the capital gains inclusion rate is 50%, the incentive is a reduced inclusion rate of 25% on eligible capital gains when selling all or part of your business.

For example, let’s say you plan to sell your company shares in February 2025 and incur a capital gain of $100,000. Only $25,000 ($100,000 x 0.25 = $25,000) will be subject to capital gains tax in Canada. 

What does this mean for you as a taxpayer?

This initiative will impact taxpayers who are also business owners with dispositions occurring on or after January 1, 2025. You may want to consider consulting with a tax expert or legal advisor to determine your business strategies.

Lifetime Capital Gains Exemption (LCGE)

In the old budget, Canadians who sold shares of their small business, including a farming or fishing property, were exempt from capital gains taxes up to $1,016,836. The new budget increases the tax-free limit to a cumulative total of $1.25 million.

What does this mean for you as a taxpayer?

This measure applies to dispositions that occurred on or after June 25, 2024. The LCGE will be indexed to inflation for future years. Consider reviewing your business transactions to see how you can take advantage of the LCGE.

Home Buyers' Plan (HBP)

For Canadians looking to become homeowners, there are 2 new changes that took effect on April 16, 2024. 

First, the government raised the withdrawal limit of the Home Buyers’ Plan (HBP) from $35,000 to $60,000 through a Registered Retirement Savings Plan (RRSP).

Second, first-time homebuyers making withdrawals from their RRSPs to buy a home under the HBP between January 1, 2022, and December 31, 2025, now have a grace period before starting the 15-year repayment period. So, repayments would start in the fifth year (instead of the second year) following the year when the first withdrawal was made.

What does this mean for you as a taxpayer?

Ultimately, these changes are designed to help relieve financial pressures on prospective and new homebuyers, given that homeownership is becoming a harder goal to achieve for many Canadians. 

This $25,000 withdrawal limit increase ($60,000 - $35,000) helps first time homebuyers make tax-free withdrawals through their RRSP.

30-year mortgages and halal mortgages

Making mortgage payments more affordable for first-time homebuyers looks to be another government goal of the new budget plan. This is being done with the introduction of a 30-year amortization period (up from 25 years) on insured mortgages where the down payment is less than 20%. To qualify, you must be a first-time homebuyer who purchases a newly built home. 

Furthermore, alternative financing products, such as halal mortgages, are being explored by the federal government. What is a halal mortgage, exactly? It’s a way to finance your home purchase that follows Islamic principles, which may appeal to Muslim Canadians. Essentially, the Muslim religion prohibits individuals from paying or receiving interest. So, a halal mortgage is structured in a way that interest is not charged. However, there is a fee. Although none of the big banks currently offer halal mortgages, some lenders do provide them.

What does this mean for you as a taxpayer?

Lengthening the amortization period by 5 years can make home ownership more affordable, especially for young people. This new, 30-year insured mortgage product is available to first-time homebuyers only. 

Canada Child Benefit (CCB)

Countless families rely on the monthly CCB benefit payments provided by the federal government to support their children. Many parents and caregivers use this benefit to cover the cost of food, clothing, or recreational activities.

In the unfortunate event that a child passes away, the 2024 budget extends the payments by 6 months after the death of a child (currently it's 1 month). The eligibility will be determined by calculating the child’s age for those 6 months as if they were still living. This extended 6-month period would also apply to the Child Disability Benefit (CDB), paid in conjunction with the CCB. 

What does this mean for you as a taxpayer?

This new measure will begin for deaths that happen after 2024. However, you’ll be responsible for notifying the Canada Revenue Agency (CRA) regarding the passing of a child.

New Canada Disability Benefit

Last year, the government passed the Canada Disability Benefit Act. As part of the 2024 budget, the new Canada Disability Benefit includes funding for $6.1 billion over 6 years, and $1.4 billion per year ongoing. According to the budget, the maximum benefit is $2,400 annually for low-income working individuals (aged 18 to 64) with disabilities, which is approximately $200 per month. 

To be eligible for the new Canada Disability Benefit, you need to have a valid Disability Tax Credit certificate. This benefit anticipates providing financial aid to over 600,000 low-income people with disabilities. 

What does this mean for you as a taxpayer?

Parliament started enforcing the Canada Disability Benefit Act in June 2024 with payments beginning in July 2025. The new Canada Disability Benefit will apply to 2024 and subsequent tax years. 

Volunteer firefighters' and search and rescue volunteers' tax credits

The 2024 federal tax budget doubles the credit amount for the volunteer firefighters tax credit and the search and rescue volunteers tax credit. This means that the 15% non-refundable tax credit based on the current amount of $3,000 has increased to $6,000.

To be eligible to claim one of these tax credits (but not both), individuals must have performed 200 hours of combined service as either a volunteer firefighter or a search and rescue volunteer during the year.

What does this mean for you as a taxpayer?

Eligible volunteers may receive up to $900 in tax relief annually ($6,000 x 0.15 = $900). This enhancement applies to the 2024 tax year and subsequent tax years.

Notice of non-compliance

For taxpayers who aren’t cooperating with the CRA when being asked to provide additional information, the new budget introduces a change to the Income Tax Act, which will allow the CRA to issue a “notice of non-compliance.” 

What does this mean for you as a taxpayer?

Notices of non-compliance may result in penalties including:

• A $50 per day fine up to a maximum of $25,000.
• An extension to the normal reassessment period for the taxpayer and any non-arm's length person (where 2 people are related to each other), by the amount of time the notice is outstanding.

Carbon Carbon Rebate for Small Business

The new budget changes now refund a portion of the fuel charge proceeds (from years 2019-2020 through 2023-2024) with the new Canada Carbon Rebate for Small Businesses. 

The participating provinces include Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. The projected amount to be returned is $2.5 billion to 600,000 businesses with less than 500 employees in Canada.

What does this mean for you as a taxpayer?

The federal government will set the payment rate for each participating province for every fuel charge year. Then, the CRA will determine the tax credit amount by multiplying the payment rate by the number of workers employed in that province for that particular year. The amount is paid through the new Canada Carbon Rebate program.

The payment is automatic, so companies do not need to apply for the tax credit. However, to be eligible for the rebate between the 2019 and 2023 fuel charge years, companies must have filed 2023 tax returns by July 15, 2024.

Tips to manage your taxes

With numerous tax measures being implemented, it’s important for taxpayers to stay informed so they are not caught off guard by the new tax rules. Planning ahead is key when it comes to possible tax implications.

Here’s what you can do to keep organized and make filing your taxes go smoothly: 

• Keep detailed records and related tax documents. 

• Calculate the amount you may need to pay the CRA (such as capital gains tax).

• Set up a bank account to save for taxes you may owe.

• Save the dates in your calendar if you’re receiving tax benefits.

• If you're expecting a refund, decide how any potential tax benefits should be used (such as saving for a financial goal or paying off debt).

Don’t hesitate to seek professional advice from tax professionals. With TurboTax Assist and Review, you can get unlimited, live advice from a real tax expert, plus a final review before you file.

Preparing for a prosperous future

The 2024 federal budget includes many tax measures that will impact individuals and business owners across the nation. To stay ahead of the game, discuss your unique scenario with a TurboTax tax expert as well as legal professional to develop strategies for your specific situation. By doing so, you could benefit from the new tax changes—or minimize potential impacts.

When filing your taxes, let TurboTax help you optimize your tax situation. 

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