On December 16, the Government of Canada released the 2024 Fall Economic Statement — Reducing Everyday Costs and Raising Wages (“Fall Economic Statement”). The Fall Economic Statement includes several tax-related announcements, details of which are outlined below.
Personal income tax
Exempting the Canada Disability Benefit from tax
The Fall Economic Statement proposes to exempt amounts received under the recently announced Canada Disability Benefit from income under the Income Tax Act. This would help ensure income-tested benefits and programs are not reduced as a result of payments under the Canada Disability Benefit. This measure would apply to the 2025 and subsequent taxation years.
Expanding Canada Carbon Rebate rural supplement
The Fall Economic Statement proposes to amend the Income Tax Act to expand eligibility for the Canada Carbon Rebate’s 20% rural supplement to individuals who, within a Census Metropolitan Area, 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.
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 Deduction
The islands of Haida Gwaii are currently included in the Intermediate Zone for purposes of the Northern Residents Deduction. Residents of the Northern Zone are eligible for the full amount of the deduction, while residents of the Intermediate Zone are eligible for half the amount of the deduction. The Fall Economic Statement proposes to re-classify these islands from the Intermediate Zone to the Northern Zone. This change would apply to the 2025 and subsequent taxation years.
Extension of capital gains rollover for Eligible Small Business Corporation (“ESBC”) shares
Individuals are allowed to defer taxation of capital gains on a qualifying disposition of ESBC shares (which is a common share issued by an ESBC to an individual where the total carrying value of the assets of the ESBC and related corporations does not exceed $50 million) to the extent that the proceeds from the disposition are used to acquire replacement ESBC shares within the year of disposition, or up to 120 days following that year.
The Fall Economic Statement proposes to:
- increase the period to acquire replacement shares from the year of disposition plus 120 days to the year of disposition and the calendar year following that year;
- expand the definition of an ESBC share to include both common and preferred shares; and
- increase the limit on the carrying value of the assets of the ESBC and related corporations from $50 million to $100 million.
These changes would be effective for qualifying dispositions that occur on or after January 1, 2025.
Reporting by non-profit organizations
The Income Tax Act provides an exemption from income tax for organizations that meet the definition of a non-profit organization (“NPO”). The Fall Economic Statement proposes the following to the reporting requirements for NPOs to improve transparency:
- require NPOs with total gross revenues over $50,000 to also file the annual NPO information return; and
- require NPOs that do not meet the thresholds for filing the annual NPO information return to file a new, short-form return that contains basic information about the organization.
These measures would apply to the 2026 and subsequent taxation years.
Business income tax
Modification of Canada Carbon Rebate for small businesses
The Fall Economic Statementproposes to modify certain elements of the Canada Carbon Rebate for Small Businesses for the 2024-2025 and later fuel charge years, as follows:
- The tax credit would be extended to include cooperative corporations and credit unions as eligible businesses;
- If an eligible corporation qualifies for a minimum payment and has employees located in multiple provinces (including provinces where the fuel charge is not in place), the employees in each province would be increased proportionally for the purposes of calculating the credit so that the total number of employees in all provinces would be deemed to be 20; and
- Eligible corporations would have their payment amounts reduced on a straight-line basis when the number of employees across Canada is between 300 and 500 (the payment amount would be zero once the number of employees across Canada reaches 500).
Clean Electricity investment tax credit for provincial and territorial Crown corporations
Budget 2024 announced that the Clean Electricity investment tax credit would be available to provincial and territorial Crown corporations for investments made in eligible property situated in eligible jurisdictions. The federal Minister of Finance would designate a province or a territory as an eligible jurisdiction, provided that the Minister was satisfied that the provincial or territorial government had satisfied certain conditions. The Fall Economic Statement announced the final conditions to be considered for this designation, along with the annual reporting requirements that would apply to any designated provincial and territorial Crown corporations.
The Minister would designate a province or a territory as an eligible jurisdiction if the Minister is satisfied that the provincial or territorial government had:
- publicly committed to publish an energy roadmap to achieve net-zero emissions by 2050, inclusive of all energy sources, by the end of 2026; and
- publicly requested that provincial and territorial Crown corporations pass on the benefits of the Clean Electricity investment tax credit to electricity ratepayers in their province/territory.
Once a provincial or territorial government believes it has satisfied the two conditions, it must submit a letter to the Minister requesting designation, noting the date the conditions were satisfied, and including supporting evidence. A provincial or territorial government must satisfy all the conditions by June 30, 2025, in order to be able to access the Clean Electricity investment tax credit.
A provincial or territorial Crown corporation that claims the credit would be required to publicly report the following information relating to its activities in its jurisdiction, on an annual basis:
- Estimates of the Crown corporation's annual forecasted cost of service, with and without any Clean Electricity investment tax credit that it has received;
- A description of the methodology used to prepare the above information;
- The amount of Clean Electricity investment tax credit received for the year and on a cumulative basis; and,
- An explanation of how the value of the Clean Electricity investment tax credit to the Crown corporation is being used to benefit ratepayers in its jurisdiction.
Clean Electricity Investment Tax Credit and the Canada Infrastructure Bank
The Fall Economic Statementproposes to include the Canada Infrastructure Bank as an eligible entity under the Clean Electricity investment tax credit, and to introduce an exception so that any financing provided by the Canada Infrastructure Bank would not reduce the cost of eligible property for the purpose of computing the credit, effective on or after December 16, 2024.
EV Supply Chain investment tax credit
The Fall Economic Statement provides the design and implementation details of the EV Supply Chain investment tax credit as follows:
- The credit would be available only to taxable Canadian corporations that invest directly in eligible property and would not be available for investments made by partnerships or trusts;
- The credit would be available for buildings and structures, including their component parts, that are described in paragraph (q) of capital cost allowance Class 1 of Schedule II of the Income Tax Regulations. All or substantially all of the use of property would have to be in one or more of the three qualifying EV supply chain segments:
- EV assembly, which would comprise the final assembly of a motor vehicle that is either fully electric or a plug-in hybrid that has a battery capacity of at least 7kWh;
- EV battery production, which would comprise the manufacturing of battery cells used in the powertrains of fully electric or plug-in hybrid vehicles, or battery modules used in the powertrains of fully electric or plug-in hybrid vehicles;
- Cathode active material (“CAM”) production, which would:
- include the production of CAM that is used as inputs to the manufacturing of battery cells used in the powertrains of fully electric or plug-in hybrid vehicles; but,
- exclude preliminary processing activities, such as activities that could generally allow property to qualify for the Clean Technology Manufacturing investment tax credit;
- A corporation would be required to invest at least $100 million in each of the three qualifying EV supply chain segments;
- The credit would be subject to potential repayment obligations similar to the existing recapture rules for the Clean Technology Manufacturing investment tax credit. Over a 10-year period from the date of acquiring a particular eligible property, the credit could be repayable in proportion to the fair market value of the particular property if it is converted to an ineligible use, exported from Canada, or disposed of. In addition, the credit could be repayable if the corporation ceased to meet the other conditions set out above;
- The credit would apply to property that is acquired and becomes available for use on or after January 1, 2024. The credit rate would be reduced to 5% for property that becomes available for use in 2033 or 2034. The credit would no longer be in effect for property that becomes available for use after 2034.
Other design elements would generally be based on those of the Clean Technology Manufacturing investment tax credit, where applicable.
Clean Hydrogen investment tax credit — methane pyrolysis
The Fall Economic Statement proposes that the Clean Hydrogen investment tax credit be expanded to include methane pyrolysis as an eligible production pathway.
The expansion of the Clean Hydrogen investment tax credit to include the pyrolysis of natural gas and other eligible hydrocarbons as an eligible hydrogen production pathway would apply in respect of property that is acquired and becomes available for use in an eligible project on or after December 16, 2024.
SR&ED Tax Incentive Program
The Fall Economic Statement proposes several changes that will enhance the value of the Scientific Research and Experimental Development (“SR&ED”) program.
The expenditure limit for the enhanced 35% refundable credit for CCPCs would increase from $3 million to $4.5 million. The taxable capital phase-out threshold for the determining the expenditure limit would be increased to $15 million—the expenditure limit for this enhanced credit would be completely reduced to nil when taxable capital reaches $75 million (up from $50 million).
Eligibility for the enhanced refundable credit would be expanded to also include eligible Canadian public corporations, which would be a corporation that throughout the taxation year:
- is resident in Canada;
- has shares listed on a designated exchange, or has elected or been designated by the Minister to be a public corporation; and
- is not controlled by non-residents.
Canadian-resident corporations all or substantially all of the shares of which are owned by one or more eligible Canadian public corporations would also qualify. Public corporations would have a $4.5 million expenditure limit, which would be phased out based on gross revenue. The limit is reduced on a straight-line basis where average gross revenue over a three-year period is between $15 million and $75 million. CCPCs would also be granted the option to elect to use this gross revenue phase-out to determine their expenditure limit.
All of the above changes pertaining to the enhanced refundable credit apply to taxation years beginning on or after December 16, 2024.
The Fall Economic Statement proposes to reinstate eligibility of capital expenditures for both a deduction from income and the investment tax credit. Capital costs had been eligible prior to 2014. This change would apply to property acquired on or after December 16, 2024. For leases, it would apply for lease payments that become payable on or after December 16, 2024.
With respect to the deduction against income, eligible expenses would be those incurred to acquire depreciable property intended to:
- be used for all or substantially all of its operating time in its expected life in the performance of SR&ED in Canada, or
- consume all or substantially all of its value in performing SR&ED in Canada.
For a CCPC claiming the enhanced refundable credit, capital expenditures can qualify for up to a 40% refundability rate (unlike current expenditures, which are 100% refundable).
Extending the Accelerated Investment Incentive and immediate expensing measures
The Fall Economic Statement proposes to extend the accelerated capital cost allowance (“CCA”) measures.
In 2024, the Accelerated Investment Incentive (“AII”) had begun to be phased out, such that it only suspended the half-year rule and no longer increased the first-year CCA claim by 50%. The Fall Economic Statement proposes to reinstate the AII for property acquired on or after January 1, 2025, with the result being that the first-year CCA deduction would be three times the regular amount. The AII would be phased out beginning in 2030 and fully phased out after 2033. This reinstatement would also apply to Canadian development expenses and Canadian oil and gas property expenses.
The immediate expensing, which was also scheduled to be phased out, will also be extended specifically for the following types of qualifying property:
- Class 53 — manufacturing and processing equipment;
- Class 43.1 — clean energy generation and energy conservation equipment; and
- Classes 54, 55, and 56 — zero-emission vehicles.
The immediate expensing for these assets would be fully reinstated for property acquired on or after January 1, 2025. The phase-out would begin starting in 2030 and fully eliminated for property that becomes available for use after 2033.
Automatic tax filing
The Fall Economic Statement provided a progress update on the government’s intention to implement automatic tax filing and shared its plans for the future of this initiative.
The government is developing legislation to permit the CRA to automatically file a return on behalf of lower income Canadians using information it has available. This could be available as early as the 2025 tax year. Taxpayers would be sent a prefilled return which they would review and modify. The government is also considering:
- the expansion of automatic filing to Canadians with simple tax situations, and
- options for improving availability of free online tax software.
Previously announced tax and related measures
In addition to the general statement that the government is committed “to move forward as required with … technical amendments to improve the certainty and integrity of the tax system”, The Fall Economic Statement specifically mentioned the government’s intention to proceed with the following previously announced measures, “taking into account consultations and deliberations since their release”:
- Legislative proposals included in the Notice of Ways and Means motion tabled on October 29, 2024, related to charities and reproductive services.
- Legislative proposals included in the Notice of Ways and Means motion tabled on September 23, 2024, related to capital gains and the lifetime capital gains exemption.
- Legislative and regulatory proposals released on August 12, 2024, including with respect to the following measures:
- Canadian Entrepreneurs' Incentive;
- Alternative Minimum Tax;
- Disability Supports Deduction;
- Employee Ownership Trust Tax Exemption;
- Worker Cooperatives;
- Charities and Qualified Donees;
- Registered Education Savings Plans;
- Non-Compliance with Information Requests;
- Avoidance of Tax Debts;
- Mutual Fund Corporations;
- Synthetic Equity Arrangements;
- Manipulation of Bankrupt Status;
- Accelerated Capital Cost Allowance for Productivity-Enhancing Assets;
- Accelerated Capital Cost Allowance for Purpose-Built Rental Housing;
- Interest Deductibility Limits;
- Withholding for Non-Resident Service Providers;
- Substantive CCPCs;
- Regulations related to the application of the enhanced (100%) GST Rental Rebate to qualifying co-operative housing corporations;
- Technical amendments relating to the GST/HST, excise levies and other taxes and charges announced in the August 12, 2024, release;
- Clean Electricity Investment Tax Credit;
- Proposed expansion of eligibility for the Clean Technology investment tax credit to support generation of electricity and heat from waste biomass;
- Proposed expansion of eligibility for the Clean Technology Manufacturing investment tax credit to support Polymetallic Extraction and Processing;
- Other changes related to the Clean Economy Investment Tax Credits;
- The Global Minimum Tax Act and the Income Tax Conventions Act; and,
- Technical tax amendments to the Income Tax Act and the Income Tax Regulations.
- Legislative proposals released on July 12, 2024, related to implementing an opt-in Fuel, Alcohol, Cannabis, Tobacco and Vaping (“FACT”) value added sales tax framework for interested Indigenous governments.
- Crypto-Asset Reporting Framework and the Common Reporting Standard announced in Budget 2024.
- Proposed exemption from the Alternative Minimum Tax for certain trusts for the benefit of Indigenous groups announced in Budget 2024.
- Legislative and regulatory proposals announced in Budget 2024 with respect to a new importation limit for packaged raw leaf tobacco for personal use.
- Legislative and regulatory proposals announced in the 2023 Fall Economic Statement with respect to the GST/HST joint venture election rules.
- Regulatory proposals released on November 3, 2023, to temporarily pause the federal fuel charge on deliveries of heating oil.
- Legislative proposals released on August 4, 2023, including with respect to the following measures:
- Technical amendments to GST/HST rules for financial institutions;
- Tax-exempt sales of motive fuels for export;
- Revised Luxury Tax draft regulations to provide greater clarity on the tax treatment of luxury items; and,
- Technical tax amendments to the Income Tax Act and the Income Tax Regulations.
- Legislative amendments to implement changes discussed in the Transfer Pricing Consultation Paper released on June 6, 2023.
- Legislative proposals released on August 9, 2022, including with respect to the following measures:
- Technical amendments to the Income Tax Act and Income Tax Regulations; and,
- Remaining legislative and regulatory proposals relating to the GST/HST, excise levies, and other taxes and charges announced in the August 9, 2022, release.
- Legislative amendments to implement the Hybrid Mismatch Arrangements rules announced in Budget 2021.
- The income tax measure announced on December 20, 2019, to extend the maturation period of amateur athlete trusts maturing in 2019 by one year, from eight years to nine years.
- Legislative amendments to give effect to the suspension of the Canada-Russia Tax Treaty as of November 18, 2024.
