What Does the Federal 2024 Budget Mean for Financial Advisors
The unveiling of the 2024 Federal Budget has sparked discussions and analyses across various industries. For financial advisors, understanding the implications of this budget is crucial in navigating the ever-changing landscape of financial services.
Overview of the 2024 Federal Budget
The 2024 Federal Budget outlines the government's financial plan for the upcoming fiscal year. It includes revenue projections, spending priorities, and initiatives to stimulate economic growth and address key societal issues. Here are some of the things you should keep a look out based on the 2024 Federal Budget
Capital gains inclusion rate
Lifetime capital gains exemption
Alternative minimum tax
Employee ownership trust
Canadian Entrepreneurs’ Icentive
Capital Gains Inclusion Rate
On June 25, 2024, there will be a notable adjustment to the taxation of capital gains. Previously, individuals were required to report only half of their capital gains as taxable income. However, post this date, individuals will need to include two-thirds of any capital gains exceeding $250,000 in their tax filings. This modification also applies to employee stock options.
As a result, corporations and trusts will now be obligated to report two-thirds of their capital gains, regardless of the sum. This alteration represents a substantial shift in tax regulations.
Lifetime Capital Gains Exemption
The budget suggests raising the Lifetime Capital Gains Exemption (LCGE) for eligible capital gains from $1,016,836 to $1.25 million, applicable to transactions completed after June 24, 2024. This adjustment enhances the tax advantages for individuals selling specific types of assets, including small business shares, and farming or fishing assets.
Alternative Minimum Tax
Within the 2023 budget, revisions to the Alternative Minimum Tax (AMT) were proposed, indicating a modification to the calculation of the charitable donation tax credit for AMT purposes. The proposed adjustment raises the eligible claimable amount from 50% to 80%.
Employee Ownership Trust
As part of the budget proposal, individuals who sell their businesses to an Employee Ownership Trust (EOT) may be eligible for a tax exemption on capital gains of up to $10 million, subject to specific requirements being fulfilled.
Canadian Entrepreneus’ Incentive
The latest tax provision introduces a lowered inclusion rate of 1/3 for capital gains up to $2 million over an individual's lifetime, implemented gradually over a 10-year period. It's crucial to note that not all businesses are eligible for this benefit, as the provision excludes businesses in professional services, finance, real estate, hospitality, arts, entertainment, or personal care sectors.
Implications
So what should you be doing ahead of this date? We’ve jotted down some of the things you’ll want to take of based on
Investors
Investments: Review portfolios to identify opportunities for realizing capital gains under the current reduced inclusion rate.
Investment Property: Consider expediting the sale of investment properties to take advantage of the current capital gains rate.
Estate Planning: Update estate plans to account for possible changes in capital gains taxes and ensure tax-efficient structuring of estates.
Employee Stock Options: Adjust the timing of stock option exercises to align with forthcoming changes in inclusion rates.
Business Owners
Corporate Investments: Evaluate the impact of higher inclusion rates on corporately held assets and assess the timing of realizing gains. Review investments held in trusts.
Lifetime Capital Gains Exemption: Optimize the utilization of the increased LCGE for eligible business assets.
Employee Ownership Trust: Explore the benefits of transferring business ownership through an EOT.
Succession Planning: Modify succession plans to consider the potential effects of capital gains tax adjustments.
Entrepreneurs Incentive: Determine eligibility for reducing capital gains taxes.
Incorporated Professionals
Investments: Evaluate personal and corporate investments under the new inclusion rate. Determine the most tax-efficient structure for retaining and realizing investment gains.
Succession Planning: Time the potential sale of your professional corporation to maximize the current LCGE.
Retirees
Estate Planning: Update estate plans considering the anticipated rise in capital gains rates.
Life Insurance Coverage: Ensure life insurance coverage is sufficient to cover increased capital gains tax obligations upon death.
Non-Registered Investments and Retirement Income: Review strategies for non-registered investments to manage taxes on gains and adjust retirement income plans to accommodate upcoming changes in capital gains rates.
Individuals with High Income or Net Worth
Investments: Analyze portfolios to identify opportunities for realizing capital gains at the current reduced inclusion rate. Review investments held in trusts.
Investment Property: Consider accelerating the sale of such properties to benefit from the prevailing capital gains rate.
Estate Planning: Update estate plans to address potential rises in capital gains taxes and ensure estates are structured for optimal tax efficiency.
Charitable Contributions: Align charitable giving strategies with the new tax benefits and considerations related to the Alternative Minimum Tax (AMT).
Conclusion
In conclusion, the 2024 Federal Budget presents both opportunities and challenges for financial advisors. By staying informed, adaptable, and client-centric, advisors can navigate the changing financial landscape and continue to provide valuable services to their clients in the years ahead.
