Federal budget 2024 highlights

Retirement plans and pensions

Home Buyers' Plan 

The Home Buyers' Plan (HBP) allows first-time home buyers to withdraw money from their Registered Retirement Savings Plan (RRSP) to help buy or build a new home. The withdrawal is not subject to withholding tax, as long as the money is repaid to the RRSP within a certain period.

The budget proposes to increase the amount that can be withdrawn from an RRSP from $35,000 to $60,000. The newly increased limit would be available to first-time buyers after April 16, 2024. 

In addition, the changes would temporarily extend the grace period for when homeowners must start repaying their RRSP from two years to five. The extension would apply to HBP participants who made a first withdrawal between January 1, 2022, and December 31, 2025. 

Retirement 

The federal government, in coordination with provincial partners, proposes amending Canada Pension Plan (CPP) legislation in a few areas:     

• providing a top-up to the death benefit for certain contributors
• introducing a partial children’s benefit for part-time students 
• extending eligibility for the disabled contributors children’s benefit when a parent reaches age 65 
• ending eligibility for a survivor pension to people who are legally separated after a division of pensionable earnings

Qualified investments for registered plans

Registered plans can only offer qualified investments. Over the years, the rules around qualified investments have been expanded and have become inconsistent or difficult to understand. Budget 2024 invites stakeholders to provide suggestions on how the qualified investment rules could be modernized to improve clarity and coherence.  

Pension disclosures

The budget proposes an amendment to the Pension Benefits Standards Act, 1985. The proposal would require the Office of the Superintendent of Financial Institutions to publish information related to the investments of large federally regulated pension plans. It would also amend the Pooled Registered Pension Plans Act to ensure that all members are provided with similar information about the plan.

Encouraging pension funds to invest in Canada

Budget 2024 proposes  launching a working group chaired by Stephen Poloz, former governor of the Bank of Canada, and supported by the deputy prime minister and minister of finance. The group will seek more opportunities for Canada’s largest pension funds to drive economic growth at home.

Taxes

Capital gains inclusion rate

The budget proposes increasing the inclusion rate on capital gains from one-half to two-thirds. The increase would apply to:

• capital gains realized annually above $250,000 by individuals 
• all capital gains realized by corporations and trusts

The inclusion rate for capital gains realized annually up to $250,000 by individuals will continue to be one-half. Overall, the increase in the capital gains inclusion rate is expected to affect 0.13% of Canadians with an average income of $1.4 million in any given year.

From a retirement perspective, some of the exemptions to the new rate include, most notably:

• income, including capital gains, earned in a tax-sheltered savings account
• pension income, or the capital gains earned by registered pension plans, including a workplace pension plan, and the CPP or Québec Pension Plan (QPP)

For small business

The proposed Canadian Entrepreneurs' Incentive will reduce the inclusion rate to 33.3% on a lifetime maximum of $2 million in eligible capital gains. When this incentive is fully rolled out, entrepreneurs will have a combined exemption of at least $3.25 million when selling all or part of a business.   

• The incentive will result in a one-third inclusion rate, and the limit will increase by $200,000 each year, starting in 2025, until it reaches $2 million in 2034.   
• This additional $2 million incentive will be available to founding investors in certain sectors who own at least 10% of shares in their business, and where the company has been their principal employment for at least five years.

The proposed carbon rebate  for small business would deliver over $2.5 billion directly to Canada’s small- and medium-sized businesses through a new refundable tax credit. It would return fuel charge proceeds from 2019-2020 through 2023-2024 to an estimated 600,000 businesses with 499 or fewer employees. 

Alternative Minimum Tax for high-income individuals  

The Alternative Minimum Tax (AMT) is a parallel tax calculation that allows fewer tax credits, deductions, and exemptions than under the ordinary personal income tax rules. Budget 2024 proposes:

• revising the tax treatment of charitable donations to allow individuals to claim 80% (instead of 50%) of the Charitable Donation Tax Credit when calculating AMT.
• fully allowing deductions for the Guaranteed Income Supplement, social assistance, and workers’ compensation payments.

Health

National pharmacare program 

Budget 2024 proposes to provide $1.5 billion over five years, starting in 2024-2025, to Health Canada to support the launch of the National Pharmacare Plan.

Dental care 

The interim Canada Dental Benefit, launched in December 2022, will ensure dental coverage for children under age 12 until June 30, 2024, after which they’ll be able to enrol in the Canadian Dental Care Plan. Eligible seniors have been enrolling in the Canadian Dental Care Plan since mid-December. 

Canada Disability Benefit 

Budget 2024 proposes funding of $6.1 billion over six years, beginning in 2024-2025, and $1.4 billion per year ongoing, for a new Canada Disability Benefit. This benefit fills a gap between the Canada Child Benefit and the Old Age Security for persons with disabilities and is intended to supplement existing provincial and territorial income support measures.

Next steps

The budget will be debated this week in the House of Commons.  More details will come through the subsequent Budget Implementation Act once it’s passed through Parliament.

1 Federal budget, 2024.