The federal government has introduced a number of proposed changes to the Income Tax Act, some of which are being administered and others that are not. The status of the proposed changes is outlined below.
Federal budget 2024
Capital gains changes
- Inclusion rate increase. The Department of Finance announced that the planned increase to the capital gains inclusion rate from 1/2 to 2/3 has been deferred to January 1, 2026. The CRA confirmed it will revert to administering the current inclusion rate of 1/2. The CRA will grant relief in respect of late-filing penalties and arrears interest until June 2, 2025 for impacted T1 individual filers, and until May 1, 2025 for impacted T3 trust filers. The CRA will coordinate corrective reassessments for corporate taxpayers that followed the CRA’s guidance to file on the basis of the Notice of Ways and Means tabled on September 23, 2024. The CRA may contact taxpayers if an amended T2 Schedule 6 is required.
- Consequential changes. The aforementioned deferral applies to the implementation of all the consequential changes that would be made to reflect the increased inclusion rate in other areas of the tax system, including but not limited to: net capital losses, employee stock option deductions, and allowable business investment losses.
- Lifetime Capital Gains Exemption (“LCGE”). The Department of Finance confirmed that the proposed change to the LCGE is moving ahead as proposed and the CRA confirmed that it is administering the increase to the LCGE.
- Canadian Entrepreneurs’ Incentive (“CEI”). The Department of Finance confirmed the proposed CEI is moving ahead.
Capital cost allowance
Budget 2024 proposed two changes to the calculation of capital cost allowance (“CCA”). First, it proposed to increase the CCA rate for "new purpose-built residential rental" properties from 4% to 10%. Second, it proposed immediate expensing for "productivity-enhancing assets". In general, additions to Classes 44, 46, and 50 would be eligible for immediate expensing for property that was acquired and became available for use by the taxpayer after April 15, 2024 and before 2027.
The CRA has confirmed that neither of these proposals are being administered at this time.
The Disability Supports Deduction
The Disability Supports Deduction provides individuals with physical or mental impairments a tax deduction for specific expenses that help them work, carry on a business, attend school, or engage in funded research. Budget 2024 proposed expanding the list of eligible expenses to include, among other things, the cost of ergonomic work chairs, bed positioning devices, and mobile computer carts if specified conditions are met. These changes would apply retroactively to January 1, 2024. According to the CRA, these proposed changes are not being administered at this time.
August 12 legislative proposals
Trust reporting
The CRA has confirmed that these proposed amendments will not be administered for the 2024 taxation year. However, the CRA did announce that bare trusts will not be required to file a T3 Income Tax and Information Return (“T3 return”), including Schedule 15 (Beneficial Ownership Information of a Trust) for the 2024 tax year, unless the CRA makes a direct request for these filings.
Alternative minimum tax
The draft legislation proposed to limit the deduction of investment counsel fees to 50% when calculating deductible expenses, and to allow a full deduction for resource expenditures renounced to individuals who invest in flow-through shares. The CRA has confirmed that neither of these proposed changes are being administered at this time.
Withholding tax on rent payments to non-resident landlords
The August 12 draft technical legislation proposed to exempt the requirement to withhold and remit withholding tax on rent payments to non-resident landlords for the use of a residential property. The obligation to remit withholding tax would shift to the landlord. The CRA has confirmed it is administering this proposed change.
Remaining tax measures
The CRA has confirmed that it will not administer the August 12 proposed legislation that did not make it into the Notice of Ways and Means Motion released September 23, 2024.
Fall economic statement 2024
The 2024 fall economic statement included the following tax proposals:
- Exempting the Canada Disability Benefit from tax for 2025 and subsequent taxation years;
- Expanding eligibility for the Canada Carbon Rebate Rural Supplement (“CCRRS”) to individuals who, within a census metropolitan area, reside in a census rural area or small population centre starting April 2025;
- Allowing taxpayers to claim an investment tax credit and immediately deduct the cost of capital expenditures used to carry out scientific research and experimental development (“SR&ED”) and incurred on or after December 16, 2024;
- Extension of the accelerated investment incentive for most capital asset purchases, and immediate expensing for certain manufacturing or processing machinery and equipment, clean energy generation and energy conservation equipment, and zero- emission vehicles for acquisitions occurring on or after January 1, 2025 and that become available for use before 2030; and
- Expanding eligibility for enhanced refundable investment tax credits for SR&ED to certain public companies starting with taxation years beginning on or after December 16, 2024.
Since no draft legislation has been published by the Department of Finance for any of the measures announced in the 2024 Fall Economic Statement, the CRA cannot administer any of these proposals. However, the latest draft of the T1 jacket indicates that the CCRRS will be calculated based on the Fall Economic Statement 2024.
Other proposals
Taxation of the Canada Carbon Rebate for Small Business
The former Minister of Finance had indicated on social media that the Canada Carbon Rebate for Small Business (“CCR-B”) would be “tax-free”. However, no legislation has been published to exempt the CCR-B from income tax. The CRA has confirmed that CCR-B amounts are taxable as government assistance unless otherwise included in income or used to reduce the cost of a property or expense. Despite the CRA’s position, the Department of Finance has stated the government still intends to make the rebates tax-free and will introduce a legislative amendment “at the earliest opportunity”, after which businesses can apply for a refund for the taxes paid. This will prove difficult, as Parliament remains prorogued until March 24.
Charitable donation extension
Due to last year’s Canada Post strike, the Department of Finance announced that individuals who donate to registered charities between January 1 and February 28, 2025 may apply those donations to their 2024 tax return. This extension also includes graduated rate estates and corporations with taxation years ending after November 14, 2024 and before 2025.
The extension applies only to donations made in cash or transferred via cheque, credit card, money order, or electronic payment. Donations made through payroll deductions or as part of an individual’s will, if the individual died after 2024, are not eligible for the extension. The Department of Finance released legislation with no consultation period and the CRA has confirmed that it is administering the donation extension.
