Understanding Taxes Payable at Death in Canada

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A common belief among Canadians is that they will be taxed on money they inherit. However, Canada does not impose an inheritance tax. Instead, after someone passes away, their final tax return must be filed, covering the income they earned up to the date of death. Any taxes owed are paid from the estate’s assets before the remaining funds are distributed to the beneficiaries.

While there isn’t an inheritance tax in Canada, other costs are associated with settling an estate. It’s important to understand these costs and how the process works.

Is There an Estate Tax in Canada?

Canada doesn’t have a traditional estate tax, but there are taxes and fees that apply after death. The Canada Revenue Agency (CRA) ensures that taxes are paid on any income earned up to the date of death. If there is a tax balance owing, the executor of the estate must file a final tax return and settle any outstanding taxes.

Earned Income

When you pass away, any earned income up to the date of death is included in your final tax return. This includes salary, wages, and other forms of income earned before death.

Deemed Disposition

Deemed disposition occurs when all your assets are treated as if they were sold at their current market value upon death. This means the difference between the original purchase price and the market value at the time of death is considered a capital gain.

Capital Gains:

If your assets have increased in value, the difference (capital gain) is taxable. Effective June 25, 2024, 50% of this gain is included in your income unless the total gain exceeds $250,000, in which case any amount above the first $250,000 the inclusion rate increases to two thirds.

What Property Does Deemed Disposition Apply To:

  • Non-Registered Investments: Securities, Mutual Funds, ETFs, Bonds
  • Income Properties
  • Businesses
  • Other Assets

Deemed Withdrawal

Deemed withdrawal applies to registered accounts such as RRSPs and RRIFs. The total value of these accounts is added to your income for the year of death, potentially leading to a significant tax liability.

Example: Earned Income, Deemed Disposition, and Deemed Withdrawal (Effective June 25, 2024)
Let’s consider an example to illustrate how earned income, deemed disposition, and deemed withdrawal work together, including how much of the estate is kept after taxes and how much is paid in taxes:

Scenario:

  • John earned $60,000 in salary up to the date of his death.
  • He owns an income property, stock portfolio and an RRSP.
  • Income Property: Purchased for $200,000, now worth $500,000.
  • Stock Portfolio: Purchased for $50,000, now worth $100,000.
  • RRSP: Total value of $150,000.

Earned Income:

  • John’s earned income of $60,000 is included in his final tax return.

Deemed Disposition:

1.  Income Property:

  •    Original Purchase Price: $200,000, Market Value at Death: $500,000
  •    Capital Gain: $500,000 – $200,000 = $300,000
  •    First $250,000 taxed at 50%: $125,000
  •    Remaining $50,000 taxed at two-thirds: $33,333
  •    Total Taxable Gain: $125,000 + $33,333 = $158,333

2.  Stock Portfolio:

  •    Original Purchase Price: $50,000, Market Value at Death: $100,000
  •    Capital Gain: $100,000 – $50,000 = $50,000
  •    Taxable Portion: 2/3 of $50,000 = $33,333 (Net capital gains exceed $250,000)

Deemed Withdrawal:

  • RRSP Value: $150,000
  • Added to Income: $150,000

Total Taxable Income Calculation:

  • Earned Income: $60,000
  • Taxable Gain from Income Property: $158,333
  • Taxable Gain from Stocks: $33,333
  • RRSP Added to Income: $150,000
  • Total Taxable Income: $60,000 + $158,333 + $33,333 + $150,000 = $401,666

Tax Liability:

  • Assuming John’s tax rate is 30%, his tax liability would be:
  • Total Tax Owed: 30% of $401,666 = $120,500

Estate’s Remaining Value:

  • John’s estate would need to pay $120,500 in taxes, which is 16.06% of the total estate value.
  • If the total value of the assets is $750,000 (including the stock portfolio, income property, and RRSP), the remaining value after taxes would be:
  • Remaining Estate Value: $750,000 – $120,500 = $629,500, which represents 83.93% of the estate.

So, after paying $120,500 in taxes, John’s estate would keep $629,500 to be distributed to the beneficiaries.

Strategies to Address Estate Taxes

To manage the tax burden on your estate, several strategies can be considered:

  1. Spousal Rollovers: Deferring taxes on RRSPs, RRIFs, and other assets by transferring them to your spouse can delay the tax liability until those assets are withdrawn or disposed of.
  2. Gifting Assets: Spreading out the gifting of assets over several years can reduce the overall taxable income in the year of death.
  3. Use of Life Insurance: Life insurance can provide funds to cover taxes, ensuring that your estate remains intact for your beneficiaries.
  4. Planning with a Will: Creating a detailed will that considers tax implications can help in minimizing the taxes payable and ensure your wishes are followed.
  5. Consider Trusts: Setting up trusts can be a way to manage and protect your assets, potentially reducing tax burdens.

Implementing these strategies effectively requires careful planning and consideration of your unique circumstances. Professional guidance can help tailor these strategies to your needs.

Understanding these rules helps in planning your estate effectively. For more personalized advice, feel free to contact us.

What is Critical Illness Insurance?

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Nowadays, people survive serious medical issues such as cancer, a heart attack, or a stroke. And while this is good news if a critical
illness happens to you – your recovery may come with costs that you don’t have the money to cover.

This is where critical illness insurance can play a crucial role. In this article, we’ll explain:

  • What critical illness insurance is.
  • What you can use the money from a critical illness insurance payout for.
  • How you can get critical illness insurance.

What is critical illness insurance?

A critical illness policy is designed to help you pay the costs associated with a serious medical issue such as cancer, a stroke or a
heart attack.  With critical illness insurance, your insurance company will issue you a lump-sum payment once the waiting period has passed.

Critical illness insurance can help you pay for costs that aren’t covered by other health plans or disability insurance.

What can I use the money from critical illness insurance for?

With a critical illness lump-sum payment, there are no restrictions on what you can use the money for. You can choose to use the money
to:

  • Pay down debt or cover costs such as travel to and from your treatment.
  • Cover lost income for you if you cannot work. This is especially important if you are self-employed.
  • Pay for a caregiver or lost wages if your spouse takes time off work to be a caregiver.
  • Cover renovations on your house that are necessary due to your illness.
  • Cover medical treatments and medications not covered by a government or private health plan.

Being able to spend your critical illness insurance lump-sum payment freely takes a lot of stress off you and your family.

How do I get critical illness insurance?

We can help you get critical illness insurance.  If you’re interested in critical illness insurance, these are the steps you’ll need to follow:

  1. Think about why you want critical illness insurance and what kind of coverage you need.
  2. Book an appointment to speak to us. Apply for coverage.
  3. We’ll let you know when you’re approved and deliver your policy.

If you do get any of the illnesses listed in your policy, contact us, and we’ll guide you through the steps you need to file a claim. After your claim is approved, we’ll let you know when to expect your lump-sum payment.

Contact us!

It can be scary to think about getting ill, but critical illness insurance can help put your mind at ease that you’ll have the financial
resources you need. Reach out to us today to learn more!

The Health Spending Account for Business Owners and Incorporated Professionals

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Are you tired of using your hard-earned after-tax dollars to cover medical expenses? As a business owner, the burden of managing healthcare costs can be overwhelming. However, there’s a little-known solution that can alleviate this financial strain – the Health Spending Account.

Designed specifically for entrepreneurs like you, the Health Spending Account offers a tax-efficient way to manage medical expenses. Say goodbye to paying out of pocket with after-tax dollars for your healthcare needs, and let’s explore the advantages of this specialized account tailored to meet the unique needs of business owners and incorporated professionals.

Who’s eligible?

The Health Spending Account is available to a wide range of businesses, making it an inclusive and flexible solution. Small businesses, professional corporations, and corporations that wish to supplement an existing health plan are all eligible to participate in this program. Whether you run a small family-owned enterprise, a professional practice, or a larger corporate entity, the Health Spending Account can cater to your specific needs and provide valuable healthcare benefits for you and your employees.

What are the benefits?

Tax Deductibility for Corporations

As a business owner or incorporated professional, you know the significance of minimizing tax burdens. The Health Spending Account allows your corporation to make contributions that are 100 percent tax-deductible. By taking advantage of this tax benefit, you can reduce your corporation’s taxable income, resulting in lower overall taxes. This leaves you with more funds to reinvest in your business, expand operations, or reward your hardworking employees.

Tax-Free Benefits for You and Your Employees

The Health Spending Account offers tax-free reimbursements for both you, as the business owner or incorporated professional, and your employees. Any medical expense covered through the account is received as tax-free income. This means you get to retain more of your earnings while providing valuable healthcare benefits to your workforce without increasing their taxable income. It’s a win-win situation that fosters employee satisfaction and loyalty.

No monthly premium to pay and cost-efficient

A Health Spending Account (HSA) offers a highly cost-efficient approach to managing medical expenses, providing individuals and businesses with significant financial advantages. One of the key benefits of an HSA is that there is no monthly premium to pay, unlike traditional health insurance plans. This means that participants can access valuable healthcare benefits without the burden of regular premium payments. With no ongoing costs, the HSA allows individuals and businesses to allocate their funds more strategically, ensuring that their healthcare budget is utilized efficiently. This cost-effective feature makes the Health Spending Account an attractive option for those seeking to optimize their healthcare spending while enjoying comprehensive medical coverage.

How it works

The Health Spending Account simplifies the process of managing healthcare expenses:

1. Employees pay for medical services out of pocket.

2. The employee submits the claim for reimbursement.

3. The claim amount is then reimbursed tax-free through the corporation’s account.

4. The claim is reimbursed to the employee.

This streamlined process eliminates the complexities associated with traditional health insurance plans, saving you time and effort.

To learn more about how a health spending account can benefit you, please reach out today to book a meeting, and we would be happy to help.

What is disability insurance?

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If you cannot work because you are seriously injured or ill, disability insurance will provide you with a monthly, tax-free income to help replace your lost wages.  An injury does not have to be as blatant as a broken leg or arm – suffering from chronic pain or dealing with mental health issues can also qualify you for a disability insurance payout.  

Why do I need disability insurance?

Unfortunately, people become disabled – whether temporarily or permanently – quite often. In 2017, over 20 percent of Canadians had one or more disabilities. 

If you’re disabled, you may lose one of your most valuable assets – your ability to work and bring in a paycheck. Disability insurance can help replace that paycheck for as long as you need it to. Being able to rely on a disability insurance payout means you won’t have to dip into your savings if anything happens to you.

Disability insurance is especially important if you are self-employed, particularly if you are the family’s sole income earner.

What if I already have disability insurance through work?

If you have disability insurance through work, that’s great – but it may not replace 100 percent of your paycheck, especially if you’re off work for a long time. If you purchase private disability insurance, you can:

  • Choose how much coverage you want.
  • Adjust your coverage as needed.
  • Not have to worry if you leave your employer – you won’t lose your disability insurance coverage.

Having private disability insurance will give you peace of mind that you either have additional coverage if you are employed and at least some disability coverage if you lose your job.

How does disability insurance work?

We’d be happy to answer any questions you have about disability insurance. There are five main steps to disability insurance:

  1. Determine the amount of coverage you want. The higher your salary, the more coverage you should get.
  2. Pay your monthly premiums. Factors like your health, your age, and the amount of coverage you have will all impact the cost of your premiums.
  3. File a claim if you become disabled – we can help you with this.
  4. Receive your monthly payments once your waiting period has passed – a longer waiting period can lower your premiums, but it does mean you’ll go longer without any income.
  5. When you are healthy enough to return to work, or your coverage period runs out, you will stop receiving disability insurance payments.

We’re Here To Help

If you’d like to know more about disability insurance – from how much it would cost you to what you can file a claim for – we’re here to help! Give us a call today.

Getting Ready for Money Emergencies

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Life can throw unexpected events your way that can hit you in the wallet. Whether it’s falling ill, getting laid off, or facing hefty repair bills for your car or home, these situations can strain your finances. To stay ahead and avoid falling into debt, it’s a good idea to have an emergency fund. This is cash you set aside specifically to handle unforeseen expenses, so you’re not left scrambling for money when the unexpected happens.

Why Emergency Funds Matter

An emergency fund is like an insurance policy for unexpected expenses that everyone can benefit from. It’s a stash of money specifically saved to cover daily living costs during emergencies that catch you off guard, such as:

  • Sudden car repairs

  • Vet visits

  • Losing your job

  • Sudden home repairs

  • Medical emergencies

Creating an emergency fund helps you to:

  • Deal with surprise costs without going into debt

  • Stay away from expensive loans like payday loans or credit card cash advances

  • Keep control of your finances

  • Feel less worried about unexpected expenses.

An emergency fund offers peace of mind during life’s surprises, preventing debt by covering costs without needing to use up savings or retirement funds, which could result in extra fees.

How much do you need?

The amount you should save depends on your financial situation, like how much you earn, what you spend each month, and if you have any dependents. A good rule is to have enough money to cover three to six months of necessary expenses, like rent, groceries, bills, and childcare.

How to Build Your Emergency Fund

Building an emergency fund to cover three to six months of essential living expenses might feel overwhelming, but the key is to start saving gradually. Even putting away a small amount regularly can add up significantly over time.

Here are some ways to build up your emergency fund:

  1. Automate your savings: Pick how much money you want to save, when you want to save it, and how often. Then, arrange for the money to be automatically moved from your regular account to your savings account. You can set up this automatic transfer to happen on your payday. That means the money you’ve chosen to save will be moved as soon as your paycheque is put into your account.

  2. Take advantage of opportunities to boost your emergency fund whenever you can. This might happen when you get extra money, like a tax refund, a pay raise at work, or when you sell things such as a car. Even receiving money as a gift or getting a bonus from your job can help. Additionally, when you finish paying off a loan, consider putting the money you used for payments into your emergency fund instead. Since you’re already used to budgeting for those payments, it’s an easy way to increase your savings without much extra effort.

  3. Make it a habit: Make saving a regular part of your routine by incorporating it into your daily habits. Here are some simple tips to help you get started: drop any loose change into a container whenever you come home, set up a savings, mark your saving dates in advance on your calendar, and use sticky notes on your fridge to remind yourself to save regularly. These small actions can make a big difference in building your savings over time.

Where to keep your emergency fund?

Given that emergencies can occur unexpectedly, having quick access to your funds is important. Although a regular chequing account may offer immediate access to your money, it’s best to keep your emergency fund separate from your regular account. This prevents accidental spending on non-emergencies. Look for an account that:

  • Is distinct from your regular spending account

  • Has minimal or no transaction fees

  • Permits penalty-free withdrawals

  • Earns interest on your savings

Consider exploring “cash equivalents” as an option to invest your money. They’re a bit like cash but can also help your money grow with interest. They’re safe and easy to get your money from. But before you decide, make sure you understand how and when you can take your money out and if there are any extra fees or charges. Examples of cash equivalents include:

  • Savings accounts

  • Chequing accounts

  • High-interest rate savings accounts (HISA)

  • Guaranteed Investment Certificates (GIC)

  • Money market funds

Having an emergency fund can be a lifeline during tough financial times, preventing you from falling into debt. While there’s no fixed amount you should stash away, assessing your financial situation can guide you in determining your ideal emergency fund size. If you need assistance in planning your emergency fund, don’t hesitate to reach out to us for personalized guidance and support.

Contact Us

Network of Professionals

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Our Network of Professionals

As a financial advisor, my primary goal is to help you achieve financial clarity. I do this by accessing a network of dedicated professionals, each bringing their unique expertise to the table. Together, we provide personalized advice and services that help you make informed decisions and secure your future.

Financial Advisor

Think of me as your financial coordinator. I help you figure out your goals, create plans to achieve them, and keep everything on track. Whether it’s planning for retirement, managing investments, or saving for a major purchase, I have access to a network of professionals who ensure every aspect of your financial life works together smoothly.

Accountant/Tax Professional

Having an accountant or tax professional in your financial network is essential for keeping your financial records in order. They handle tasks like bookkeeping, preparing financial statements, and assisting with tax planning. Their role is particularly important during tax season. They help you file your taxes accurately and on time, taking the stress out of the process. By optimizing your tax strategies and ensuring everything is reported correctly, they help you save money. Their skills are invaluable for both your immediate needs and long-term financial planning.

Investment Advisor

Investment advisors focus on building and managing investment portfolios tailored to your short-term, medium-term, and long-term goals. They thoroughly research the market, evaluate investment opportunities, and offer valuable insights to help you create a well-rounded portfolio. Whether you’re saving up for a major purchase, planning for retirement, or aiming for other financial milestones, they assist in choosing the right investment vehicles, such as RRSPs, TFSAs, RRIFs, and non-registered accounts, to support your financial stability and future needs.

Life Insurance and Living Benefits Advisor

Life insurance and living benefits advisors are here to help you protect your greatest asset: yourself. Their job is to make sure you and your family are financially secure if unexpected events occur. These advisors walk you through different insurance options, including disability insurance, critical illness insurance, and life insurance, to find the coverage that fits your needs best. By understanding your unique situation and recommending the right policies, they provide you with peace of mind, knowing that you have a safety net in place for life’s uncertainties.

General Insurance Specialist

General insurance specialists cover a wide range of insurance needs, including auto, property, travel, and liability insurance. They assess your risks and recommend policies that provide the protection you need. Their advice helps you understand your options, compare quotes, and select the best policies to safeguard your assets, ensuring you are well-protected in various aspects of your life.

Banker

Bankers are there to help you navigate a wide range of financial services, especially when it comes to getting loans and credit products. They offer advice on securing personal loans, understanding credit options, and managing debt effectively. Whether you’re looking to finance a major purchase, consolidate debt, or build your credit, bankers provide the support and guidance you need to make informed financial decisions.

Mortgage Broker

Mortgage brokers assist you in securing financing for property purchases by accessing multiple lenders on your behalf. They assess your financial situation, compare mortgage products from various sources, and recommend the best options for you. With their ability to shop around and understand different interest rates, loan terms, and application processes, they ensure you get the best possible mortgage deal, making homeownership more accessible and affordable.

Realtor

Realtors are your go-to professionals for buying or selling property. They provide market insights, negotiate deals, and manage the legal aspects of real estate transactions. With their knowledge of local market trends and property values, realtors help you make informed decisions whether you’re purchasing a home, investing in real estate, or selling property.

Legal & Estate Professional

Legal and estate professionals play a vital role in your financial planning by handling the legal side of things, such as estate planning, wills, trusts, and probate. They make sure your assets are distributed according to your wishes and that all the necessary legal documents are properly set up. Their guidance helps you reduce estate taxes and smoothly navigate the legal processes, ensuring your wealth is transferred to future generations just as you intended.

Having a network of financial professionals is essential for achieving financial well-being. Each member brings their own expertise to address different aspects of your finances, from investments and insurance to legal and real estate matters. As your financial advisor, I act as the coordinator, ensuring that all these professionals work together seamlessly. By leveraging their combined knowledge and skills, you can gain financial clarity and know that every aspect of your financial life is taken care of.

Ready to take control of your financial future? Contact us today.

Empowering Your Family’s Financial Future: A Comprehensive Guide to Budgeting

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Taking charge of your family’s financial well-being through effective budgeting is a crucial step in securing a brighter future. We’ll explore the significance of budgeting and provide practical tips to help you manage your money wisely while ensuring the best possible support for your loved ones, including those with disabilities and their Registered Disability Savings Plan (RDSP).

Why Budgeting Matters for Families

Budgeting is a powerful financial tool that holds importance for all families:

  1. Financial Clarity: It offers a clear overview of your family’s income and expenses, helping you make informed decisions about allocating funds.
  2. Goal Achievement: Budgeting helps you allocate funds not only for your loved one’s RDSP but also for other family financial goals, such as saving for education or a home.
  3. Expense Control: It identifies areas where you can cut back on expenses, freeing up money for your family’s financial priorities.
  4. Debt Reduction: By tracking spending, you can allocate extra funds to pay down debt faster, ensuring your family’s financial stability.
  5. Emergency Preparedness: A budget provides a financial safety net for unexpected expenses, which can be especially critical for families with additional financial responsibilities.

Steps to Effective Budgeting for Families

  1. Calculate Income: Determine your total monthly income, including salaries, government benefits, and any disability-related support for your loved one.
  2. List Expenses: Categorize expenses into fixed (e.g., housing, utilities) and variable (e.g., groceries, entertainment).
  3. Set Financial Goals: Define short-term and long-term financial goals for your family, ensuring that your loved one’s RDSP contributions are part of the plan.
  4. Create a Budget: Use budgeting tools or apps to allocate income to expenses, savings, and financial goals without exceeding your income.
  5. Monitor and Adjust: Regularly track spending against your budget, making necessary adjustments to ensure your family’s financial health.

Tips for Successful Budgeting

  1. Be Realistic: Set achievable goals and create a budget that accommodates your family’s unique needs, including the financial responsibilities associated with the RDSP.
  2. Prioritize Savings: Ensure that contributing to your loved one’s RDSP is a top financial priority, but don’t forget to save for other family goals too.
  3. Emergency Fund: Maintain an emergency fund to cover unexpected expenses, which can benefit all family members.
  4. Review and Cut Expenses: Periodically review expenses to find areas where you can save and allocate more funds to your family’s financial priorities.
  5. Pay Yourself First: Treat savings, including RDSP contributions, as non-negotiable expenses, just like other essential bills.
  6. Seek Professional Advice: Consult a financial advisor who specializes in disability-related financial planning for tailored guidance.

Budgeting is your family’s pathway to financial security and ensuring a brighter financial future. By budgeting wisely and prioritizing your loved one’s financial well-being, you can control your family’s finances, reduce stress, and work towards a future filled with financial peace of mind. Remember, financial success for families means making informed choices that align with your values and aspirations. Start budgeting today to achieve financial wellness for your entire family, balancing the needs of all family members, including those who rely on the support of the RDSP.

Stay Ahead in 2024: A Comprehensive Checklist for Federal Tax Updates

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With the upcoming 2024 Canadian tax rule changes, it’s important to review your financial strategies. We’ve identified the key changes that we expect to influence financial decisions for investors, business owners, incorporated professionals, retirees, and individuals with high income or net worth.


Capital Gains Inclusion Rate

Starting on June 25, 2024, the tax on capital gains is changing. Until now, you would only have to include half of your capital gains in your income for tax purposes. But after that date, you’ll have to include two-thirds of any capital gains over $250,000 on your tax return. This is also the case for employee stock options. 

Consequently, for corporations and trusts, they will have to include two-thirds of all their capital gains, no matter the amount. This is a significant change. 


Lifetime Capital Gains Exemption (LCGE)

The budget proposes increasing the LCGE for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. This change increases tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.


Alternative Minimum Tax (AMT)
The 2023 budget included updates to the AMT, suggesting revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.


Employee Ownership Trust (EOT)

The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met. 


Canadian Entrepreneurs’ Incentive

This new tax measure offers a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years. However, it’s important to know that not all businesses qualify—this doesn’t apply to businesses in professional services, finance, real estate, hospitality, arts, entertainment, or personal care.

Below is a checklist to help you navigate the tax adjustments and ensure your financial plans are updated and aligned with the new rules.


Investors

  • Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate.

  • Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.

  • Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.

  • Employee Stock Options: Adjust the timing of exercising stock options to align with the upcoming changes in inclusion rates.


Business Owners:

  • Corporate Investments: Assess the impact of increased inclusion rates on corporately held assets, exploring the timing of gains realization. Review trust-held investments. 

  • Lifetime Capital Gains Exemption: Maximize the benefits of the increased LCGE for qualifying business assets.

  • Employee Ownership Trust: Consider the advantages of transferring business ownership via an EOT.

  • Succession Planning: Update your succession plans to consider the potential impact of capital gains tax changes.

  • Entrepreneurs Incentive: Check if you are eligible to reduce capital gains taxes. 


Incorporated Professionals:

  • Investments: Assess both personal and corporate investments for the new inclusion rate. Determine the most tax-effective structure for holding and realizing gains from investments.

  • Succession Planning: Time the potential sale of your professional corporation to capitalize on the current LCGE.


Retirees:

  • Estate Planning: Update estate plans considering the impending increase in capital gains rates.

  • Life Insurance Coverage: Ensure life insurance is adequate to cover increased capital gains tax liabilities upon death.

  • Non-Registered Investments and Retirement Income: Review your strategy for non-registered investments to manage taxes on gains and adjust your retirement income plans to accommodate the upcoming changes in capital gains rates.


Individuals with High Income or Net Worth: 

  • Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate. Review trust-held investments. 

  • Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.

  • Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.

  • Charitable Contributions: Align your charitable giving strategies with the new tax benefits and AMT considerations.

Please reach out to us to review your financial strategy together and ensure it aligns with the upcoming changes. 

2024 Federal Budget Highlights

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On April 16, 2024, Canada’s Deputy Prime Minister and Finance Minister, Chrystia Freeland, presented the federal budget.

While there are no changes to federal personal or corporate tax rates, the budget introduces:

  • An increase in the portion of capital gains subject to tax, rising from 50% to 66.67%, starting June 25, 2024. However, individual gains up to $250,000 annually will retain the 50% rate.

  • The lifetime exemption limit for capital gains has been raised to $1.25 million. Additionally, a new one-third inclusion rate is set for up to $2 million in capital gains for entrepreneurs.

  • The budget confirms the alternative minimum tax changes planned for January 1, 2024 but lessens their impact on charitable contributions.

  • This year’s budget emphasizes making housing more affordable. It provides incentives for building rental properties specifically designed for long-term tenants.

  • Introduces new support measures to aid people buying their first homes.

  • Costs for specific patents and tech equipment and software can now be written off immediately.

  • Canada carbon rebate for small business.

Capital Gains Inclusion Rate

The budget suggests raising the inclusion rate on capital gains after June 24, 2024:

  • Corporations and trusts, from 50% to 66.67%.

  • Individuals, on capital gains over $250,000 annually, also from 50% to 66.67%.

For individuals, the $250,000 annual threshold that applies to net capital gains—the amount remaining after offsetting any capital losses. This includes gains acquired directly by an individual or indirectly through entities such as partnerships or trusts. Essentially, this threshold acts as a deductible, considering various factors to determine the net gains eligible for the increased capital gains tax rate.

Individuals in the highest income bracket, who earn above the top marginal tax rate threshold, will face a higher tax rate on capital gains exceeding $250,000 due to these changes. Furthermore, the budget modifies the tax deduction for employee stock options to align with the updated capital gains taxation rates yet maintains the initial 50% deduction for the first $250,000 in gains. Regarding previously incurred financial losses, the budget plans to adjust the value of these net capital losses from past years so that they are consistent with the current gains, upholding the uniformity with the new inclusion rate.

The budget outlines transitional rules for the upcoming tax year that straddles the implementation date of the new capital gains rates. If the tax year begins before June 25, 2024, but ends afterward, capital gains realized before June 25 will be taxed at the existing rate of 50%. However, gains accrued after June 24, 2024, will be subject to the increased rate of 66.67%. It’s important to note that the new $250,000 threshold for higher tax rates will only apply to gains made after June 24.

Consequently, for individuals earning capital gains beyond the $250,000 threshold and who fall into the highest income tax bracket, new rates will be effective as outlined in the table below. Specifically, this pertains to individuals with taxable incomes exceeding $355,845 in Alberta, $252,752 in British Columbia, $1,103,478 in Newfoundland and Labrador, $500,000 in the Yukon, and $246,752 in all other regions.

Further details and guidance on these new rules are expected to be provided in future announcements.

Lifetime Capital Gains Exemption

The budget proposes raising the Lifetime Capital Gains Exemption (LCGE) for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. Additionally, the exemption will once again be adjusted for inflation starting in 2026. This change aims to increase the tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.

 

Canadian Entrepreneurs’ Incentive

The Canadian Entrepreneurs’ Incentive is a new tax measure which provides a reduced inclusion rate on capital gains from the disposition of qualifying small business shares.

Qualifications for the incentive include:

  • Shares must be of a small business corporation directly owned by an individual.

  • For 24 months before selling, over half the corporation’s assets must be actively used in a Canadian business or be certain connected assets.

  • The seller needs to be a founding investor who held the shares for at least five years.

  • The seller must have been actively involved in the business continuously for five years.

  • The seller must have owned a significant voting share throughout the subscription period.

  • The incentive does not apply to shares linked to professional services, financial, real estate, hospitality, arts, entertainment, or personal care services sectors.

  • The shares must have been acquired at their fair market value.

  • The incentive allows for a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years.

This measure will apply to dispositions after December 31, 2024.

Alternative Minimum Tax (AMT)

The 2023 budget included updates to the AMT, with proposed changes outlined in the summer of 2023. The budget suggests revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.

Further proposed changes to the AMT include:

  • Permitting deductions for the Guaranteed Income Supplement, social assistance, and workers’ compensation benefits.

  • Exempting employee ownership trusts (EOTs) entirely from AMT.

  • Allowing certain tax credits, like federal political contributions, investment tax credits (ITCs), and labour-sponsored funds tax credit, to be carried forward if disallowed under the AMT.

These changes would take effect for tax years beginning after December 31, 2023. Additionally, the budget proposes technical amendments that would exempt specific trusts benefiting Indigenous groups from the AMT.

Employee Ownership Trust (EOT) Tax Exemption

The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met:

  • Sale of shares must be from a non-professional corporation.

  • The seller, or their spouse or common-law partner, must have been actively involved in the business for at least two years prior to the sale.

  • The business shares must have been solely owned by the seller or a related person or partnership for two years before the sale, and mainly used in active business.

  • At least 90% of the EOT’s beneficiaries must be Canadian residents after the sale.

  • If multiple sellers are involved, they must jointly decide how to divide the $10 million exemption

  • If the EOT doesn’t maintain its status or if the business assets used in active business drop below 50% at any point within 36 months after the sale, the tax exemption may be revoked.

  • For Alternative Minimum Tax purposes, the exempted gains will face a 30% inclusion rate.

  • The normal reassessment period for the exemption is extended by three years.

  • The measure now also covers the sale of shares to a worker cooperative corporation.

This exemption is valid for sales occurring from January 1, 2024, to December 31, 2026.

Home Buyers Plan (HBP)

The budget proposes enhancements to the HBP for 2024 and beyond, effective for withdrawals after April 16, 2024. These include:

  • Raising the RRSP withdrawal limit from $35,000 to $60,000 to support first-time homebuyers and purchases for those with disabilities.

  • Extending the grace period before repayment starts from two to five years for withdrawals made between January 1, 2022, and December 31, 2025, deferring the start of the repayment period and thereby providing new homeowners additional time before they need to commence repayments

Interest Deductions and Purpose-Built Rental Housing

The budget proposes a selective exemption from the Excessive Interest and Financing Expenses Limitation (EIFEL) rules for certain interest and financing expenses related to arm’s length financing. This exemption is for the construction or purchase of eligible purpose-built rental housing in Canada and applies to expenses incurred before January 1, 2036. To qualify, the housing must be a residential complex with either at least four private apartment units, each with its own kitchen, bathroom, and living areas, or 10 private rooms or suites. Additionally, at least 90% of the units must be designated for long-term rental. This exemption will be effective for tax years starting on or after October 1, 2023, in line with the broader EIFEL regulations.

Accelerated Capital Cost Allowance (CCA) – Purpose built rental housing

The budget introduces an accelerated CCA of 10% for new rental projects that start construction between April 16, 2024, and December 31, 2030, and are completed by December 31, 2035. This accelerated depreciation applies to projects that convert commercial properties into residential complexes or expand existing residential buildings that meet specific criteria under the EIFEL rules. However, it does not cover renovations to existing residential complexes.

Additionally, these investments will benefit from the Accelerated Investment Incentive, which allows for immediate depreciation deductions for properties put into use before 2028. Starting in 2028, the regular depreciation rules, including the half-year rule, will apply.

Accelerated Capital Cost Allowance (CCA)- Productivity-enhancing assets

The budget introduces immediate expensing for newly acquired properties that become operational between April 16, 2024, and December 31, 2026. This applies to specific categories such as:

  • Class 44- Patents and rights to patented information

  • Class 46- Data network infrastructure and related software

  • Class 50- General electronic data-processing equipment and software

Properties that are put into use between 2027 and 2028 will continue to benefit from the Accelerated Investment Incentive.

To qualify for this accelerated depreciation, the property must not have been previously owned by the taxpayer or someone closely connected to them, and it must not have been received as part of a tax-deferred deal. Also, if a tax year is shorter, the depreciation will be adjusted accordingly and will not carry over to the next year.

Canada Carbon Rebate for Small Businesses

The budget introduces a Canada Carbon Rebate for small businesses, offering a new refundable tax credit automatically. To be eligible, a Canadian-controlled private corporation must:

  • File a tax return for its 2023 tax year by July 15, 2024, for the fuel charge years from 2019-20 to 2023-24. For subsequent fuel charge years, it must file a tax return for the tax year that ends within that fuel charge year.

  • Employ 499 or fewer people across Canada during the year that corresponds with the fuel charge year.

The amount of the tax credit for each eligible business will depend on:

  • The province where the company had employees during the fuel charge year.

  • The number of employees in that province multiplied by a rate set by the Minister of Finance for that year.

  • The CRA will automatically calculate and issue the tax credit to qualifying businesses.

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Manitoba’s 2024 Budget Highlights

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On April 2, 2024 the Manitoba Minister of Finance announced the province’s 2024 budget. This article highlights the most important things you need to know about this budget, broken into 2 sections:

  • Personal Tax Changes

  • Business Tax Changes

Personal tax changes

There are no changes to the province’s personal tax rates in Budget 2024. 

As a result, Manitoba’s personal income tax rate remains as follows: 

Basic Personal Amount

Starting from the year 2025, people earning between $200,000 and $400,000 may see a reduction in the Basic Personal Amount they can claim on their taxes.

Renters Tax Credit

The budget boosts the Renters Tax Credit to a maximum of $575 (up from $525) and increases the additional support for low-income seniors to $328 (up from $300), starting in the 2025 tax year.

School Tax-Related Credits

The budget gets rid of the School Tax Rebate and Education Property Tax Credit for the 2025 tax year as part of changing how this tax system works. Also, it ends some school tax-related benefits for seniors like the Education Property Tax Credit senior’s top-up and the School Tax Credit but keeps the Seniors School Tax Rebate. Manitoba also says it will stop giving the School Tax Rebate for commercial properties, except for farms, which will still get a 50% rebate.

Homeowners Affordability Tax Credit

The budget brings in a new Homeowners Affordability Tax Credit starting in 2025. This credit, worth up to $1,500 for main homes, aims to replace the School Tax Rebate and Education Property Tax Credit. It’ll be subtracted directly from the property tax bill.

Fertility Treatment Tax Credit

The budget improves the Fertility Treatment Tax Credit for the 2024 tax year. It raises the highest yearly allowable expense to $40,000 (up from $20,000), and the yearly credit available to $16,000 (up from $8,000).

Gas Tax

The budget prolongs the temporary gas tax reduction until September 30, 2024, which was previously set to end on June 30, 2024. This means that there will still be no tax charged on gasoline, diesel, and marked gasoline until this new date.

Business tax changes

There are no changes to the province’s corporate tax rates in Budget 2024. 

As a result, Manitoba’s Corporate income tax rate remains as follows: 

1On first $500,000 of active business income.


Data Processing Investment Tax Credit

The budget gets rid of the Data Processing Investment Tax Credits for the 2025 tax year. 

Sales Tax Registration

The budget raises the sales tax registration threshold to $30,000 of taxable sales starting from January 1, 2024, up from the previous $10,000. Manitoba wants its rules to match the federal $30,000 GST/HST registration threshold.

Sales Tax Commissions

The budget removes sales tax commissions for businesses that report less than $3,000 in sales tax in any filing period ending after April 2024.

Rental Housing Construction Tax Credit

The budget introduces a Rental Housing Construction Tax Credit. This credit gives $8,500 for building new market-rate rental homes and $13,500 for homes kept affordable for at least 10 years. Non-profit groups get a full refund, while other businesses can get $8,500 back for all homes. Additionally, there’s a $5,000 credit over 10 years for affordable homes. Construction must start on or after January 1, 2024, to qualify. 

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Wondering how this year’s budget will impact your finances or your business? We can help – give us a call today!  

Source: https://www.gov.mb.ca/budget2024/index.html