Updated on 2025, February 10
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 had led to uncertainty regarding the application of the changes to the capital gains inclusion rate announced by the federal government in its last budget. However, the Department of Finance Canada announced on January 31 that the application of this measure would be postponed until January 1, 2026.
Let’s review the proposed changes. In its 2024 Budget, the government had announced its intention to raise the capital gains inclusion rate for corporations and trusts from 50% to 66.67%.
Under the measures initially proposed, individuals would have benefited from an exemption on the first $250,000 of capital gains, which would still be included at 50%. Unlike individuals, businesses would not benefit from an exemption. Thus, capital gains realized, for example on the sale of land or buildings, would be included in income at 66.67% from the first dollar for a corporation.
In a press release dated January 31, 2025, the Departement of Finance Canada announced that it would continue to apply measures to offset the increase in the capital gains inclusion rate.
First, the lifetime capital gains exemption will increase to $1.25 million, effective June 24, 2024. Prior to this announcement, the exemption was capped at $1,016,836 for 2024. This exemption applies to the disposition of small business shares and qualified farm and fishing property.
In addition, still with the objective of offsetting the increase in the capital gains inclusion rate, the last budget announced the creation of a new incentive for Canadian entrepreneurs. As of January 2025, a reduced rate of 33.3% will apply to a maximum of $400,000, with a gradual increase in the ceiling to $2 million in 2029. This measure is reserved for active investors holding at least 5% of a company’s shares for a period of 24 consecutive months.
In addition, transferors must have been actively involved in the company’s activities for three years since its founding. Québec plans to align itself with this provision, excluding certain sectors such as finance, real estate and catering.
It should be noted that these measures will have to be the subject of a bill to implement them.
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.
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:
- Patents and licences to use patents for a limited or unlimited period;
- Data network infrastructure equipment and related system software;
- Hardware and software for the electronic processing of general-purpose information.
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.
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.
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.
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.
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