Small Business Guide to the 2024 Canadian Federal Budget

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As a forward-thinking small business owner in Canada, staying informed about the latest federal budget is crucial, especially when it plays a significant role in strategic planning and financial forecasting. The 2024 Federal Budget, presented by Deputy Prime Minister and Minister of Finance Chrystia Freeland, brings several changes that could impact the way you operate and plan for the future. Here’s a breakdown of the most relevant points from the budget, tailored for you—the modern entrepreneur.

 

Capital Gains and Tax Adjustments

Increased Capital Gains Inclusion Rate:
One of the headline changes is the increase in the capital gains inclusion rate from 50% to 66.67%, effective from June 25, 2024. However, for gains under $250,000, the rate remains at 50%. This means if your business disposes of assets or investments, a higher portion of the gains will now be taxable, which could influence investment decisions and timing.

What This Means for You:
If you are considering selling assets or cashing in investments, it might be strategic to execute these transactions before the new rates kick in to capitalize on the lower tax rate. This change requires careful timing to optimize the financial outcome of such sales. This could impact you if you have a cottage, shares in other businesses, or publicly traded investments. You need to balance the benefit if a 50% inclusion rate (compared to upcoming 66%) against the present value of paying those taxes. The increase means about ~32% more taxes upon sale, but in a fictitious example, would you rather pay $50K in taxes now or $66K in 30 years from now when you actually sell the investment.

Lifetime Capital Gains Exemption (LCGE) Boost:

For business owners looking to sell their business, the LCGE has been raised from $1,016,836 to $1,250,000 for dispositions post-June 24, 2024. This is particularly beneficial if you’re in the process of selling your small business as it allows a larger amount of the gain to be exempt from taxes.

What This Means for You:
This increase in LCGE provides an opportunity to reduce your tax liability when selling your business. It could significantly impact your retirement planning or reinvestment plans into new ventures by maximizing the proceeds you keep. 

 

Incentives for Entrepreneurs

Canadian Entrepreneurs’ Incentive:
This new measure benefits small business owners by offering a one-third inclusion rate for capital gains up to $2 million from the sale of qualifying small business shares, starting December 31, 2024. To qualify, the shares must be held for at least five years and more than 50% of the company’s assets must be used in an active business conducted primarily in Canada. Shares cannot be of a professional corporation or a business in the financial, insurance, real estate, food and accommodation, arts, recreation, or entertainment sector, or providing consulting or personal care services.

What This Means for You:
If you’ve been building your business with an exit strategy in mind, this new incentive could reduce the amount of tax payable on the sale significantly. It’s an encouragement to maintain or start businesses with substantial active business assets in Canada and hold onto your investments long-term. It’s also very discouraging to see a long list of excluded industries that essentially seem to capture every kind of business…. It’s a little bit odd to see very industry specific exemptions. 

 

Support for Clean Energy and Technology

Clean Electricity Investment Tax Credit:
If your business is involved in the clean energy sector, this new 15% refundable tax credit for capital costs of eligible property could be significant. This includes solar and wind energy equipment, making green investments more appealing.

What This Means for You:
This credit makes it financially more attractive to invest in or expand clean energy operations. If you’re planning capital investments in clean energy infrastructure, factor this tax credit into your ROI calculations.

EV Supply Chain and Clean Tech Manufacturing Credits:
These credits aim to bolster production facilities related to electric vehicles and clean technology. If your business is part of the EV supply chain or clean tech manufacturing, investing in new facilities could now come with a tax advantage, enhancing profitability and sustainability measures.

What This Means for You:
Leverage these credits to expand into or enhance your capabilities in the EV supply chain. This could be a great opportunity to align your business with future industry standards and consumer preferences, particularly in environmentally conscious markets.

 

Real Estate and Construction Incentives

Purpose-Built Rental Housing:
To encourage the construction of rental housing, the budget introduces accelerated capital cost allowance (CCA) rates for new projects. This could be a substantial boon if your business is in real estate development.

What This Means for You:
If you are in the real estate sector, particularly in rental housing, you can benefit significantly from the accelerated CCA. This means faster write-offs and improved cash flow, which could help accelerate your project timelines or improve profitability. Realistically many times rental properties already don’t declare enough taxable income to claim much CCA, so to be able to accelerate that CCA (Without declaring a loss) is not very useful in our opinion. 

Taxing Vacant Lands:
The government plans to introduce a tax on vacant residentially zoned land to spur development. If you own such land, it might be time to consider developing or selling to avoid potential taxes.

What This Means for You:
This proposed tax should prompt you to evaluate your land assets and consider developing them sooner rather than later. If development is not viable, selling off vacant plots might be a better financial decision to avoid the upcoming tax.

 

Enhancements to Employee Support

Employee Ownership Trusts :
The budget proposes tax exemptions and credits to support businesses that transfer ownership to employees. These initiatives can improve community relations and employee satisfaction.

What This Means for You: If you’re considering transitioning your business model to include employee ownership, this exemption can provide significant tax benefits, potentially improving employee engagement and retention. 

 

Miscellaneous Measures

GST/HST Measures: The extension of GST/HST relief to student residences and the elimination of GST/HST on face masks and shields after April 30, 2024, will affect businesses operating in these areas.

What This Means for You: If your business is involved in the construction or operation of student residences, or in manufacturing or selling face masks and shields, these changes will impact your pricing, costing, and potentially your market strategy. Removing the GST/HST on these items can reduce costs for your customers and may increase demand.

Crypto-Asset Reporting: Starting in 2026, if your business deals with crypto-assets, new reporting rules will require you to disclose more information about transactions.

What This Means for You: For businesses involved with crypto-assets, whether through direct transactions or investment holdings, the new reporting requirements will necessitate better record-keeping and potentially more complex compliance processes. It’s crucial to prepare for these changes by setting up appropriate systems and processes that can handle detailed reporting. Crypto reporting was already not complicated enough…. so they’re adding even more legislation (sarcastic).

 

Financial and Strategic Planning Implications

Interest Deductions and Purpose-Built Rental Housing: The budget proposes to extend certain exemptions from the Excessive Interest and Financing Expenses Limitation (EIFEL) rules specifically for purpose-built rental housing. This can make financing these projects more attractive.

What This Means for You: If you’re financing new construction projects under this category, the extended exemptions can significantly decrease the cost of borrowing, improving the financial viability of such projects. Planning your finances with these rules in mind can lead to substantial savings and more strategic investment decisions.

Taxing Vacant Lands to Incentivize Construction: The government’s consideration of a tax on vacant residentially zoned land aims to stimulate development and reduce speculative holding.

What This Means for You: As a landowner, the introduction of this tax could lead to additional costs if your land remains undeveloped. It’s a push to either develop the land to generate income or sell it to avoid the tax, potentially altering your investment strategy.

Clean Technology Manufacturing Investment Tax Credit (CTMITC): Updates to the CTMITC aim to support investments in properties used primarily for the production of qualifying materials, such as critical minerals necessary for modern technologies.

What This Means for You: If your business is in the manufacturing sector, particularly in technologies that utilize critical minerals, this updated tax credit can reduce the cost of capital investments significantly. This could be a good time to consider expanding or modernizing your facilities to take full advantage of these credits.

 

Wrapping Up

The 2024 Federal Budget brings a mix of challenges and opportunities for small business owners across Canada. By understanding and anticipating the impacts of these fiscal measures, you can better navigate the complexities of tax planning, strategic investment, and business development to harness the potential benefits while mitigating risks.

As always, while this guide provides a good foundation, discussing specific impacts with an accountant is advisable to tailor strategies perfectly aligned with your business objectives and financial situation. Here’s to a prosperous year ahead, leveraging these changes for growth, sustainability, and stronger community ties!

Stay updated, stay prepared, and let’s make the most of the opportunities the 2024 Federal Budget presents!

For more detailed advice and personalized strategic planning, feel free to contact our expert team at Zenbooks. We’re here to help you adapt and thrive in a changing economic landscape.

Feel free to reach out with any questions or for further discussion on how these budget changes might specifically affect your business. Let’s optimize your business strategies together!

 

Eric Saumure, CPA, CA, Principal

Eric Saumure, CPA, CA, Principal

Eric is a recognized Chartered Accountant (CA) and Chartered Professional Accountant (CPA) in the province of Ontario. Eric Saumure studied Accounting and Business at University of Ottawa, and obtained his CPA, CA designation during his time at KPMG LLP. Eric has 11 years of experience and actively works with over 300 clients. Eric Saumure is a Quickbooks Online ProAdvisor and a Xero Certified Partner.
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