The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, today tabled her fourth budget ⁠–⁠ “Fairness for Every Generation.”

The following is a brief overview of the key tax measures.

Personal Income Tax Measures

Lifetime Capital Gains Exemption

The income tax system provides an individual with a lifetime tax exemption for capital gains realized on the disposition of qualified small business corporation shares and qualified farm or fishing property. The amount of the Lifetime Capital Gains Exemption (LCGE) is $1,016,836 in 2024 and is indexed to inflation.

Budget 2024 proposes to increase the LCGE to apply to up to $1.25 million of eligible capital gains. This measure would apply to dispositions that occur on or after June 25, 2024. Indexation of the LCGE would resume in 2026.

Canadian Entrepreneurs’ Incentive

Budget 2024 proposes to introduce the Canadian Entrepreneurs’ Incentive. This incentive would reduce the tax rate on capital gains on the disposition of qualifying shares by an eligible individual. Specifically, this incentive would provide for a capital gains inclusion rate that is one half the prevailing inclusion rate, on up to $2 million in capital gains per individual over their lifetime.

The lifetime limit would be phased in by increments of $200,000 per year, beginning on January 1, 2025, before ultimately reaching a value of $2 million by January 1, 2034.

Under the two‑thirds capital gains inclusion rate proposed in Budget 2024, this measure would result in an inclusion rate of one third for qualifying dispositions. This measure would apply in addition to any available capital gains exemption.

This measure would apply to dispositions that occur on or after January 1, 2025.

Capital Gains Inclusion Rate

Budget 2024 proposes to increase the capital gains inclusion rate from one half to two thirds for corporations and trusts, and from one half to two thirds on the portion of capital gains realized in the year that exceed $250,000 for individuals, for capital gains realized on or after June 25, 2024.

The $250,000 threshold would effectively apply to capital gains realized by an individual, either directly or indirectly via a partnership or trust, net of any:

• Current year capital losses;
• Capital losses of other years applied to reduce current‑year capital gains; and
• Capital gains in respect of which the LGCE, the proposed Employee Ownership Trust Exemption or the proposed Canadian Entrepreneurs’ Incentive is claimed.

Claimants of the employee stock option deduction would be provided a one third deduction of the taxable benefit to reflect the new capital gains inclusion rate but would be entitled to a deduction of one half the taxable benefit up to a combined limit of $250,000 for both employee stock options and capital gains.

Net capital losses of prior years would continue to be deductible against taxable capital gains in the current year by adjusting their value to reflect the inclusion rate of the capital gains being offset. This means that a capital loss realized prior to the rate change would fully offset an equivalent capital gain realized after the rate change.

The annual $250,000 threshold for individuals would be fully available in 2024 (i.e., it would not be prorated) and would apply only in respect of net capital gains realized in Period 2.

Other consequential amendments would also be made to reflect the new inclusion rate, to be released in the coming months.

Volunteer Firefighters and Search and Rescue Volunteers Tax Credits

Budget 2024 proposes to double the credit amount for the Volunteer Firefighters Tax Credit and the Search and Rescue Volunteers Tax Credit to $6,000. This would increase the maximum tax relief to $900.

This enhancement would apply to the 2024 and subsequent taxation years.

Mineral Exploration Tax Credit

The Mineral Exploration Tax Credit (METC) is legislated to expire on March 31, 2024.  As announced on March 28, the government proposes to extend eligibility for the METC for one year, to flow‑through share agreements entered into on or before March 31, 2025.

Alternative Minimum Tax

Budget 2024 proposes to make further changes to the Alternative Minimum Tax (AMT) proposals.

Budget 2024 proposes that the tax treatment of charitable donations be revised to allow individuals to claim 80 per cent (instead of the previously proposed 50 per cent) of the Charitable Donation Tax Credit when calculating AMT.

Budget 2024 proposes several additional amendments to the AMT proposals. These amendments would:

• fully allow deductions for the Guaranteed Income Supplement, social assistance, and workers’ compensation payments;
• allow individuals to fully claim the federal logging tax credit under the AMT;
• fully exempt Employee Ownership Trusts from the AMT; and
• allow certain disallowed credits under the AMT to be eligible for the AMT carry‑forward (i.e., the federal political contribution tax credit, investment tax credits, and labour‑sponsored funds tax credit).

Budget 2024 proposes to provide an exemption from the AMT for trusts established for the benefit of Indigenous Groups, provided that all or substantially all of the contributions to the trust before the end of the year are amounts paid under the law, treaty, or settlement agreement or are reasonably traceable to those amounts.

The government is interested in stakeholders' views on these proposed exemptions for Indigenous settlement and community trusts. Interested parties are invited to send written representations to the Department of Finance Canada, Tax Policy Branch at consultation.legislation@fin.gc.ca by June 28, 2024.

Canada Child Benefit

Budget 2024 proposes to amend the Income Tax Act (ITA) to extend eligibility for the Canada Child Benefit (CCB) in respect of a child for six months after a child’s death (the “extended period”) if the individual would have otherwise been eligible for the CCB in respect of that particular child.

The CCB entitlement for each month during the extended period would be based on the age of the child in that particular month as if the child were still alive and would reflect the other family circumstances that apply in that month (e.g., marital status). CCB overpayments unrelated to the death of a child would still need to be repaid.

A CCB recipient would still be required to notify the Canada Revenue Agency (CRA) of their child’s death before the end of the month following the month of their child’s death to ensure that there are no overpayments after the new extended period of six months ends.

The extended period would also apply to the Child Disability Benefit, which is paid with the CCB in respect of a child eligible for the Disability Tax Credit.

This measure would be effective for deaths that occur after 2024.

Disability Supports Deduction

Budget 2024 proposes to expand the list of expenses recognized under the Disability Supports Deduction, subject to the specified conditions:

• Where an individual has a severe and prolonged impairment in physical functions:
  • the cost of an ergonomic work chair, including related amounts paid for an ergonomic assessment to a person engaged in the business of providing such services;
  • the cost of a bed positioning device, including related amounts paid for an ergonomic assessment to a person engaged in the business of providing such services; and
  • the cost of purchasing a mobile computer cart.
• Where an individual has an impairment in physical or mental functions:
  • the cost of purchasing an alternative input device to allow the individual to use a computer; and
  • the cost of purchasing a digital pen device to allow the individual to use a computer.
• Where an individual has a vision impairment, the cost of purchasing a navigation device for low vision.
• Where an individual has an impairment in mental functions, the cost of purchasing memory or organizational aids.

Budget 2024 also proposes that expenses for service animals, as defined under the Medical Expense Tax Credit rules in the ITA, be recognized under the Disability Supports Deduction. Taxpayers would be able to choose to claim an expense under either the Medical Expense Tax Credit or the Disability Supports Deduction.

This measure would apply to the 2024 and subsequent taxation years.

Employee Ownership Trust Tax Exemption

Budget 2023 proposed tax rules to facilitate the creation of Employee Ownership Trusts (EOTs). These legislative proposals are currently before Parliament in Bill C‑ 59. The 2023 Fall Economic Statement proposed to exempt the first $10 million in capital gains realized on the sale of a business to an EOT from taxation, subject to certain conditions.

Budget 2024 provides further details on the proposed exemption and conditions.

Qualifying Conditions

The exemption would be available to an individual (other than a trust) on the sale of shares to an EOT where the following conditions are met:

• The individual, a personal trust of which the individual is a beneficiary, or a partnership in which the individual is a member, disposes of shares of a corporation that is not a professional corporation.
• The transaction is a qualifying business transfer (as defined in the proposed rules for EOTs) in which the trust acquiring the shares is not already an EOT or a similar trust with employee beneficiaries.
• Throughout the 24 months immediately prior to the qualifying business transfer:
  • the transferred shares were exclusively owned by the individual claiming the exemption, a related person, or a partnership in which the individual is a member; and
  • over 50 per cent of the fair market value of the corporation’s assets were used principally in an active business.
• At any time prior to the qualifying business transfer, the individual (or their spouse or common‑law partner) has been actively engaged in the qualifying business on a regular and continuous basis for a minimum period of 24 months.
• Immediately after the qualifying business transfer, at least 90 per cent of the beneficiaries of the EOT must be resident in Canada.

If the above conditions are satisfied, the individual would be able to claim an exemption for up to $10 million in capital gains from the sale.

If multiple individuals disposed of shares to an EOT as part of a qualifying business transfer and met the conditions described above, they may each claim the exemption, but the total exemption in respect of the qualifying business transfer cannot exceed $10 million. The individuals would be required to agree on how to allocate the exemption.

Disqualifying Events

If a disqualifying event occurs within 36 months of the qualifying business transfer, the exemption would not be available. Where the individual has already claimed the exemption, it would be retroactively denied.

A disqualifying event would occur if an EOT loses its status as an EOT or if less than 50 per cent of the fair market value of the qualifying business’s shares is attributable to assets used principally in an active business at the beginning of two consecutive taxation years of the corporation.

If the disqualifying event occurs more than 36 months after a qualifying business transfer, the EOT would be deemed to realize a capital gain equal to the total amount of exempt capital gains.

Alternative Minimum Tax

Capital gains exempted through this measure would be subject to an inclusion rate of 30 per cent for the purposes of the AMT, similar to the treatment for gains eligible for the LCGE.

Administration

In order for an individual to claim an exemption on the sale to an EOT, the EOT (and any corporation owned by the EOT that acquired the transferred shares) and the individual would need to elect to be jointly and severally, or solidarily, liable for any tax payable by the individual as a result of the exemption being denied due to a disqualifying event within the first 36 months after a qualifying business transfer.

As discussed above, following the 36‑month period, the trust would be solely liable for tax realized on the deemed capital gain arising on a disqualifying event.

The normal reassessment period of an individual for a taxation year in respect of this exemption is proposed to be extended by three years.

Worker Cooperatives

Budget 2024 also proposes to expand qualifying business transfers to include the sale of shares to a worker cooperative corporation. The worker cooperative would generally need to meet the definition set out under the Canada Cooperatives Act.

Provided the relevant requirements are met, this would allow an individual to claim an exemption on selling a business to a worker cooperative.

A qualifying business transfer to a worker cooperative would also be eligible for the 10‑year capital gains reserve and the 15‑year exception to the shareholder loan and interest benefit rules announced in Budget 2023.

Additional details on this aspect of the exemption will be released in the coming months.

This measure would apply to qualifying dispositions of shares that occur between January 1, 2024 and December 31, 2026.

Charities and Qualified Donees

Budget 2024 proposes to amend the ITA and Income Tax Regulations to improve the operation of the rules related to registered charities and other qualified donees.

Budget 2024 proposes to extend the period for which qualifying foreign charities are granted status as a qualified donee from 24 months to 36 months. In addition, foreign charities would be required to submit an annual information return to the CRA that includes the total amount of receipts issued to Canadian donors, the total amount of gifts received from qualified donees, and information on how those funds were used. This information would be made publicly available.

Budget 2024 proposes to permit the CRA to communicate certain official notices digitally, where the charity has opted to receive information from the CRA electronically. Registered charities that have not opted to receive information electronically would receive official notices, other than compliance‑related notices, by regular mail. Those charities would continue to receive compliance‑related notices, including notices of intention to revoke, annul, or suspend a charity’s registration, by registered mail.

Currently, the revocation of the registration of a charity or other qualified donee is effective upon publication in the Canada Gazette. Budget 2024 proposes to remove this requirement. Instead, the revocation of registration would become effective upon the publication of an official notice of revocation on a government webpage.

Budget 2024 also proposes to remove the requirement that certain objections be addressed directly to the Assistant Commissioner of the CRA’s Appeals Branch.

Donation Receipts

Budget 2024 proposes a number of changes to simplify the issuance of official donation receipts and to align the process for issuing receipts with modern practices of charities.

Budget 2024 proposes to remove the requirement that official donation receipts contain:

• the place of issuance of the receipt;
• the name and address of the appraiser, if an appraisal of the donated property has been done; and
• the middle initial of the donor.

Budget 2024 also proposes to allow charities to mark a donation receipt as “void”, as an alternative to the term “cancelled”, where a receipt has been spoiled, as well as removing the requirement that it be stored with a duplicate copy.

Budget 2024 also proposes to update the regulations to expressly permit charities to issue official donation receipts electronically, provided that they contain all required information, they are issued in a secure and non‑editable format, and the charity maintains an electronic copy of the receipts.

Measures relating to the extension of the registration period for foreign charities would apply to foreign charities registered after Budget Day. New reporting requirements for foreign charities would apply to taxation years beginning after Budget Day.

All remaining measures would apply upon royal assent.

Home Buyers’ Plan

Budget 2024 proposes to increase the withdrawal limit from $35,000 to $60,000. This increase would also apply to withdrawals made for the benefit of a specified disabled individual.

This measure would apply to the 2024 and subsequent calendar years in respect of withdrawals made after Budget Day.

Budget 2024 proposes to temporarily defer the start of the 15‑year repayment period by an additional three years for participants making a first withdrawal between January 1, 2022, and December 31, 2025. Accordingly, the 15‑year repayment period would start the fifth year following the year in which a first withdrawal was made.

Qualified Investments for Registered Plans

Budget 2024 invites stakeholders to provide suggestions on how the qualified investment rules could be modernized on a prospective basis to improve the clarity and coherence of the registered plans regime. Specific issues under consideration include:

• Whether and how the rules relating to investments in small businesses could be harmonized to apply consistently to all registered savings plans.
• Whether annuities that are qualified investments only for RRSPs, RRIFs, and RDSPs should continue to be qualified investments.
• Whether the conditions that certain pooled investment products must meet to be a qualified investment are appropriate, including the ongoing value of maintaining a formal registration process for registered investments.
• Whether and how qualified investment rules could promote an increase in Canadian‑based investments.
• Whether crypto‑backed assets are appropriate as qualified investments for registered savings plans.

Stakeholders are invited to submit comments to QI‑consultation‑PA@fin.gc.ca by July 15, 2024.

Deduction for Tradespeople’s Travel Expenses

Eligible tradespeople and apprentices in the construction industry are currently able to deduct up to $4,000 in eligible travel and relocation expenses per year by claiming the Labour Mobility Deduction for Tradespeople. A private member’s bill was introduced in the 44th Parliament (Bill C‑241) to enact an alternative deduction for certain travel expenses of tradespeople in the construction industry, with no cap on expenses, retroactive to the 2022 taxation year.

Budget 2024 announces that the government will consider bringing forward amendments to the ITA to provide for a single, harmonized deduction for tradespeople’s travel that respects the intent of Bill C‑241.

Indigenous Child and Family Services Settlement

Budget 2024 proposes to amend the ITA to exclude the income of the trusts established under the First Nations Child and Family Services, Jordan’s Principle, and Trout Class Settlement Agreement from taxation. This would also ensure that payments received by class members as beneficiaries of the trusts would not be included when computing income for federal income tax purposes.

This measure would apply to the 2024 and subsequent taxation years.

Corporate Tax Rates

Budget 2024 does not propose any changes to business income tax rates.

Delivery Timeline for Major Economic Investment Tax Credits

Clean Electricity Investment Tax Credit

Budget 2023 announced a refundable Clean Electricity investment tax credit equal to 15 per cent of the capital cost of eligible property, with some additional changes announced in the 2023 Fall Economic Statement. Budget 2024 provides the design and implementation details of the tax credit.

Eligible Entities

The Clean Electricity investment tax credit would be available only to Canadian corporations. Eligible corporations would be:

• taxable Canadian corporations;
• provincial and territorial Crown corporations, subject to additional requirements (see section “Proposed Application to Provincial and Territorial Crown Corporations”);
• corporations owned by municipalities;
• corporations owned by Indigenous communities; and
• pension investment corporations.

Where eligible property is owned by a partnership, any partners that are corporations eligible for the credit would be allowed to claim their share of the partnership’s Clean Electricity investment tax credit, subject to partnership rules generally consistent with those proposed for the Clean Technology investment tax credit currently before Parliament in Bill C‑59. In cases where a property is eligible for both the Clean Electricity and Clean Technology investment tax credits, partners could claim their reasonable share of either credit for which they qualified (but could not claim both credits in respect of the same property).

Eligible Property

The following types of equipment would be eligible for the Clean Electricity investment tax credit:

• equipment used to generate electricity from solar, wind, or water energy
• concentrated solar energy equipment used to generate electricity;
• equipment used to generate electricity, or both electricity and heat, from nuclear fission
• equipment used for the purpose of generating electricity, or both electricity and heat, solely from geothermal energy, as described in subparagraph (d)(vii) of Class 43.1, if it is used exclusively for that purpose, but excluding any equipment that is part of a system that extracts fossil fuel for sale;
• stationary electricity storage equipment
• equipment that is part of an eligible natural gas energy system; and
• equipment and structures used for the transmission of electricity between provinces and territories including qualifying expenditures to refurbish existing facilities.

Potential Repayment Obligations

The Clean Electricity investment tax credit would be subject to potential repayment obligations similar to the recapture rules proposed for the Clean Technology investment tax credit.

Interactions with Other Federal Tax Credits

Eligible corporations would be able to claim only one of the Clean Electricity investment tax credit, the Clean Technology investment tax credit, the Carbon Capture, Utilization, and Storage investment tax credit, the Clean Hydrogen investment tax credit, the Clean Technology Manufacturing investment tax credit and the Electric Vehicle Supply Chain investment tax credit, if a particular expenditure is eligible for more than one of these tax credits. However, multiple tax credits could be available for the same project, to the extent that the project includes expenditures eligible for different tax credits.

Eligible corporations would be able to fully benefit from both the Clean Electricity investment tax credit and the Atlantic investment tax credit with respect to the same expenditure, if the expenditure is eligible for both.

The Clean Electricity investment tax credit would apply to eligible property that is:

• acquired and becomes available for use on or after Budget Day and before 2035, provided it has not been used for any purpose before its acquisition; and
• not part of a project that began construction before March 28, 2023. For this purpose, construction would not include obtaining permits or regulatory approval, conducting environmental assessments, community consultations or impact assessment studies, or similar activities.

Polymetallic Extraction and Processing

Recognizing that the production of qualifying materials may occur at polymetallic projects (i.e., projects engaged in the production of multiple metals), Budget 2024 proposes adjustments to the Clean Technology Manufacturing investment tax credit to provide greater support and clarity to businesses engaged in these activities.

Accelerated Capital Cost Allowance

The capital cost allowance (CCA) system determines the deductions that a business may claim each year for income tax purposes in respect of the capital cost of its depreciable property. Depreciable property is generally divided into CCA classes with each having its own rate in Schedule II to the Income Tax Regulations.

Purpose‑Built Rental Housing

Currently, purpose‑built rental buildings are eligible for a CCA rate of four per cent under Class 1.

Budget 2024 proposes to provide an accelerated CCA of ten per cent for new eligible purpose‑built rental projects that begin construction on or after Budget Day and before January 1, 2031, and are available for use before January 1, 2036.

Eligible Property

Consistent with eligibility under the temporary enhancement to the Goods and Services Tax (GST) New Residential Rental Property Rebate, eligible property would be new purpose‑built rental housing that is a residential complex:

• with at least four private apartment units (i.e., a unit with a private kitchen, bathroom, and living areas), or 10 private rooms or suites; and
• in which at least 90 per cent of residential units are held for long‑term rental.

Projects that convert existing non‑residential real estate, such as an office building, into a residential complex would be eligible if the conditions above are met. The accelerated CCA would not apply to renovations of existing residential complexes. However, the cost of a new addition to an existing structure would be eligible, provided that addition meets the conditions above.

Interaction with the Accelerated Investment Incentive

Investments eligible for this measure would continue to benefit from the Accelerated Investment Incentive, which currently suspends the half‑year rule, providing a CCA deduction at the full rate for eligible property put in use before 2028.

After 2027, the half‑year rule would apply, which limits the CCA allowance in the year an asset is acquired to one‑half of the full CCA deduction.

Productivity‑Enhancing Assets

Currently, assets included in Class 44 (patents or the rights to use patented information for a limited or unlimited period), Class 46 (data network infrastructure equipment and related systems software), and Class 50 (general‑purpose electronic data‑processing equipment and systems software) are prescribed CCA rates of 25 per cent, 30 per cent, and 55 per cent, respectively.

Budget 2024 proposes to provide immediate expensing for new additions of property in respect of these three classes, if the property is acquired on or after Budget Day and becomes available for use before January 1, 2027. The enhanced allowance would provide a 100‑per‑cent first‑year deduction and would be available only for the year in which the property becomes available for use.

Canada Carbon Rebate for Small Businesses

Currently, the federal backstop pollution pricing fuel charge applies in the provinces of Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. In each of these provinces, the federal government returns more than 90 per cent of direct proceeds from the fuel charge to individuals through the Canada Carbon Rebate.

In respect of the government’s commitment to small and medium‑sized businesses, Budget 2024 proposes to return a portion of fuel charge proceeds from a province via the new Canada Carbon Rebate for Small Businesses, an automatic, refundable tax credit directly for eligible businesses, sized in proportion to the number of persons they employ in the province.

Eligible Businesses

The tax credit would be available to a Canadian‑controlled private corporation that files a tax return for its 2023 taxation year by July 15, 2024. Additionally, to be eligible for a credit in respect of an applicable fuel charge year, the corporation would need to have had no more than 499 employees throughout Canada in the calendar year in which the fuel charge year begins.

Automatic Payments

Corporations would not have to apply for this tax credit. The CRA would automatically determine the tax credit amount for an eligible corporation and pay the amount to the eligible corporation through the new Canada Carbon Rebate for Small Businesses.

Credit Determination

The tax credit amount in respect of an eligible corporation for an applicable fuel charge year would be determined for each applicable province in which the eligible corporation had employees in the calendar year in which the fuel charge year begins. The tax credit amount would be equal to the number of persons employed by the eligible corporation in the province in that calendar year multiplied by a payment rate specified by the Minister of Finance for the province for the corresponding fuel charge year.

The Minister of Finance will specify payment rates for the 2019‑20 to 2023‑24 fuel charge years once sufficient information is available from the 2023 taxation year.

Interest Deductibility Limits ⁠–⁠ Purpose‑Built Rental Housing

In response to the recommendations under Action 4 of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, Budget 2021 announced an earnings stripping measure that limits the amount of net interest and financing expenses that may be deducted by certain taxpayers in computing taxable income. Legislative proposals to implement this measure (the excessive interest and financing expenses limitation (EIFEL) rules) are currently before Parliament in Bill C‑59.

The EIFEL rules provide an exemption for interest and financing expenses incurred in respect of arm’s length financing for certain public‑private partnership infrastructure projects.

Budget 2024 proposes expanding this exemption to also include an elective exemption for certain interest and financing expenses incurred before January 1, 2036, in respect of arm’s length financing used to build or acquire eligible purpose‑built rental housing in Canada.

Non‑Compliance with Information Requests

Notice of Non‑Compliance

Budget 2024 proposes to amend the ITA to allow the CRA to issue a new type of notice (referred as a “notice of non‑compliance”) to a person that has not complied with a requirement or notice to provide assistance or information issued by the CRA. The issuance of a notice of non‑compliance would be reviewable by the CRA on request of the person. After reconsideration, the notice of non‑compliance would be vacated if the CRA determines that it was unreasonable to issue the notice of non‑compliance or that the person had reasonably complied, at the time the notice of non‑compliance was issued, with the initial requirement or notice. There would be a further statutory right of review by a judge of the Federal Court.

Where a notice of non‑compliance related to a taxpayer has been issued to the taxpayer or a person that does not deal at arm’s length with the taxpayer, the normal reassessment period for any taxation year of the taxpayer to which the notice of non‑compliance relates would be extended by the period of time the notice of non‑compliance is outstanding.

Budget 2024 proposes to impose a penalty on a person that has been issued a notice of non‑compliance of $50 for each day that the notice is outstanding, to a maximum of $25,000. This penalty would not apply if a notice of non‑compliance is ultimately vacated by the CRA or a court.

Compliance Orders

Budget 2024 proposes to amend the ITA to impose a penalty when the CRA obtains a compliance order against a taxpayer. The penalty would be equal to 10 per cent of the aggregate tax payable by the taxpayer in respect of the taxation year or years to which the compliance order relates. The proposed penalty, which would apply when the CRA is successful in obtaining a compliance order, would create an incentive for taxpayers to comply with the original request for information or assistance. The penalty would only be applied if the tax owing in respect of one of the taxation years to which the compliance order relates exceeds $50,000.

Budget 2024 further proposes an amendment to allow the CRA to seek a compliance order when a person has failed to comply with a requirement to provide foreign‑based information or documents.

Stopping the Reassessment Limitation Clock

Under existing rules, a taxpayer may seek judicial review of a requirement or notice issued to the taxpayer by the CRA. In these circumstances, the reassessment period is extended by the amount of time it takes to dispose of the judicial review. These “stop the clock” rules currently do not apply to all situations where a taxpayer does not comply with a requirement or notice issued by the CRA.

Budget 2024 proposes to amend the stop the clock rules to provide that they apply when a taxpayer seeks judicial review of any requirement or notice issued to the taxpayer by the CRA in relation to the audit and enforcement process or during any period that a notice of non‑compliance is outstanding. Analogous rules would apply where a requirement or notice has been issued to a person that does not deal at arm’s length with the taxpayer.

Other Tax Statutes Administered by the CRA

Budget 2024 proposes that other tax statutes be amended including the Excise Tax Act (e.g., GST/HST, fuel excise tax), Air Travellers Security Charge Act, Excise Act, 2001 (alcohol, tobacco, cannabis, and vaping duties), the Underused Housing Tax Act, and the Select Luxury Items Tax Act.

Avoidance of Tax Debts

Some taxpayers continue to engage in planning that is intended to circumvent the tax debt avoidance rule, often with the assistance of a planner who receives a significant fee that is effectively funded by a portion of the avoided tax debt.

Although this planning can be challenged by the government based on existing rules in the ITA, these challenges can be both time‑consuming and costly. As a result, the government is proposing a specific legislative measure.

Budget 2024 proposes to introduce a supplementary rule to strengthen the tax debt anti‑avoidance rule. This rule would apply in the following circumstances:

• there has been a transfer of property from a tax debtor to another person;
• as part of the same transaction or series of transactions, there has been a separate transfer of property from a person other than the tax debtor to a transferee that does not deal at arm’s length with the tax debtor; and
• one of the purposes of the transaction or series is to avoid joint and several, or solidary, liability.

Where these conditions are met, the property transferred by the tax debtor would be deemed to have transferred to the transferee for the purposes of the tax debt avoidance rule. This would ensure that the tax debt avoidance rule applies in situations where property has been transferred from a tax debtor to a person and, as part of the same transaction or series, property has been received by a non‑arm’s length person.

Penalty

The ITA contains a penalty for those who engage in, participate in, asset to, or acquiesce in planning activity that they know, or would reasonably be expected to know, is tax debt avoidance planning. The penalty is equal to the lesser of:

• 50 per cent of the tax that is attempted to be avoided; and
• $100,000 plus any amount the person, or a related person, is entitled to receive or obtain in respect of the planning activity.

Budget 2024 proposes to extend this penalty to tax debt avoidance planning that is subject to the proposed supplementary rule.

Expanded Joint and Several, or Solidary, Liability

To further enhance the effectiveness of the tax debt anti‑avoidance rule, Budget 2024 proposes that taxpayers who participate in tax debt avoidance planning be jointly and severally, or solidarily, liable for the full amount of the avoided tax debt, including any portion that has effectively been retained by the planner.

These measures would apply to transactions or series of transactions that occur on or after Budget Day.

Reportable and Notifiable Transactions Penalty

Budget 2024 announces the government’s intention to remove the redundant penalty provisions related to the failure to file an information return in respect of a reportable or notifiable transaction under the mandatory disclosure rules.

This amendment would be deemed to have come into force on June 22, 2023.

Mutual Fund Corporations

Budget 2024 proposes amendments to the ITA to preclude a corporation from qualifying as a mutual fund corporation where it is controlled by or for the benefit of a corporate group (including a corporate group that consists of any combination of corporations, individuals, trusts, and partnerships that do not deal with each other at arm’s length). Exceptions would be provided to ensure that the measure does not adversely affect mutual fund corporations that are widely held pooled investment vehicles.

This measure would apply to taxation years that begin after 2024.

Synthetic Equity Arrangements

Budget 2024 proposes to remove the tax‑indifferent investor exception (including the exchange traded exception) to the anti‑avoidance rule. This measure would simplify the anti‑avoidance rule and prevent taxpayers from claiming the dividend received deduction for dividends received on a share in respect of which there is a synthetic equity arrangement.

This measure would apply to dividends received on or after January 1, 2025

Manipulation of Bankrupt Status

Some taxpayers have sought to manipulate the bankrupt status of an insolvent corporation, with a view to benefiting from the exception in the debt forgiveness rules while also avoiding the loss restriction rule applicable to bankrupt corporations. This planning seeks to preserve the losses and other tax attributes of the insolvent corporation (which would otherwise be eliminated upon the forgiveness of its debts) for their acquisition and use in avoiding corporate income tax by a profitable corporation.

Budget 2024 proposes to repeal the exception to the debt forgiveness rules for bankrupt corporations and the loss restriction rule applicable to bankrupt corporations. This change would subject bankrupt corporations to the general rules that apply to other corporations whose commercial debts are forgiven. The bankruptcy exception to the debt forgiveness rules would remain in place for individuals. While bankrupt corporations would be subject to the reduction of their loss carryforward balances and other tax attributes upon debt forgiveness, as insolvent corporations they could qualify for relief from the debt forgiveness income inclusion rule provided under the existing deduction for insolvent corporations.

These proposals would apply to bankruptcy proceedings that are commenced on or after Budget Day.

Proceed to part 2

Meet the Author

Sean Grant-Young
National Office
D (416) 275-0025
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Rosa Maria Iuliano
Ottawa, Ontario
D (613) 768-7558
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Myriam Lesieur
Gatineau, Québec
D (819) 770-8390
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