GH&A is rounding out the 2024 year with our annual Christmas Letter and we would like to take this opportunity to wish our clients and their families Happy Holidays and all the best in the new year!
This year’s edition of the Christmas Letter, as in years past, will be our opportunity to communicate some important developments in personal and corporate tax along with important tools and tips to help manage your business and accounting needs. We will also advise on some staff announcements and community involvement that our firm is happy to highlight.
Capital Gains Tax Changes from the 2024 Federal Budget
The 2024 Federal Budget released by the Department of Finance on April 16th, 2024, contained important proposals which will significantly impact the taxation of capital gains realized by individuals, corporations, and trusts. THESE LEGISLATIVE MEASURES ARE CURRENTLY IN DRAFT FORM ONLY, AND MAY BE SUBJECT TO FURTHER CHANGES PRIOR TO RECEIVING ROYAL ASSENT AND BECOMING LAW. Should these rules become law, they promise to bring significant changes to the taxation of capital gains realized by Canadian taxpayers. The following is a summary of the proposed legislation:
Increased Capital Gains Inclusion Rate
One of the most unexpected measures announced in the 2024 federal budget was significant proposals to increase the inclusion rate applicable for taxable capital gains. Legislation in effect prior to June 25, 2024, provides that capital gains realized by any person resident in Canada (individuals, corporations, or trusts) are taxed with an applicable inclusion rate of 50% (meaning that 50% of the total capital gain realized is subject to tax at the taxpayer’s applicable marginal tax rate).
On August 12, 2024, draft legislation was released by the Department of Finance which proposes to now apply an inclusion rate of 2/3rds on any capital gains realized after June 24, 2024, with individuals remaining eligible for the existing lower 50% inclusion rate on their first $250,000 of total net capital gains annually. Corporations and trusts will not be eligible for the lower 50% inclusion rate on any capital gains realized and will be subject to the new 2/3rds inclusion rate on all capital gains realized after June 24, 2024.
The following are some key tips and considerations regarding the impact of the proposed capital gains inclusion rate changes:
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Capital Gains Reserves – Reserves brought into income from a previous year are deemed to have been realized on the first day of the taxpayer’s taxation year. This creates an opportunity for reserves carried forward from taxation years beginning before June 25, 2024, to be taxed at the existing 50% inclusion rate.
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Distributions of Capital Gains from Trusts – Capital gains distributed by trusts to the beneficiaries of the trust (reported on T3 slips issued to the trust beneficiaries) will be deemed to be realized by the recipient beneficiary on the same date the gain was realized by the trust. This will allow gains realized by trusts prior to June 25, 2024, to retain their eligibility for the 50% inclusion rate.
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Capital Dividend Account – Along with the increase in the capital gains inclusion rate to 2/3rds, corporations will also experience a reduction in the non-taxable portion of capital gains which is added to the corporations Capital Dividend Account. This will mean less funds from capital gains realized which are available to be paid out to shareholders as tax-free Capital Dividends.
Increased Lifetime Capital Gains Exemption
The 2024 Federal Budget offered some relief from tax on capital gains to individuals who own Qualified Farm Property (including farmland or Family Farm Corporation shares) or shares of a Qualified Small Business Corporation. This came in the form of an increase in the Lifetime Capital Gains Exemption limit from $1.016 Million to $1.25 Million per individual. The increased exemption limit is proposed to come into effect for dispositions on or after June 25, 2024, and like the changes to capital gains inclusion rate, the related legislation remains in draft form only.
NOTE – The 2024 federal budget did not include any changes that either reduced or restricted the availability of the Intergenerational Farm Rollover provisions, or Lifetime Capital Gains Exemption on Qualified Farm Property or Qualified Small Business Corporation shares.
The Canadian Entrepreneur’s Incentive (CEI)
As a separate measure from the capital gains inclusion rate increase, the 2024 federal budget also introduced a new tax incentive in the form of the Canadian Entrepreneur’s Incentive (CEI), which provides for a reduced rate of tax on dispositions of certain Qualified Small Business Corporation (QSBC) shares, where certain additional criteria are met. When draft legislation for the new CEI was released on September 11, 2024, the availability of CEI was expanded to include dispositions of Qualified Farm Property (QFP), including farmland and shares of a Family Farm Corporation. It is important to note that the proposed CEI rules impose restrictions which deny access to CEI for shares of corporations which carry on certain types of excluded businesses. Further, additional criteria must be met (beyond the existing criteria for QFP or QSBC shares) such that not all QFP or QSBC property will necessarily be eligible for CEI treatment.
The draft legislation for CEI specifically proposes to provide for an inclusion rate of 1/3rd to apply on capital gains of up to $2 Million from the disposition of qualifying property. Effective for dispositions on January 1, 2025, or later, each individual resident in Canada will have access to an accumulating limit of $400,000, with an additional $400,000 of CEI access available each year, until the maximum limit of $2 Million is reached in 2029.
As an example of the application of the new CEI provisions, a taxpayer who sells qualifying property in 2029 and realizes a capital gain of $2 Million would have a taxable capital gain of $666,666 (assuming that the taxpayer does not have any of their Lifetime Capital Gains Exemption remaining. If the taxpayer pays tax at a marginal rate of 48%, then the total tax on this capital gain would be $320,000 ($666,66 x 48%).
In comparison, a sale of property which did not qualify as CEI would be subject to a 50% inclusion rate on the first $250,000 (assuming that the taxpayer did not have any other capital gains for the year), and the remaining $1,750,000 of capital gain would be subject to a 2/3rds inclusion rate. This would result in a taxable capital gain of $1,291,667 on which the taxpayer would pay tax of $620,000 ($1,291,667 x 48%).
For additional details on the proposed new Canadian Entrepreneur’s Incentive, visit the Department of Finance webpage below.
https://www.canada.ca/en/department-finance/news/2024/08/government-announces-details-on-new-canadian-entrepreneurs-incentive.html
Update on T3 Reporting Requirements for Bare Trusts
Starting with the 2023 taxation year, several new tax reporting requirements for Trusts were introduced which created additional disclosure requirements, and new filing requirements for many trust arrangements which under previous rules were exempt from filing T3 Trust returns annually. One of the most significant (and arguably most confusing) new rules was the requirement for “bare trusts” to file a T3 Trust return, where previously bare trusts had been specifically exempted from T3 filing.
A bare trust is not considered an actual “trust” for legal purposes, and as its meaning was not defined under the Income Tax Act, many taxpayers had difficulty determining whether common arrangements that they were involved in could be considered a bare trust, and whether or not they may be subject to the new bare trust reporting requirements for 2023. In response to an outpouring of comments and criticism from taxpayers and the accounting and finance community, the Canada Revenue Agency announced on March 28, 2024 (five days prior to the April 2, 2024, filing deadline for T3 returns) that they would not require bare trusts to file a T3 return for 2023 unless they are specifically requested by CRA to do so.
On August 12, 2024, the Department of Finance provided an update on the tax reporting rules for bare trusts in the form of new draft legislation. The revised legislation provides a continuation to the exemption of bare trusts from T3 return filing for the 2024 tax year, as well as significantly altered reporting requirements for 2025 and beyond.
Starting in 2025, the revised trust reporting rules provide for the following definition of “deemed trust” in place of the term “bare trust”. A deemed trust is defined to include any arrangement under which:
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One or more persons have legal ownership of property that is held for the use of, or benefit of, one or more persons or partnerships, and
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The legal owner can reasonably be considered to act as agent for the persons or partnerships who have the use of, or benefit of, the property.
The draft legislation also further clarifies that an arrangement is not considered a “deemed trust” and therefore not subject to the deemed trust reporting rules if one of several conditions applies, including the following:
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Each person that is deemed to be a beneficiary at any time in the year is also a legal owner of the property.
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The legal owners are individuals that are related persons, and the property is real property that would be the principal residence of one or more of the legal owners for the year if they had so designated it.
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The legal owner is an individual and the property is real property that is held for the use of, or benefit of, the legal owner’s spouse or common-law partner during the year, and would be the legal owner’s principal residence for the year if they had so designated it.
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The property is held throughout the year solely for the use of, or benefit of, a partnership, each legal owner is a partner of the partnership, and a member of the partnership is required to file a partnership information return for the year.
A deemed trust is required to file a T3 trust return and all applicable schedules for the tax year, unless a specific exemption applies. The proposed legislative changes also offer expanded and additional exemptions to reporting for trusts including the following:
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New exemption for trusts which hold assets totaling under $50,000 throughout the year to allow for this to include any type of asset (previously this exemption was available only for trusts whose assets were limited to certain types of assets).
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Expanded exemption for trusts where each trustee is an individual and each beneficiary is related to the trustee, and the trust holds only certain types of assets (including cash, publicly traded shares, mutual fund trust units, and GIC’s) with a total value of less than $250,000 throughout the year.
As this new legislation outlining T3 reporting requirements for “deemed trusts” is still in draft form only, it may still be subject to significant change prior to the new rules coming into effect for the 2025 taxation year.
Important Changes to Canada Pension Plan Benefit Amounts
The 2024 Federal Budget also brought into effect the following important changes to Canada Pension Plan (CPP):
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Increase in the one-time CPP death benefit payment from $2,500 to $5,000 in situations where all of the following criteria are met:
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The estate would otherwise be eligible for the regular death benefit;
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The deceased had not received any retirement or disability benefits, or similar benefits under a provincial plan; and,
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No survivor’s benefit is payable as a result of the individual’s death.
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Introduction of partial CPP surviving child benefit for surviving children who are part-time students between the ages of 18 and 25 (previously only available for full time students). The benefit for part-time students is equal to 50% of the amount payable to full-time students.
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Eligibility for a disabled contributor’s child benefit to continue to be available after the disabled parent contributor reaches the age of 65 (previously eligibility ended when disabled parent reached age 65).
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Removal of eligibility for survivor benefit payments for couples who are legally separated but still married or in a common-law relationship. Under the new rules, eligibility for CPP survivor pension benefits ends as soon as a couple becomes legally separated.
Proposed Changes to Loss Carry-Back Period for Estates
As part of draft legislation released by the Department of Finance on August 12, 2024, the government is proposing to increase the period for Graduated Rate Estates for a deceased taxpayer to carry-back capital losses of the estate and apply the losses against capital gains incurred by the deceased taxpayer in the year of death. While the current legislation requires that capital losses incurred by the estate can only be carried back to the year of death if they are realized in the year following the taxpayer’s death, this new legislation proposes to extend this period to three-years. If this draft legislation passes, it will provide welcomed flexibility to executors in giving them more time to settle the estates accounts and liquidate any capital assets that may have inherent losses arising in the period following the death of the taxpayer.
Updated Tax Amounts for 2025
As the end of 2024 approaches, CRA has already announced some updated tax rates and important amounts which have been indexed or otherwise revised for the upcoming tax year. Here are some important amounts that have been confirmed for 2025 with links to more information:
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Increase to marginal personal tax bracket thresholds – Federal tax brackets indexed by 2.7% from 2024 brackets.
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Increase to basic personal tax credit and other non-refundable tax credit amounts – Including Basic Personal Amount (BPA) increased from $15,705 to $16,129.
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CPP Maximum earnings and contribution amounts – CPP maximum pensionable earnings increased from $68,500 to $71,300 and CPP2 maximum pensionable earnings increased from $73,200 to $81,200. CPP maximum contributions increased from $3,876.50 to $4,034.10 and CPP2 maximum contributions increased from $188.00 to $396.00.
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Increase to maximum Employment Income contributions increased from $1,049.12 to $1,077.48.
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Increase to Old Age Security (OAS) repayment threshold from $90,997 to $93,454.
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Annual TFSA dollar limit for contributions will remain at $7,000.
CRA Prescribed Interest Rates
The CRA has announced the prescribed interest rates for the first calendar quarter of 2025. The rates represent a 1% decrease from the last quarter of 2024, including a rate of 8% charged on overdue taxes, Canada Pension Plan contributions, and employment insurance premiums.
CRA Guidance – Businesses, are you ready for your CRA mail to go online?
On November 14, 2024, the CRA released guidance regarding the upcoming transition to online mail for businesses. Starting in spring 2025, the Canada Revenue Agency (CRA) will transition to online mail as the default method of delivering most business correspondence. This means that both new and existing businesses will start receiving most of their business notices and other correspondence through the CRA’s secure online portal, My Business Account, instead of by mail. This will apply unless a specific request is made by the taxpayer to receive correspondence by mail.
To prepare for the switch to online mail, the CRA recommends signing into My Business Account and making sure your email address is up to date. This allows the CRA to notify you when important changes are made on your account and when you have mail to view in My Business Account (including notifications of new correspondence from CRA). For instructions on how to update your email address on file with CRA, follow the instructions at the link below.
https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2024/businesses-cra-mail-online.html?rss
Instructions on how to set up your CRA My Business account can also be found at the link below.
https://www.canada.ca/en/revenue-agency/services/e-services/cra-login-services/register-cra-sign-in-services.html?account=mba
CRA Holiday GST Exemptions
On November 21, 2024 The Government of Canada announced measures to provide GST/HST relief on certain items beginning December 14, 2024, and ending February 15, 2025.
For details on the specific exemptions that apply, visit the Government of Canada webpage below.
https://www.canada.ca/en/services/taxes/child-and-family-benefits/gst-hst-holiday-tax-break.html
Canada Carbon Rebate for Small Businesses
The federal government recently announced that they will begin issuing the rebate to eligible Canadian Controlled Private Corporations by the end of the calendar year. Most businesses should receive their payment by December 16, 2024, if registered for direct deposit or December 31, 2024, if receiving a payment by cheque.
For more information about Canada Carbon Rebate for small businesses, including eligibility requirements and details of how much you could receive, visit the Government of Canada webpage below.
https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/business-tax-credits/canada-carbon-rebate-small-businesses.html
CRA Guidance on Reporting form Crypto Assets
The CRA recently published a webpage providing updated guidance on tax reporting requirements for cryptocurrency investments and similar assets. The comments from CRA confirm that if cryptocurrency assets held by a taxpayer are capital property of the taxpayer, any gain from the disposition of those assets should be treated as a capital gain for income tax purposes and reported as such in the taxpayer’s personal tax return for the year of the disposition.
The webpage also provides information on what records should be kept to support the related tax reporting for cryptocurrency transactions, as well as some useful links to previous CRA Tax Tips and other resources related to tax reporting for cryptocurrency.
For more information, visit the CRA webpage below.
https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2024/reporting-your-capital-gains-as-crypto-asset-user.html
2024 Staff Announcements
Congratulations to Jeannie Wagemakers on her retirement after over 30 years of service with GH&A!
John Deering celebrated 20 years of employment with GH&A.
This year we welcomed Brittany Eicher, Kamryn Lund, Olivia Laite, Kelly Blaney and Angie Howkins to the GH&A Team.
Jodee McKinnon and her husband Dallas welcomed a baby boy in 2024.
Congratulations to Tarnbir Mundi on receiving her CPA designation.
Community Involvement
The staff of GH&A are proud to be involved with the following organizations in our community:
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1st Bow Valley Scouts
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2nd Langdon Girl Guides
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Bow Valley Hockey Society
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Carseland School Council
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East Wheatland Athletic Association
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Ecole Brentwood Elementary Parent Council
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Fish Creek Little League
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Foothills Soccer Club
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Friends of Brentwood
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Rockyford Minor Hockey & Ringette Association
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Royal Canadian Sea Cadet Corps #344 Victoria
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Standard & District Agricultural Society
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Standard Municipal Library
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Standard Rodeo Society
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The Wheatland Hospice Society
Social Media
Be sure to follow GH&A on social media for frequent updates and information on accounting and tax changes.
Disclaimer
The information in this publication is current as of December 18, 2024.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations, and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Gregory, Harriman & Associates LLP to discuss these matters in the context of your particular circumstances. Gregory, Harriman & Associates LLP, its partners, employees, and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.