Canadian Taxation: New Measures for Businesses in 2024-2025

Every year, certain fiscal measures are updated by the governments. Below are the main changes that affect businesses in 2024-2025.

Indeed, significant changes were made by both the Canadian federal government and the Québec government. We will explore the changes that could have the most impact on your business.

Capital gains inclusion rate

The prorogation of the federal Parliament has led to uncertainty regarding the application of the changes to the capital gains inclusion rate announced by the federal government in its last budget. Indeed, we do not know whether these measures will be reintroduced as a bill for adoption. In the meantime, the Canada Revenue Agency (CRA) and Revenu Québec have confirmed their intention to apply the changes as intended.

Let’s begin by highlighting that significant changes with regard to capital gains were made by the federal government in its 2024 Budget. The inclusion rate for corporations and trusts increased from 50% to 66.67% for capital gains realized after June 25, 2024.

However, unlike individuals, businesses may not benefit from the exemption threshold of $250,000. The inclusion rate for capital gains realized by a corporation on investments or property such as the sale of land or buildings is now two thirds on all capital gains.

In parallel, as a compensatory measure to this increase in the capital gains inclusion rate, the federal government introduced the Canadian Entrepreneurs’ Incentive which is aimed at investors and business founders in certain sectors. To be eligible, you must, among other things, hold at least 5% of shares in the business and have been actively involved in it on a regular basis for at least three years.

The purpose of this measure, which will come into effect in January 2025, is to encourage investment in businesses. It will trigger a capital gains inclusion rate of 33.3% instead of 66.7% on a maximum amount of $200,000 per year. This threshold is slated to increase to $400,000 annually over the next 10 years to a maximum of $2M in 2029.

The Québec government announced its intention to harmonize with this new tax provision which excludes businesses in certain sectors of activity (finance, assurance, real estate, accommodation and food services, arts, entertainment and recreation) and professional corporations.

While there is uncertainty regarding the application of these measures following the prorogation of Parliament on January 6, 2025, our Firm encourages taxpayers to apply the measures as announced in order to avoid potential interest and penalties.

Increased accelerated capital cost allowance

The 2024 Budget also announced an accelerated CCA for new eligible purpose-built rental projects. In order to enhance and accelerate the construction of residential rental buildings, real estate promoters/builders can now benefit from an accelerated CCA of 10% increased from 4%. The construction of a new building at a cost of $1.5M would therefore benefit from a CCA of $150,000 rather than $60,000.

Eligible properties must contain at least four private apartment units (or 10 private rooms) and at least 90% of the units must be held for long-term rental. To qualify, construction must have begun after April 15, 2024 or begin before December 31, 2030 and be completed before January 1, 2036.

It should be noted that these measures had not been adopted prior to the prorogation of Parliament. Thus far, neither the CRA nor Revenu Québec have announced their intentions regarding these measures. However, we can assume that they will be applied in the same manner as the announced changes to the capital gains inclusion rate.

Tax measures for technological and digital adaptation

In addition to the housing shortage, the federal and Québec governments are concerned about a lack of productivity among businesses. As a result, they are also focusing on tax measures aimed at further helping businesses with their digital transformation projects.

Capital cost allowance (CCA)

One such measure is the enhancement of the capital cost allowance (CCA) for additions to assets such as:

This measure allows for a deduction of 100% for the first year of acquisition of property in these three classes, which previously benefited from a deduction of 25%, 30% and 55%, respectively. This property must have been acquired on or after Budget Day (April 16, 2024) and must become available for use before January 1, 2027.

There is no minimum threshold. As a result, the CCA is applicable to the total investment for all businesses that wish to improve the performance of their IT assets and connectivity of their equipment or facilitate the integration of artificial intelligence.

The same cautionary note applies here. Since these measures were not adopted prior to the prorogation of Parliament, there is uncertainty regarding their application. Thus far, neither the CRA nor Revenu Québec have announced their intentions regarding these measures. However, we can assume that they will be applied in the same manner as the announced changes to the capital gains inclusion rate.

Deduction for manufacturing enterprises

Manufacturing enterprises may immediately write off the entire cost of machinery and equipment used to manufacture and process goods. The allowance, which was introduced in 2018, provides a deduction of up to 100%, with a phase-out for property that becomes available for use in 2024.

However, the federal government decided to maintain this deduction at 75% instead of reducing it to 50% as expected, for the acquisition in 2024 and 2025 of eligible property that is available for use during these years. Therefore, it is in the interest of manufacturing enterprises to plan such investments over the coming year before this deduction is eventually reduced further.

Québec Crédit d’impôt pour investissement et innovation (C3i)

Enterprises that invest in manufacturing equipment, electronic equipment or management software packages can still benefit from the Québec Crédit d’impôt pour investissement et innovation (C3i).

This financial incentive, which is granted for purchases made before December 31, 2029, is offered at rates varying from 15% to 25%. The applicable rate is determined based on the economic vitality criteria of the regions in which the businesses are established. For example, Montréal and Québec City metropolitan communities are considered high economic vitality zones and therefore benefit from a tax credit of 15%.

In order to benefit from all the tax measures your business is eligible for and to maximize your benefits, we suggest that you contact your tax expert.

This article was written in collaboration with Vincent Fortier, Senior Tax Manager at Raymond Chabot Grant Thornton.