2024 Federal Economic Statement Highlights

On December 16, 2024, amidst uncertainty following the resignation of the Deputy Prime Minister and Minister of Finance, the Honourable Karina Gould, MP and Government House Leader tabled the federal government’s 2024 Fall Economic Statement (FES).

Given the growing political instability of the government, it is unclear at this time how it will move forward on many of the ideas outlined in the FES. MNP continues to closely monitor developments to better understand the anticipated impacts of the current situation as it relates to changes to the Income Tax Act as well as other measures that could have a longer-term impact on our clients.

No personal or corporate income tax rate changes were announced. However, the Department of Finance (Department) presented various business and personal tax measures. It also introduced enhancements to the Scientific Research and Experimental Development (SR&ED) tax incentives. The Department confirmed its intention to proceed with previously announced tax measures.

Following are the tax highlights from this year’s FES.

Business Tax Measures

Canadian Carbon Rebate for Small Businesses

Canada Carbon Rebate for Small Businesses is an automatic, refundable tax credit provided directly to eligible businesses in provinces where the federal fuel charge applies. Corporations that filed their tax returns for 2023 by July 15, 2024, should have already received their payments.

The FES proposes to modify certain elements of this tax credit for the 2024-25 and later fuel charge years. Eligible businesses would be extended to include cooperative corporations and credit unions. A minimum payment would be established so that an eligible corporation with fewer than 20 employees would be eligible for a payment corresponding to it having 20 employees. A phase-out would be introduced on a straight-line basis when the number of employees is between 300 and 500 and the rebate would continue to be eliminated once the number of employees reaches 500. 

The tax credit continues to be available to a CCPC that files their tax return for the calendar year in which the fuel charge year begins by July 15 of the following calendar year.

Clean Economy Investment Tax Credits

The FES includes additional details on certain clean economy investment tax credits. Specifically:

• Clean Electricity Investment Tax Credit: The final conditions and annual reporting requirements for Provincial and Territorial Crown Corporations wishing to claim this credit are provided. As well, the Canadian Infrastructure Bank will be included as an eligible entity under this tax credit.
• EV Supply Chain Investment Tax Credit: The design and implementation details for this credit are provided. To be eligible for the credit, an eligible business must invest in property generally used in one or more of the three qualifying EV supply chain segments, including EV assembly, EV battery production, or cathode active material (CAM) production. The Department intends to release draft legislation for consultation.
• Clean Hydrogen Investment Tax Credit: The tax credit will be expanded to include methane pyrolysis as an eligible production pathway and provides additional details on how it would apply to these projects.

Reporting for Non-Profit Organizations (NPOs)

The FES proposes several changes to the reporting requirements for NPOs to improve transparency in this sector. Currently, an NPO is only required to file an annual information return if:

• the total of all passive income exceeds $10,000,
• the organization’s total assets at the end of the preceding fiscal period exceeded $200,000, or
• an information return was required to be filed by the organization for a preceding fiscal period.

The FES proposes to expand reporting requirements, requiring NPOs with total gross revenues over $50,000 to also file the annual NPO information return. Additionally, the FES proposes a new short-form NPO return for NPOs that do not meet the thresholds noted above. This new filing requirement would require the NPO to provide basic information generally including various identification information, a description of the organization's activities and location, as well as the organization’s total assets, liabilities and revenues.

These measures would apply to 2026 and subsequent taxation years.

Immediate and Accelerated Expensing

The FES proposes to fully re-instate the Accelerated Investment Incentive (AII) and immediate expensing measures for qualifying property acquired on or after January 1, 2025, and that becomes available for use before 2030. The re-instated immediate expensing measures are those that apply to manufacturing or processing machinery and equipment, clean energy generation and energy conservation equipment, and zero-emission vehicles.

The enhanced CCA deductions will be phased out starting in 2030 and fully eliminated for property that becomes available for use after 2033.

Eligible property that is acquired and becomes available for use before 2030 can benefit from up to three times the normal first-year CCA deduction (for property subject to the half-year rule) under the AII and a 100 percent first-year enhanced allowance under immediate expensing.

Scientific Research and Experimental Development (SR&ED)

The FES proposes various changes to the SR&ED tax credit incentive program. Historically, under the SR&ED program, qualifying expenditures are deductible and generally eligible for an investment tax credit (ITC). The credit rate varies depending on the characteristics of the taxpayer (e.g. legal status and size of the taxpayer). A taxpayer can generally benefit from the basic non-refundable investment tax credit rate of 15 percent on qualified SR&ED expenditures or the enhanced refundable ITC rate of 35 percent earned by certain corporations on their qualified SR&ED expenditures up to their expenditure limit.

The FES proposes to broaden the eligibility criteria and introduce various key changes:

• Increase the annual expenditure limit from $3 million to $4.5 million on which the enhanced ITC rate of 35 percent applies
• Increase the prior-year “taxable capital” phase-out threshold for determining the SR&ED expenditure limit starting at $15 million to $75 million (previously $10 million to $50 million)
• Extend the eligibility for the enhanced ITC rate of 35 percent to eligible Canadian public corporations on up to $4.5 million of qualifying SR&ED expenditures annually. This was originally only accessible by a Canadian-controlled private corporation (CCPC).
  • For an eligible Canadian public corporation, the expenditure limit of $4.5 million will be reduced on a straight-line basis when the corporation’s average gross revenue over the three preceding years is between $15 million and $75 million. Members of a corporate group would be required to share the expenditure limit of $4.5 million.
• CPPCs would have the option to gradually reduce the expenditure limit of $4.5 million where taxable capital employed in Canada for the previous taxation year is between $15 million and $75 million or use the same gross revenue phase-out structure proposed for the Canadian public corporations.
• Restore the SR&ED eligibility of capital expenditures (removed from eligibility effective 2014) for both the deduction against income and the ITC components of the SR&ED program. This proposed change would apply to property acquired on or after December 16, 2024.

The proposed changes will come into force for taxation years that begin on or after December 16, 2024. The Federal Government will provide more details on all SR&ED program updates in the upcoming Budget 2025.

To encourage the development and retention of intellectual property in Canada, the FES also announces the government’s intent to implement a patent box regime, which generally provides a preferential tax rate to income derived from certain types of intellectual property. The government is reviewing feedback from consultations held earlier this year and will announce details of the patent box regime in Budget 2025.

Personal tax measures

Exempting the Canada Disability Benefit from Tax

The FES proposes to exempt amounts received under the Canada Disability Benefit from income under the Income Tax Act. This would help ensure that income-tested benefits and programs, such as the Canada Child Benefit, are not reduced because of payments under the Canada Disability Benefit.

This measure would apply to the 2025 and subsequent taxation years.

Canada Carbon Rebate Rural Supplement

The FES proposes to expand eligibility for the 20 percent rural supplement to individuals who live within a Census Metropolitan Area (CMA) and reside in a census rural area (less than 1,000 individuals) or a small population centre (less than 30,000 individuals) as designated by Statistics Canada.

This measure also proposes to base eligibility for the supplement on these geographical designations as per the most recent Census published before the taxation year. A partial list of areas newly eligible for the Canada Carbon Rebate Rural Supplement can be found in Table 2 of the FES.

The proposed changes would apply as of the 2024 taxation year, meaning the first payments under the proposed rules would occur in April 2025.

Northern Residents Deductions

The FES proposes to re-classify the islands of Haida Gwaii from the Intermediate Zone to the Northern Zone, which would allow these residents to claim up to the maximum value of the Northern Residents Deductions (currently only eligible for half the amount).

This change would apply to the 2025 and subsequent taxation years.

Capital Gains Rollover on Investments

Currently, individuals can defer taxation on capital gains realized on the qualifying dispositions of Eligible Small Business Corporation (ESBC) shares to the extent that the proceeds are used to acquire replacement ESBC shares. There are a number of conditions which must be met to qualify under these rules.

The FES proposes to increase the period to acquire replacement shares and to expand what qualifies as an ESBC share. First, the period to acquire replacement shares would be expanded to encompass the year of disposition and the entire calendar year after the year of disposition. Second, an ESBC share would include both common and preferred shares. Finally, the limit to the carrying value of the assets of the ESBC and related corporations would be increased to $100 million (from $50 million). These changes would be effective for qualifying dispositions that occur on or after January 1, 2025.

Tax administration

Funding for Canada Revenue Agency (CRA)

The FES proposes a significant increase to funding for CRA of $451.5 million over five years with an expected return on investment of $2.9 billion by reinforcing CRA’s ability to prevent fraud and lead audits. Several areas of focus are listed, including audits of emergency business subsidy amounts and closing of major compliance gaps in the high net-wealth population, those active in the underground economy, and the trust-filing population.

Previously announced measures

The FES confirms the Department’s intention to proceed with a number of previously announced tax measures. The Department indicated these measures will consider consultations and deliberations from earlier releases.

Significant measures include legislative proposals for the following:

• Capital gains and the lifetime capital gains exemption
• Canadian Entrepreneur’s Incentive
• Alternative Minimum Tax
• Enhanced Trust Reporting
• Non-compliance with Information Requests
• Interest Deductibility Limits
• Various Clean Economy Tax Credits
• Substantive CCPCs
• GST/HST Joint Venture Election
• The Global Minimum Tax Act

MNP has participated in consultations on many of these measures to highlight considerations and provide recommendations for implementing the proposals. Please click on the link to view our latest submission:

• Submission on Canadian Entrepreneurs Incentive and Enhanced Trust Reporting
• Submission on Capital Gains Inclusion Rate Changes