On November 21, 2024, the Quebec Ministry of Finance and the federal government presented important economic and tax updates. These announcements, which affect individuals and businesses alike, reflect strategic measures to stimulate the economy while controlling public spending. Whether it’s tax credit adjustments, new capital gains rules or the GST pause, these changes will have a direct impact on your finances.
In this article, our tax experts provide a clear and accessible summary of these measures. Explore the highlights and understand how these reforms may affect your decisions. As your everyday business allies, we’re here to help you navigate this new tax reality.
“The economic recovery is beginning in Quebec. Today, we are continuing our targeted action by focusing on the priority issues facing Quebecers. The review of tax expenditures will help us prepare for a return to balanced budgets in a gradual and responsible manner.”
Economic and financial update
- The Quebec government is maintaining its budget deficit at $11 billion for the current year, after payment of the revenues earmarked for the Generations Fund. The government also anticipates that the average annual growth rate of revenues will exceed that of expenditures. This optimistic scenario reduces the anticipated deficit, but will not completely eliminate it.
- After a significant slowdown in 2023 (+0.6%), the Ministry of Finance expects growth of 1.2% in 2024 and 1.5% in 2025, thanks to lower interest rates and inflation. By way of comparison, global growth is expected to reach 3.2% in 2024.
- Quebec is currently experiencing a slowdown in its labor market, with the unemployment rate rising from an average of 4.5% in 2023 to 5.4% in 2025. The Ministry of Finance forecasts that the unemployment rate will rise further, averaging 5.8% in 2025.
- The indexation rate for the Quebec tax system will be 2.85% for 2025, which is higher than the indexation rate for the federal government and the other provinces, excluding Alberta.
- The Quebec government is currently reviewing all its tax and budgetary expenditures. A total of 277 tax expenditure measures are being analyzed as part of the commitment to return to a balanced budget. The cost of these measures is estimated at $49 billion by 2023. The elimination or refocusing of some of these measures could contribute to achieving a balanced budget.
Priority issues
The Ministère des Finances du Québec plans to invest nearly $2.1 billion over five years to address the issues it has identified as priorities.
- 1.2 billion to support the transition of public transit companies and contribute to the vitality of the Montreal and Quebec City regions;
- 433 million to ensure community safety by compensating flood victims, improving cellular coverage in certain regions and meeting police coverage obligations in Nunavik.
- 252 million to support the forestry sector through loans and investment in tree planting in public and private forests.
- 218 million to promote access to housing and improve support for social assistance recipients.
- Including $184 million over four years to accelerate the construction of new rental units;
- This brings the total investment under the Housing Acceleration Fund to nearly $2 billion over six years for the construction of more than 8,000 new housing units, 500 of which will be reserved for people experiencing or at risk of homelessness;
- 17.8 million over four years to allocate 500 new Rent Supplement Program units to young people leaving the youth protection system.
MEASURES AFFECTING COMPANIES
- Harmonization of capital gains inclusion rate rules
- Recent changes at the federal level
- Proposed changes in Quebec
- Mitigation measures to encourage investment
- Consumption taxes
History of federal modifications
As part of the 2024 federal budget, the government made significant changes to the inclusion of capital gains in taxpayers’ income. Effective June 25, 2024, the capital gains inclusion rate was increased from 50% to 66.67% on capital gains in excess of $250,000 for individuals. Since there is no exclusion threshold for corporations and most trusts, the entire amount of the capital gain is subject to this change in their case. The Quebec Ministry of Finance has repeatedly announced its intention to harmonize its tax system with the changes proposed by the federal government.
A look back at the major legislative changes resulting from this new tax reality.
Stock option deduction
When an employee exercises a stock option, he must normally include a taxable benefit in his income. However, they were entitled to a stock option deduction that reduced the inclusion rate of this benefit to 50% until June 24, 2024. With the changes to the inclusion rate, the stock option deduction will be adjusted to a 66.67% inclusion rate. Of course, it will still be possible for employees to use all or part of their $250,000 annual threshold to reduce the income inclusion to 50%.
Transitional rules
For the year 2024, two inclusion rates will apply to capital gains realized by taxpayers. As a result, 50% of capital gains and losses realized before June 25, 2024, and 66.67% of capital gains and losses realized on or after June 25, 2024, will be included in income. It is therefore very important to determine the date of disposition of the assets.
An average inclusion rate will also be calculated for fiscal years including June 25, 2024, to determine taxable capital gains for purposes of calculating the corporate capital dividend account, which allows tax-free dividends to be paid to the shareholder.
What is taxable property?
Generally speaking, taxable Canadian property can include real estate located in Canada, property used in carrying on a business in Canada (sometimes including inventory), and shares of a private corporation where more than 50% of the value of the assets held by the corporation are taxable Canadian property.
What is taxable Québec property?
The definition of taxable Québec property is very similar to the definition of taxable Canadian property, but for assets located in Québec.
Disposition of taxable Canadian property
Non-residents of Canada are normally subject to Canadian and Quebec income tax when they dispose of taxable Canadian property (taxable Quebec property in Quebec). When this is the case, a mandatory withholding tax must be withheld from the sale price to ensure that the governments are certain to collect the taxes associated with the disposition.
The rate applicable to this deduction was historically 25% at the federal level. With the change in the inclusion rate, this rate will rise to 35% for dispositions made on or after January1, 2025.
In April, May and June 2024, the Quebec Ministry of Finance announced its intention to harmonize its tax system with the changes proposed by the federal government. Through the Economic Update, the Quebec government has further clarified the impact of the change in the capital gains inclusion rate on Quebec taxpayers.
- The 50% deduction for eligible stock options is adjusted to reflect the increase in the inclusion rate to 33.33% for the portion of the taxable benefit exceeding the annual threshold of $250,000, effective June 25, 2024.
- The withholding rate applicable on the disposition by a Canadian non-resident of a taxable Quebec property will increase from 12.875% to 17.167% as of January1, 2025;
- The withholding rate applicable to the acquisition of specified real property held by an inter vivos trust that becomes resident in Canada will also increase from 12.875% to 17.167% for acquisitions made on or after January1, 2025;
- The rules regarding the additional exemption on the disposition of certain resource properties (allowing for the exemption of all or a portion of the capital gain on the disposition of flow-through shares) will be amended to reflect the increase in the capital gains inclusion rate, starting with the 2024 taxation year.
For changes that apply in the year 2024, transitional rules will be provided to take into account the different inclusion rates before and after June 25, 2024.
It is important to note that capital gains from the sale of a principal residence remain tax-free. Capital gains realized in RRSPs, TFSAs or TFSAPPSAs will also not be subject to the increased inclusion rate.
To limit the impact on entrepreneurial investment, the Québec government has also announced harmonization with the following federal measures:
- The capital gains deduction will increase from $1 million to $1.25 million for eligible small business shares and farm and fishing property.
- The creation of an entrepreneurial incentive in addition to the existing exemption. This measure will halve the new inclusion rate for eligible capital gains on the sale of a qualifying business. The ceiling will be $400,000 for 2025, rising in subsequent years to reach $2 million in 2029.
Harmonization with the federal government for the inclusion rate and mitigation measures are expected to increase Quebec government revenues by approximately $2.5 billion over five years, as shown in the table below:
The Bottom Line
It will be important for individuals, corporations and trusts to take these adjustments into account in their tax and financial planning. The impact of the change in the capital gains inclusion rate is far-reaching, affecting both Canadian and Quebec taxation, as well as the taxation of non-residents holding taxable Canadian and Quebec property in Canada.
Temporary tax vacation
The federal government has announced a temporary vacation from the Goods and Services Tax and Harmonized Sales Tax (GST/HST) on groceries and certain holiday products. The vacation will run for two months, from December 14, 2024 to February 15, 2025.
Products covered by the vacation include children’s clothing, shoes and diapers, newspapers and printed books, Christmas trees, certain foods and beverages, and some children’s toys. A more exhaustive list of products eligible for the vacation can be found on the Ministère des Finances website.
The government estimates savings of about $100 per family for the two-month period.
This measure will apply to products delivered and paid for during the target period. Companies will have to adjust their invoicing from December 14, 2024 to February 15, 2025.
The Quebec Ministry of Finance has not yet indicated whether it will harmonize with this measure.
MEASURES AFFECTING INDIVIDUALS
- Discount for Canadian workers
- Tax credit for career extension in Québec
- Premium payable to the Public Prescription Drug Insurance Plan (PPDP)
The federal government has announced a new $250 rebate for Canadian workers.
Anyone who worked in 2023 is eligible if they earned an individual net income of less than $150,000. They must also meet the following criteria:
- Have filed their 2023 income tax return no later than December 31, 2024, and either have :
- Claimed the tax credit for Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions on employment or self-employment income; or
- Claim the tax credit for Employment Insurance (EI) or Quebec Parental Insurance Plan (QPIP) premiums paid on employment or self-employment income; or
- Declared income from employment insurance or QPIP benefits;
- Reside in Canada on March 31, 2025;
- Not serving a prison sentence of at least 90 days immediately prior to April1, 2025;
- Must not have died on April1, 2025.
This amount will be automatically paid by the Canada Revenue Agency (CRA) in early spring 2025, by direct deposit or cheque, to Canadian workers who meet the above eligibility criteria.
Since 2012, individuals reaching retirement age have been called upon by the Quebec government to remain employed by companies in the province, or even to re-enter them once they have left the job market. Several changes have been made to the career extension credit over the years, and new adjustments have been announced for the 2025 tax year. Here are the changes announced for the new year:
- People aged 60 to 64 will no longer have access to credit from 2025;
- Individuals aged 65 and over will be entitled to a maximum non-refundable credit of $1,750, or $12,500 at 14%. This represents an increase in the credit amount of $210 compared to 2024;
- The maximum credit amount will be reached when the individual earns $20,000 in qualifying work income;
- The credit reduction will be calculated on net income rather than working income;
- The credit will decrease starting at an individual net income of $56,500. The credit will be nil at a net income of $81,500 or more;
- Indexation of the amounts is also planned from 2026;
- In the event that the individual goes bankrupt in 2025 or later, rules are introduced to distribute the credit amount appropriately between the pre-bankruptcy and post-bankruptcy years.
Quebecers who are not beneficiaries of an individual drug plan or a group insurance plan are covered by the RPAM. The amounts of exemptions granted for the purpose of calculating the premium payable to the RPAM are adjusted for the current calendar year.
Amount of exemptions granted for the purpose of calculating the premium payable to RPAM for 2023 and 2024
Source: The 2023 and 2024 tables have been combined.
2024 table: BULFR_2024-9/ p.10/10
Conclusion: an enlightened vision for navigating tax changes
The tax and economic announcements of November 21, 2024 mark an important turning point for individuals and businesses. Whether through adjustments to tax credits, new capital gains rules or GST exemptions, these measures require special attention to make the most of them.
In today’s ever-changing economic environment, strategic tax planning is essential to ensure the sustainability and growth of your personal or business finances. At Demers Beaulne, we are committed to providing you with practical advice tailored to your reality, so that you can turn these changes into opportunities.
Your business allies
Please contact us to discuss your specific requirements.
