What advisors need to know about Budget 2024

The big news of Budget 2024 is the jump in the capital gains inclusion rate.

The federal government is increasing the rate to two-thirds from one-half on capital gains above $250,000 realized annually by individuals, and on all capital gains realized by corporations and trusts. The measure will take effect on June 25. 

“The most important takeaway for advisors to speak about with clients, of course, is the increase in the capital gains inclusion rate,” said Jamie Golombek, managing director, tax and estate planning with CIBC Private Wealth in Toronto, in an interview on Tuesday after the budget was released. 

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Most people realize less than $250,000 a year in capital gains, so the change for them is “inconsequential,” he said. “But for our higher-net-worth clients, this is a very important discussion in terms of tax planning.” 

That means considering what to do with significant accrued gains, Golombek said: “Do we make some sales? Do we rebalance a portfolio by June 25 to ensure a 50% inclusion rate? Are we more strategic in future years to be able to time those capital gains dispositions so we are subject to the lower rate on the first $250,000 a year of capital gains?” 

Those discussions will be critical, “particularly for clients who may also own investments inside a corporation, because corporations will not get the $250,000 exception for gains after June 25,” he said. 

Golombek also noted that two inclusion rates will need to be tracked, based on whether capital gains are realized before or after June 25.  

Clients will also need to consider the best time to sell a vacation or rental property. 

“Ultimately, this is a very important discussion that investors want to have with their tax advisors over the 10 weeks leading up to the June 25 deadline,” he said. 

Other notable changes from the federal budget include a change to the alternative minimum tax (AMT). Previously, only 50% of the donation credit was available to offset the AMT under the related calculation. 

“The government has responded positively to the request of the charitable sector, and will now permit 80% of the donation credit to be claimed when calculating AMT,” Golombek said. “This is a positive change.”

He also cited the increased RRSP withdrawal limit under the home buyers’ plan, to $60,000 from $35,000. As part of that proposal, “you don’t have to start paying that [withdrawal] back for five years after you buy your home … for any withdrawals from Jan. 1, 2022, to Dec. 31, 2025,” he said.

For business owners, the budget raised the lifetime capital gains exemption to $1.25 million of eligible gains for dispositions on or after June 25, with indexation to resume thereafter. 

The feds also proposed the Canadian Entrepreneurs’ Incentive, which would reduce the tax rate on capital gains on the sale of qualifying shares by half — to one-third from two-thirds — on a lifetime maximum of $2 million in eligible capital gains. The lifetime limit would be phased in at $200,000 per year, beginning on Jan. 1, 2025, before reaching $2 million by Jan. 1, 2034. 

And for clients who’ve lost time calling the Canada Revenue Agency (CRA), Golombek noted one final budget measure. 

The government announced $336 million over two years, starting in 2024–2025, for the CRA “to maintain its call centre resources and hopefully improve the overall efficiency of these call centres [and] to be able to respond accurately to taxpayers’ questions in a more timely manner,” he said. 

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