Moore Stephens
Taxation

Fall 2024 Economic Statement

Visit December 16, 2024, the the federal government tabled an update of Canada’s economic and fiscal situation. At the same time, the government has announced changes to certain tax measures. These changes will affect companies, organizations isations non-profit (NPOS) and individuals.

Our team has prepared a summary of the main tax tax announcements.

CORPORATE MEASURES

Scientific Research and Experimental Development (SR&ED) tax incentive program

The SR&ED credit program would be enhanced in several ways.

Here are the proposed changes:

  • The expenditure limit allowing Canadian-controlled private corporations (CCPCs) to claim credits at a rate of 35% would rise from $3 million to $4.5 million. Refundable credits would then rise from a maximum of $1.05 million to $1.575 million. For a company with expenses up to the new limit, this would represent an increase of $300,000 in additional credits that would be fully refundable.
  • The taxable capital threshold to be reached before the new $4.5 million limit begins to be reduced would increase from $10 million to $15 million. Similarly, the taxable capital threshold that must be met before the limit is completely cancelled would be increased from $50 million to $75 million. The $4.5 million limit would be reduced linearly when taxable capital was between $15 million and $75 million.
  • The $4.5 million expenditure limit qualifying for a refundable credit at a rate of 35% would now be available to Canadian public corporations, and would no longer be reserved exclusively for CCPCs. However, unlike CCPCs, whose limit is determined by taxable capital, the spending limit for public corporations would be reduced linearly when average gross revenues, based on the previous three fiscal years, are between $15 million and $75 million.
  • A choice would be available for CCPCs to have their spending limit determined in the same way as Canadian public corporations, i.e. on the basis of average gross revenues over the previous three fiscal years rather than taxable capital.
  • New assets used more than 90% of the time for SR&ED, which are leased or acquired, would be eligible for the SR&ED credit as they were before 2014.
  • Leasing and acquisition expenses for used capital assets would only qualify for deduction as SR&ED expenditures, but would not be eligible for the credit.
  • Multi-purpose equipment would also make a comeback with a new name: shared-use equipment. In this case, part of the cost of the asset would be eligible for the tax credit. However, no details have been announced as to whether the calculation will be like the calculation that was applicable before 2014, or whether it will be different.
  • Credits earned on capital expenditures would only be eligible for partial reimbursement at a maximum rate of 40%.
  • Recapture rules would apply when a capital asset is sold or changes use after the SR&ED credit has been claimed on it.

These changes would be available for tax years beginning on or after December 16, 2024.

Canadian public companies already had access to the spending limit for credits in Quebec. It remains to be seen whether the Quebec government will harmonize with the other rules announced.

Accelerated investment incentive extended

Under capital cost allowance (CCA) rules, certain assets are subject to a half-rate in the year of acquisition, meaning that the company can claim only 50% of the CCA on the asset. The Accelerated Investment Incentive provides a CCA bonus in the year of acquisition for certain depreciable assets, allowing the company to deduct 3 times the half-rate on the asset. This bonus began to be phased out in 2024, with a deduction of 2 times the half-rate for that year.

The government proposes to fully reinstate the accelerated investment incentive for eligible assets acquired after 2024 and becoming ready for service before 2030, as shown in the table below.

fall 2024 economic statement_table3

Reference: Economic statement p. 328/332

In addition, eligible assets that are not subject to the half-year rule, and were not eligible for the accelerated investment incentive, will be eligible for the enhanced CCA starting in 2025. This deduction will be equal to 1.5 times the usual deduction for the first year if the assets are acquired after 2024 and put into service before 2030. For assets acquired after 2024 and put into service between 2030 and 2033, the enhanced deduction will be 1.25 times the usual deduction for the first year.

Extension of the immediate handover measure.

The immediate expensing measure allows businesses, certain individuals and certain partnerships to take a 100% capital cost deduction in the year of acquisition for the following assets:

  • Manufacturing and processing machinery and equipment (category 53);
  • Clean energy production and energy conservation equipment (categories 43.1 and 43.2);
  • Zero emission vehicles (categories 54, 55 and 56).

Although the Department of Finance Canada used the term “immediate expensing” in the Economic Statement, the measure described corresponds more closely to the “full expensing” measure originally presented in the 2018 Economic Statement. We therefore understand that the measure formerly known as “immediate expensing”, which allows deductions of up to $1.5 million per year against the cost of acquiring depreciable capital assets, will end as originally planned on January1, 2025.

Since 2024, this measure had been in the process of being eliminated, so the deduction rate that could be taken in the year of acquisition had risen to 75%.

The federal government is proposing to reinstate immediate expensing for eligible assets acquired on or after January 1, 2025 and placed in service before 2030. This measure would be phased out starting in 2030, and completely eliminated for assets placed in service after 2033. The following table summarizes the current measure and proposed changes:

fall 2024 economic statement - table 4

Reference: Economic statement p. 329/332

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.

In burst: other measures for businesses

Announcements were also made to modify the following credits:

Canadian carbon rebate for small businesses

CCPCs with one or more employees in a province or provinces where the fuel levy applies are entitled to a rebate. For 2024 and subsequent years, the rebate would increase for companies with up to 20 employees, decrease for companies with 300 to 499 employees, and be nil for companies with 500 or more employees.

Clean hydrogen investment tax credit

The credit would be extended to include methane pyrolysis production.

Investment tax credit for clean electricity

The calculation of the credit would be modified so that financing provided by the Infrastructure Bank of Canada would not reduce the cost of eligible assets for the purposes of calculating the investment tax credit for clean electricity.

Electric vehicle supply chain investment tax credit

Details of the credit have been released. Essentially, only taxable Canadian corporations would be able to claim the credit. Partnerships and trusts would be excluded. The assets that would be eligible were revealed, as were the maximum limits to be reached in order to qualify.

Clean Electricity Investment Tax Credit for Provincial and Territorial Crown Corporations

The final conditions that provincial and territorial governments would have to meet for their Crown corporations to qualify for the credit have been unveiled.

MEASURES FOR NON-PROFIT ORGANIZATIONS

Declarations by non-profit organizations

Non-profit organizations (NPOs) are exempt from income tax under the Income Tax Act. An NPO is a circle, group or association that is formed and operated for the purpose of social welfare, local improvement, recreation, entertainment or any other activity not for profit.

Annual declaration

Currently, NPOs are only required to file an information return when one of the following conditions is met:

  • Total passive income for the year exceeds $10,000;
  • Total assets at the end of the previous year exceeded $200,000;
  • The organization had to file an information return for a previous fiscal year.

The 2024 Fall Economic Statement proposes to modify these conditions so that NPOs with gross revenues of $50,000 or more for the fiscal year would be required to file an information return.

New reporting requirements for small NPOs

In addition, NPOs that do not meet the above conditions should still file a new short-form declaration containing basic information about the organization, i.e. :

  • Company or trust number;
  • Organization name and mailing address;
  • Names and addresses of directors, agents or trustees;
  • A description of the organization’s activities in Canada or abroad;
  • The organization’s total assets, liabilities and annual revenues;
  • Other prescribed information.

These requirements would apply to the 2026 and subsequent taxation years.

MEASURES FOR INDIVIDUALS

Allow rollover of capital gains arising from investments in businesses

The rollover allows investors to defer the taxation of capital gains from investments in Canadian small businesses, provided that the proceeds of disposition are reinvested in additional eligible small business shares in the year of disposition or within 120 days thereafter. The companies concerned must not have more than $50 million in assets, and the shares must be common shares.

The government is proposing to amend the Income Tax Act to broaden the definition of eligible shares and relax certain conditions. Preferred shares would be eligible for deferral, the asset limit would be increased to $100 million, and the reinvestment period would be extended to a full calendar year after the year of disposition.

These changes would apply to dispositions made on or after January 1, 2025.

Making automatic tax filing a reality

Nearly 20% of Canadians with incomes under $20,000 don’t file tax returns, depriving them of many federal benefits. To remedy this, the federal government plans to authorize the CRA to automatically file returns for certain low-income individuals as early as 2025. Returns for eligible individuals would be pre-filled, and recipients would be able to modify them or opt out of the process.

The government is also studying the possibility of extending this service to middle-class Canadians with simple tax situations. Improved access to free online tax preparation software is also under consideration.

The goal is to modernize and simplify tax filing so that more Canadians receive the benefits to which they are entitled.

Other measures for individuals

The government also made the following announcements:

  • The Canada Disability Benefit would be excluded from the calculation of the benefit recipient’s income on his or her federal income tax return;
  • Taxpayers residing outside metropolitan areas would be eligible for a rural supplement to the Canadian carbon rebate in provinces where the fuel levy applies;
  • Residents of the Haida Gwaii archipelago would be considered residents of a northern zone for purposes of the northern residents deduction.

PREVIOUSLY ANNOUNCED MEASURES

The government also announced that it intends to go ahead with several previously announced tax measures, including:

  • The change in the capital gains inclusion rate from 50% to 67% on June 25, 2024;
  • An increase in the lifetime capital gains exemption from $1.017 million to $1.25 million as of June 25, 2024;
  • An incentive for Canadian entrepreneurs;
  • Changes to the alternative minimum tax;
  • Implementation of transfer pricing changes.

Conclusion: Several changes to existing tax measures

In its economic statement, the federal government announced several changes to tax measures already in effect. While many of these changes will apply retroactively to December 16, 2024, they will require Royal Assent before coming into effect. With some observers predicting an election after the holiday season, it’s possible that these announcements will never take effect. Our team of tax specialists is always on the lookout for tax changes, and is always on hand to support you in your business decisions.

Your business allies

Please contact us to discuss your specific requirements.

Martin Tétrault

Martin Tétrault

CPA, M. Fisc.
Partner, Canadian Taxation

 

Jasmine Demers Moreau

Jasmine Demers Moreau

CPA, M. Fisc.
Director, Canadian Taxation

Karen Plante

Karen Plante

CPA, M. Fisc.
Senior Director, Taxation

Maude Jeanson

Maude Jeanson

Pl. Fin, D. Fisc
Senior Director, Taxation

Jo-Anny Pomerleau

Jo-Anny Pomerleau

M. Fisc., CPA
Director, Canadian Taxation

Marie-Christine Diotte

Marie-Christine Diotte

CPA

Director, Tax

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