By Wealth Professional | May 9, 2024
Originally published May 2, 2024 

The 2024 federal budget has lots for advisors to consider. Read Wealth Professional’s analysis below to learn how to navigate these changes.

The Government’s new methods could directly affect your investment portfolios 

The Government intends to finance most of its new spending initiatives through increased taxes targeting the wealthiest Canadians and businesses, and government revenues that have exceeded initial projections.

As Deputy Prime Minister and Minister of Finance Chrystia Freeland unveils the Canadian federal budget for 2024, Canadians find themselves at the forefront of translating these policy changes into actionable strategies for their portfolios. With Canadians grappling with the strain of elevated living costs, understanding budget changes is important.

In her remarks to the House of Commons, Freeland said, “We are moving with purpose to help build more homes, faster. We are making life cost less. We are driving the kind of economic growth that will ensure every generation of Canadians can reach their full potential.”  Here are some of the key priorities and their potential impact for consideration:  

Capital gains inclusion rate adjustment: impacting the highest earners in Canada

Canada's 2024 federal budget introduces a significant addition: a fresh revenue source through heightened taxes on capital gains for the country's top earners, estimated to generate $19.3 billion within the upcoming five years.

Though it doesn't precisely resemble the anticipated wealth tax or excess profit tax, Freeland aims at the wealthiest 0.13 per cent by elevating the capital gains inclusion rate. This adjustment impacts individuals with capital gains exceeding $250,000 annually.  

The proposed increase in capital gains inclusion rate is set to increase from 50 per cent to 66.67 per cent for corporations, trusts, and individuals.  

Individuals with significant capital gains exposures should be aware of the potential impact on their investment portfolios and estate planning strategies. Tax-efficient wealth management tactics, such as portfolio rebalancing, tax-loss harvesting, and exploring alternative investment vehicles may help to optimize after-tax returns. Individuals may contemplate accelerating their tax obligations in the upcoming weeks due to the government's proposed increase in the capital gains rate. This strategy aims to minimize the potential tax burden now, compared to potentially higher liabilities in the future. Those who frequently realize capital gains in their portfolios now have an opportunity to contemplate realizing a significant portion of gains before June 25. This enables them to leverage the guaranteed 50 per cent inclusion rate on specific segments of their portfolio that align with their asset allocation strategy.  

Freeland also clarified this rise in the capital gains inclusion rate is unlikely to impede Canada's business competitiveness, highlighting that in most other nations, corporations pay corporate income tax on the entirety of their capital gains.  

Leading up to the federal budget release, economic analysts had cautioned against more direct wealth or excess profit taxes, fearing they could counteract the Liberals' efforts to stimulate productivity and growth.¹   

Alternative minimum tax revisions

The Alternative Minimum Tax (AMT) underwent significant changes in the 2023 budget, with proposed increases in tax rates and a broader scope. The 2024 budget aims to refine these proposals, introducing key amendments tailored to impact taxpayers and financial advisors alike. Some notable adjustments include an increase in the claim for the charitable donation tax credit to 80 per cent (previously proposed at 50 per cent), full deductions for certain social benefits such as the Guaranteed Income Supplement and workers' compensation payments, and full exemption for Employee Ownership Trusts from the AMT. Additionally, specific credits previously disallowed under the AMT may now be eligible for carry-forward, including federal political contribution tax credits and investment tax credits. Notably, the 2024 budget extends AMT exemptions to certain trusts benefiting Indigenous Groups, reflecting a commitment to equity and inclusivity in tax policy.  

Lifetime Capital Gains Exemption

In parallel, amendments to the Lifetime Capital Gains Exemption (LCGE) present an opportunity for individuals to reassess their long-term financial objectives. With the LCGE set to increase to $1.25 million, individuals can leverage this enhanced tax relief to facilitate succession planning, intergenerational wealth transfer, and business restructuring endeavors. 

Home buyers’ plan expansion

The proposed increase in the Home buyers’ plan (HBP) withdrawal limit from $35,000 to $60,000 marks a significant boost for first-time homebuyers. Also, the extension of the repayment grace period by three years for withdrawals made between Jan. 1, 2022, and Dec. 31, 2025, offers additional flexibility and relief. Leveraging these enhanced benefits may help individuals to achieve their home ownership goals while maintaining financial stability.  

Strategic planning considerations  

As Canadians navigate these changes, proactive planning becomes essential. Understanding the nuances of revised capital gains inclusion rate and exploring tax-efficient investment strategies can help mitigate potential tax burdens. Similarly, optimizing the utilization of available deductions and credits under the revamped AMT framework can enhance overall tax efficiency.  

Additionally, with the expanded HBP limits, first-time home buyers can maximize their access to registered retirement savings plan (RRSP) funds.

By aligning investment decisions with long-term financial objectives and leveraging available government programs, Canadians can navigate proposed 2024 budget items effectively.  

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