Canada’s 2024 federal budget, announced on 16 April 2024, includes significant changes for individuals, most notably the increase in the capital gains inclusion rate from one-half to two-thirds , effective June 25, 2024.
Capital gains can result upon a normal-course disposition of certain assets (for example, shares of public corporations and real estate), but also upon death or upon a cessation of Canadian tax residency (for example, a departure from Canada).
The budget contains other provisions relevant to entrepreneurs and shareholders of Canadian private corporations.
Additional details and guidance regarding the implementation of these rules, are expected in the coming months.
The budget proposal presents an opportunity to reassess strategies regarding realizing latent capital gains, international moves outside Canada, estate planning, as well as exercising vested stock options. This should be considered in the broader context of a cost-benefit analysis of taxation at a relatively lower rate versus continued investment and taxation at a higher rate in the future.
For more information on the tax implications of the proposed changes, please consult your regular BDO contact or the authors of this article.
Debra Moses
Ana-Luiza Georgescu
BDO in Canada
Capital gains inclusion changes
Under the budget proposal, Individuals with net gains not exceeding CAD 250,000 will continue to benefit from the one-half inclusion rate. For 2024, the $250,000 threshold will not be prorated and will apply only against capital gains incurred on or after June 25, 2024.Capital gains can result upon a normal-course disposition of certain assets (for example, shares of public corporations and real estate), but also upon death or upon a cessation of Canadian tax residency (for example, a departure from Canada).
Stock option benefit changes
The budget also proposes to decrease the stock option deduction that is currently available upon the exercise of employee stock options to one-third to align with the new capital gains inclusion rate. Individuals would continue to benefit from a deduction of one-half of the taxable benefit from stock options, up to a combined $250,000 for both employee stock options and capital gains. It is unclear whether this will be taken into account at the time the employer must withhold the tax -- generally upon the exercising of the stock options -- or as a refund with the individual’s personal tax return. The latter option may result in increased scrutiny of capital transactions reported on the personal tax return and timing issues for any applicable tax refund.The budget contains other provisions relevant to entrepreneurs and shareholders of Canadian private corporations.
Additional details and guidance regarding the implementation of these rules, are expected in the coming months.
The budget proposal presents an opportunity to reassess strategies regarding realizing latent capital gains, international moves outside Canada, estate planning, as well as exercising vested stock options. This should be considered in the broader context of a cost-benefit analysis of taxation at a relatively lower rate versus continued investment and taxation at a higher rate in the future.
BDO commentary
The changes discussed in this article may add complexity to a departure from Canada as well as normal–course dispositions. We will continue to monitor legislative developments to enable us to provide further details on the capital gain changes and the taxation of the stock option changes.For more information on the tax implications of the proposed changes, please consult your regular BDO contact or the authors of this article.
Debra Moses
Ana-Luiza Georgescu
BDO in Canada