The 2024 federal budget — tabled April 16, 2024 — introduced the most significant set of income tax changes in years, affecting individuals, corporations, and trusts across Canada. The headline change was the capital gains inclusion rate increase, but the budget also expanded the Lifetime Capital Gains Exemption, introduced a new Canadian Entrepreneurs' Incentive, and made targeted changes to housing, clean energy, and international tax rules.
The most controversial measure was the increase in the capital gains inclusion rate from 50% to 66.67% for annual gains above $250,000 for individuals, and for all gains realized by corporations and most trusts, effective June 25, 2024. This change is discussed in detail in our capital gains inclusion rate article. For a corporation realizing a $1 million capital gain, the after-tax reduction in retained earnings is meaningful, and the Capital Dividend Account credit (now one-third of the gain, down from one-half) has also decreased.
Budget 2024 increased the LCGE for qualifying small business corporation (QSBC) shares and qualified farm and fishing property to $1,250,000, effective June 25, 2024. This replaces the prior 2024 indexed amount of approximately $971,190. The exemption will continue to be indexed to inflation going forward. For owners of small businesses planning their exit, this represents an additional $278,810 of tax-free capital gain — worth approximately $70,000 in Alberta at top marginal rates.
A new Canadian Entrepreneurs' Incentive (CEI) was introduced, providing a reduced capital gains inclusion rate of 33.33% (one-third) on up to $2,000,000 of eligible capital gains realized by founding entrepreneurs on the sale of their business. This incentive is being phased in over five years, increasing by $400,000 per year to reach the $2 million limit in 2029.
To qualify for the CEI, the seller must have been a founding shareholder with at least 5% of the shares for at least 24 months, the corporation must be a CCPC primarily carrying on an active business in Canada, and certain industry exclusions apply (professional corporations in law, accounting, medicine, and financial services are excluded).
| Year | CEI Limit | Inclusion Rate on CEI Gains |
|---|---|---|
| 2025 | $400,000 | 33.33% |
| 2026 | $800,000 | 33.33% |
| 2027 | $1,200,000 | 33.33% |
| 2028 | $1,600,000 | 33.33% |
| 2029+ | $2,000,000 | 33.33% |
Multiple housing measures were announced, building on the 2023 Fall Economic Statement:
Budget 2024 introduced or expanded several Investment Tax Credits (ITCs) for clean economy businesses:
The 2024 federal budget changes require immediate attention for business owners planning asset sales, entrepreneurs approaching their exit, and corporations holding significant investments. Our tax professionals help clients model the impact of the new rates and exemptions, structure transactions to maximize available incentives, and comply with the new mandatory disclosure rules also introduced in 2024. Contact us for a comprehensive review of how the budget changes affect your specific situation.