The 2024 federal budget presents a series of proposals that could significantly impact the financial strategies of pharmacists and pharmacy owners.
While these are only proposals still being discussed and not law yet, they provide insights into possible changes in how taxes are handled, as well as estate planning and financial strategies for both individuals and businesses.
Capital Gains Inclusion Rate Change
Currently, only 50% of any capital gain is taxed. Budget 2024 proposes increasing this to two-thirds for corporations and trusts. For individuals, this change would also apply to capital gains over an exempted amount of $250,000. The proposed date for this to take effect is June 25, 2024.
Additionally, there’s a proposal to limit the tax deduction for employee stock options to one-third of the taxable benefit, matching the new capital gains inclusion rate. Individuals could still deduct half of the taxable benefit, up to a combined limit of $250,000 for both employee stock options and capital gains.
The exemption for capital gains tax when selling a primary residence will stay intact.
Strategies may be possible to manage the impact of the higher capital gains inclusion rate, like spreading capital gains over several years to stay within the $250,000 yearly threshold.
Lifetime Capital Gains Exemption (LCGE)
An increase to the Lifetime Capital Gains Exemption (LCGE) by 25% to $1.25 million for sales on or after June 25, 2024, was also proposed.
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) works in parallel with regular income tax rules, imposing limits on tax credits, deductions, and exemptions. Taxpayers are required to pay whichever tax, regular or AMT, results in a higher tax liability. In the 2023 budget, proposals included raising the AMT tax rate to 20% from the current 15% and broadening its scope.
The 2024 budget also introduces further changes, such as increasing the charitable donation tax credit to 80%, allowing full deductions for specific payments, fully exempting Employee Ownership Trusts from AMT, and permitting certain disallowed credits to carry forward, amongst others.
Home Buyers’ Plan
The Home Buyers’ Plan allows new home buyers to withdraw money from their Registered Retirement Savings Plans (RRSPs) for the down payment.
Budget 2024 suggests raising the withdrawal limit from $35,000 to $60,000 and extending the repayment period for withdrawals made between January 1, 2022, and December 31, 2025, to start an additional three years later, to 5 years after withdrawal. Currently, the repayment period starts two years after withdrawal.
Employee Ownership Trusts
Budget 2024 proposed details for Employee Ownership Trusts (EOTs). The budget outlines conditions for individuals to claim a $10 million capital gains tax exemption when selling a business to an EOT, with residency requirements for beneficiaries, asset-use criteria, and other eligibility criteria.
These changes would apply to qualifying dispositions of shares between January 1, 2024, and December 31, 2026.
Disability Supports Deduction
Budget 2024 proposes expanding the list of deductible expenses under the Disability Supports Deduction for individuals with severe and prolonged impairments in physical functions, impairments in physical or mental functions, vision impairments, and expenses related to service animals.
This expansion aims to provide better support for individuals with disabilities, recognizing and allowing deductions for expenses incurred to help them earn income or pursue education. Taxpayers could choose whether to claim the expense as a medical expense or a disability support.
Canadian Entrepreneurs’ Incentive
To support entrepreneurship and innovation, a Canadian Entrepreneurs’ Incentive is being proposed to be introduced on January 1, 2025. This incentive would reduce the capital gains inclusion rate by half on qualifying shares sold by eligible individuals, with a lifetime limit reaching $2 million that would be phased in over time through January 1, 2034.
Accelerated Capital Cost Allowance
An increase to the Capital Cost Allowance rate for new eligible rental housing construction from 4% to 10%. This is aimed at stimulating investment in rental housing for affordability challenges through rental housing market growth. Construction must begin between April 15, 2024, and January 1, 2031, and be usable by January 1, 2036.
Canada Carbon Rebate for Small Businesses
To promote environmental sustainability, a Canada Carbon Rebate for Small Businesses has been put forward. Eligible corporations would receive a refundable tax credit, based on the number of employees in each applicable province. Eligible corporations could receive a 2023 tax credit by filing their tax return by July 15, 2024.
Information Request Non-Compliance Penalties
The budget also included a potential amendment to the Income Tax Act. If enacted, the CRA would be able to issue a “notice of non-compliance” if an individual or company did not respond to requests for information or assistance.
Receiving a notice of non-compliance would extend the usual time frame in which the CRA can reassess a taxpayer’s return until the issue is resolved. Additionally, the taxpayer would face a penalty of $50 for each day the notice remained unresolved, up to a maximum penalty of $25,000.
While these measures are still in the proposal stage and subject to legislative review, there are some significant changes that could impact pharmacists and pharmacy owners. A review of personal and business tax strategies is advisable to be prepared. The experts at Pharma Tax can guide you on adjusting to these changes to leverage credits and avoid paying extra taxes unnecessarily.
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