TaxMatters@EY – May 2024

Caitlin Morin, Toronto

The 2024-25 federal and provincial budgets were all tabled between February 22 and April 16, 2024.¹

Many of the provincial budgets were focused on fiscal restraint and incentivizing economic growth. Significant investments were made in the areas of health care and housing, and several measures were introduced to support social programs, address affordability issues, promote the creation of jobs and make life more affordable for Canadians.

While none of the jurisdictions announced changes to personal income tax rates for 2024, the federal government announced an increase in the capital gains inclusion rate.² Some provinces proposed changes to personal income tax rates or tax brackets beginning in 2025 or 2026, and the federal government and several provinces announced changes to personal tax credits and amounts. In addition, as outlined below, Saskatchewan announced an adjustment to the dividend tax credit (DTC) rate for non-eligible dividends as a result of an extension of the reduced small business corporate income tax rate.³

In this article, we summarize the key personal income tax measures tabled in the federal and provincial budgets to help you assess their impact on your income tax liability for 2024 and subsequent years.

For details on other proposed tax measures, such as measures impacting property and vaping tax, and the introduction of BC’s home flipping tax, visit our budget information page at ey.com/ca/budget.

Federal

In the federal budget, tabled on April 16, 2024, the minister proposed the following personal tax measures:

• Capital gains inclusion rate — The capital gains inclusion rate for individuals will be increased from one half to two thirds on the portion of capital gains realized in the year above $250,000 for capital gains realized on or after June 25, 2024. The annual $250,000 threshold will not be prorated for 2024 and will apply only in respect of net capital gains realized on or after June 25, 2024.⁴
  
  Employees claiming the employee stock option deduction will be provided a one-third deduction of the taxable benefit to reflect the new capital gains inclusion rate. However, they will be entitled to a deduction of one half the taxable benefit up to a combined limit of $250,000 for both employee stock options and capital gains.
  
  
• Lifetime capital gains exemption — The lifetime capital gains exemption will be increased to apply on up to $1.25 million (from $1,016,836 in 2024) of eligible capital gains for dispositions that occur on or after June 25, 2024. Indexation of the exemption will resume in 2026.
  
  
• Canadian entrepreneurs’ incentive — This new incentive will reduce the tax rate on capital gains by one half of the prevailing inclusion rate on the disposition of qualifying shares by an eligible individual on up to $2 million in capital gains per individual over their lifetime.⁵ This measure will apply to dispositions that occur on or after January 1, 2025, and is in addition to any available capital gains exemption.
  
  Several conditions must be met for a share of a corporation to be a qualifying share. For example, at the time of the sale, the share must be a share of the capital stock of a small business corporation owned directly by the claimant; as well, the claimant must have been a founding investor at the time the corporation was initially capitalized and held the share for a minimum of five years.
  
  
• Alternative minimum tax (AMT) — The following changes will be made to the previously announced amendments from the 2023 federal budget to the AMT regime, which will apply for taxation years that begin on or after January 1, 2024: ⁶
  
  • When calculating AMT, individuals will be allowed to claim 80% of the charitable donation tax credit, instead of the previously proposed 50%.
  • Individuals will be allowed deductions for the Guaranteed Income Supplement, social assistance and workers’ compensation payments, and be able to claim the federal logging tax credit under the AMT.
  • Certain disallowed credits under the AMT will be eligible for the AMT carryforward.⁷
  • Employee ownership trusts (EOTs) and certain trusts established for the benefit of Indigenous groups will be exempt from the AMT.
• EOT tax exemption — An individual will be able to claim an exemption for up to $10 million in capital gains realized from the sale of a business to an EOT if certain conditions are met. These conditions will require, for example, that the sale is a qualifying business transfer in which the trust acquiring the shares is not already an EOT or a similar trust with employee beneficiaries. In addition, at any time prior to the transfer, the individual or their spouse or common-law partner must have been actively engaged in the qualifying business on a regular and continuous basis for a minimum period of 24 months.
  
  
• Home Buyers’ Plan (HBP) — The HBP withdrawal limit will be increased from $35,000 to $60,000 for 2024 and subsequent calendar years in respect of withdrawals made by first-time home buyers after April 16, 2024. In addition, individuals who make (or made) an HBP withdrawal from their RRSP between January 1, 2022 and December 31, 2025 will be granted an additional three years (for a total of five years) before they need to start making repayments to their RRSPs.
  
  
• Tax credit for volunteer firefighters and search and rescue volunteers — The amount used to calculate these two non-refundable tax credits will increase from $3,000 to $6,000, resulting in a tax credit of $900, for 2024 and later years.
  
  
• Mineral exploration tax credit — The mineral exploration tax credit, which was scheduled to expire on March 31, 2024, will be extended to flow-through share agreements entered into on or before March 31, 2025. This credit is equal to 15% of specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors.
  
  
• Deduction for tradespeople’s travel expenses — The government will consider amending the Income Tax Act to provide for a single, harmonized deduction for tradespeople’s travel that respects the intent of Bill C-241, a private member’s bill that was introduced to enact an alternative deduction for certain travel expenses of tradespeople in the construction industry, with no cap on expenses, retroactive to the 2022 taxation year. Currently, eligible tradespeople and apprentices in the construction industry can deduct up to $4,000 in eligible travel and relocation expenses per year.
  
  
• Canada child benefit (CCB) — Eligibility for the CCB will be extended in respect of a child for six months after the child’s death if the individual would have otherwise been eligible for the CCB in respect of that child. The extended period will also apply to the child disability benefit. This measure will be effective for deaths that occur after 2024.
  
  
• Disability supports deduction — The list of expenses recognized under the disability supports deduction will be expanded, subject to specific conditions, effective for 2024 and subsequent years.
  
  
• Registered education savings plan (RESP) — Starting in 2028-29, all eligible children born in 2024 or later will have an RESP automatically opened for them if they do not already have one by the time they turn four to allow for the automatic deposit of eligible Canada Learning Bond (CLB) payments. In addition, the government intends to extend the time an individual has to apply for CLB payments so an individual will have until the age of 30, rather than 20, to apply.

Alberta

In Alberta’s budget, tabled on February 29, 2024, the minister proposed the introduction of the Alberta is Calling Attraction Bonus to recruit and retain skilled workers. On March 12, 2024, further details were provided in legislation that was introduced to implement this measure.

The attraction bonus will provide a one-time $5,000 refundable tax credit for the 2024 taxation year to eligible individuals working in prescribed occupations who relocate to Alberta in 2024 and meet certain other conditions.

To be eligible, individuals must be 18 years of age or older, become resident in Alberta in 2024 after a prescribed date, remain resident in Alberta for at least one year, be employed or self-employed in a prescribed occupation, and meet certain other prescribed employment or self-employment criteria.

In addition, eligible individuals will be required to have filed a 2024 income tax return and to have received a notice of assessment for the 2024 taxation year. The tax credit will be granted on a first come, first served basis to eligible individuals who make an application, until the total credit amounts refunded under the program reach $10 million.⁸

Alberta’s budget also announced the planned implementation schedule for the new 8% personal income tax bracket on the first $60,000 of income, which is expected to be implemented over two years beginning in 2026.⁹ Implementation of this measure is contingent on the province’s ability to maintain sufficient fiscal capacity to introduce the tax reduction while maintaining a balanced budget.

British Columbia

In BC’s budget, tabled on February 22, 2024, the minister proposed changes to the following personal credits and amounts:

• BC family benefit — The new temporary BC family benefit bonus is introduced for the benefit period from July 2024 to June 2025, and will be delivered alongside the BC family benefit. The proposed measure will result in a 25% increase to the annual benefit amounts and the income threshold used to assess eligibility for the BC family benefit. On average, eligible households will receive $445 over the 12-month period.
  
  
• Climate action tax credit — Effective July 1, 2024, the maximum annual climate action tax credit payment is increased from $447 to $504 for an adult, from $223.50 to $252 for a spouse or common-law partner, and from $111.50 to $126 per child. This credit helps offset the effects of carbon taxes paid by low- to moderate-income individuals and families. The income thresholds, at which point the tax credit begins to be phased out, will also be increased.
  
  
• Training tax credit for individuals — This credit is extended for one year to the end of 2025.

Manitoba

Manitoba’s budget, tabled on April 2, 2024, proposed the following personal income tax measures:

• Basic personal amount — Beginning in 2025, the basic personal amount will be phased out for individuals earning net income between $200,000 and $400,000, with Manitoba residents earning more than $400,000 no longer entitled to the tax credit. The basic personal amount is projected to be $16,206 for 2025, resulting in a provincial non-refundable tax credit of $1,750.
  
  
• Renters’ tax credit — For the 2025 taxation year, the renters’ tax credit will be increased to a maximum of $575, and the seniors’ top-up will be increased to a maximum of $328. The budget indicates these amounts will be increased annually over a four-year period until the renters’ tax credit and seniors’ top-up are restored to their pre-2021 amounts of up to $700 and $400, respectively. For the 2024 taxation year, the tax credit amounts are a maximum of $525 and $300, respectively.
  
  
• Fertility treatment tax credit — For the 2024 taxation year, the maximum annual eligible expense that may be claimed under the fertility treatment tax credit is increased from $20,000 to $40,000. As a result, the maximum annual refundable personal income tax credit is increased from $8,000 to $16,000.

Manitoba’s budget also confirmed the income tax bracket thresholds will return to annual indexing beginning in 2025.

New Brunswick

New Brunswick’s budget, tabled on March 19, 2024, proposed changes to the following personal credits and amounts:

• Volunteer firefighters’ credit — The budget introduced new non-refundable personal income tax credits for eligible volunteer firefighters and search and rescue volunteers, effective for the 2024 taxation year. On March 26, 2024, further details were provided in legislation that was introduced to implement these credits. Eligibility conditions will match the existing federal tax credits, including the requirement that an individual perform at least 200 hours of eligible service. An individual can combine hours between the two volunteer positions to meet the eligibility requirements, but can only claim one of the two credits. Eligible individuals will be able to claim a provincial credit amount of $5,000, for a maximum annual provincial credit of approximately $470.
  
  
• Low-income seniors’ benefit — The low-income seniors’ benefit was increased from $400 to $600 on April 1, 2024. Beginning with the 2025 benefit year, this increase will be made permanent and the amount of the benefit will be subject to annual indexation. Applications for the 2024 benefit became available on April 1, 2024.

Newfoundland and Labrador

Newfoundland and Labrador’s budget, tabled on March 21, 2024, did not include any personal income tax measures.

Nova Scotia

Nova Scotia’s budget, tabled on February 29, 2024, introduced indexing to the provincial personal income tax system beginning on January 1, 2025. This means taxable income brackets will be subject to annual adjustment for inflation. As well, the following non-refundable tax credits will be indexed to inflation:

• Basic personal amount
• Spouse or common-law partner amount
• Amount for an eligible dependant
• Age amount
• Amount for infirm dependants age 18 or older

Ontario

Ontario’s budget, tabled on March 26, 2024, did not include any personal income tax measures.

Prince Edward Island

In Prince Edward Island’s budget, tabled on February 29, 2024, the minister proposed the reduction of the personal income tax rates — except for the last bracket rate, which will be increased — and to raise the thresholds of the first three brackets, beginning in 2025, as outlined in the table below.

The budget also proposed the introduction, beginning in January 2025, of the PEI children’s benefit, an income-based monthly benefit that will be administered by the Canada Revenue Agency and reviewed on an annual basis.

The budget proposed changes to the following personal credits and amounts for 2025:

• The basic personal amount will be increased from $13,500 to $14,250.
• The income threshold for the low-income tax reduction will be increased by $750 to $22,250.
• The age credit amount and income threshold will be increased from $5,595 to $6,510 and from $33,740 to $36,600, respectively.
• The spouse or common-law partner amount, as well as the amount for an eligible dependant, will be increased from $11,466 to $12,103, and the related income threshold will be increased from $1,147 to $1,210.

Québec

In Québec’s budget, tabled on March 12, 2024, the minister proposed the following personal tax measures:

• Supplement for Handicapped Children (SHC) — The budget proposed changes to certain assessment parameters used to determine if a child suffers from an impairment that meets the eligibility criteria for the SHC supplement to the family allowance. The changes are intended to clarify the parameters and reflect the evolution of medical practices. In addition, the tables of presumed cases of serious handicap related to an impairment will be replaced with an updated version.

These changes will apply in respect of any SHC application filed with Retraite Québec after June 30, 2024, and in respect of any decision rendered after June 30, 2024 following a reassessment of the child’s condition by Retraite Québec.

• Supplement for Handicapped Children Requiring Exceptional Care (SHCREC) — The situations in which a child will be eligible for the first level of the SHCREC monthly supplement will be expanded to include a third situation.¹⁰ Specifically, the first level of the SHCREC supplement will be made available for a dependent child who qualifies for the SHC, is under two years of age at the beginning of the particular month and meets certain criteria.¹¹
  

This change will apply in respect of all applications filed with Retraite Québec to obtain or reassess the SHCREC after June 30, 2024, and in respect of any application for such supplement filed before July 1, 2024 and for which no decision has been rendered by Retraite Québec before that date.

• Supporting seniors with disabilities — The retirement pension reduction currently applicable to seniors with disabilities aged 65 or over will be eliminated as of January 1, 2025. As well, recipients of a disability pension from age 60 to 64 will have their benefits protected so they are at least as high as they were prior to the payment of their retirement pension. This protection will apply retroactively to January 1, 2024.

Saskatchewan

The Saskatchewan budget, tabled on March 20, 2024, did not include any personal income tax measures. However, the budget confirmed that the small business corporate income tax rate will remain at 1% until June 30, 2025, and increase to 2% on July 1, 2025. The rate was previously scheduled to increase on July 1, 2024.¹²

As a result of this extension, a reduction to the DTC rate for non-eligible dividends was included in Saskatchewan’s budget implementation bill. The DTC rate is reduced from 2.94% to 2.52% of the amount of taxable dividends for 2024, and from 3.36% to 2.94% for 2025. The DTC rate will return to 3.36% for 2026 and later years. Consequently, the combined federal-Saskatchewan top marginal non-eligible dividend rate will increase from 40.86% to 41.34% for 2024.

Conclusion

With the 2024 taxation year nearly half complete, taxpayers are advised to review the measures announced in the various budgets to assess their potential impact and determine whether any planning may be available. For some taxpayers, additional savings may be available, while others may see an increase in their 2024 tax bill.  

Krista Fox, Toronto, and Gael Melville, Vancouver

A well-established principle of tax law states that if an employer reimburses an employee's regular commuting costs, or pays the employee an allowance to cover them, those amounts are usually taxable income for the employee because they represent personal expenses. Given the impact of carbon emissions, transportation costs and traffic, many employers are increasingly looking at ways to motivate their employees to travel to and from work in a more eco-friendly, efficient and cost-effective way.

A recent CRA technical interpretation provides an important reminder that, although an employer may have the best of intentions in encouraging employees to carpool, the format of an employer’s ridesharing incentive program can have unintended tax consequences for their employees.

Tax treatment of automobile allowance

The Income Tax Act (the Act) generally requires an employee to include in their income from an office or employment all employer-provided allowances received in the year for personal or living expenses or for any other purpose.¹ The Act allows exclusions from this general rule, including certain reasonable allowances for expenses related to travel and motor vehicle use and other allowances specifically excluded under various provisions of the Act.²

Under one of the exclusions, an employee is not required to include in income a reasonable automobile allowance they received for using their motor vehicle in carrying out employment duties, provided the allowance is based solely on the number of kilometres travelled in the course of the employer's business. An allowance for the use of a motor vehicle is treated as being unreasonable if the employee’s use of the vehicle is not measured solely on the number of kilometres for which the vehicle is used in connection with, or in the course of, the office or employment.³

Recent CRA interpretation

In February 2024, the CRA released a technical interpretation that addressed whether a per-passenger allowance paid by an employer to encourage employee carpooling would result in the entire travel allowance paid being deemed unreasonable and therefore taxable under the Act.⁴

In the scenario provided, a company offered an automobile allowance of $0.50 per kilometre (base allowance) and an additional allowance of $0.10 per kilometre for each additional person travelling in the motor vehicle with the driver (per-passenger allowance). The CRA was asked whether providing the additional per-passenger allowance would result in the travel allowance being taxable and, if so, whether the entire allowance would be taxable, or only the additional amount.

The CRA concluded that the base allowance and the additional per-passenger allowance comprised a single travel allowance, since both amounts relate to the same use of the motor vehicle. As such, the total amount of the travel allowance was deemed to be unreasonable under the Act, since the use of the motor vehicle was not based solely on the number of kilometres used in connection with, or in the course of, the office or employment.

While the CRA’s response appears to follow the legislation, it also highlights a misalignment between the legislation and broader government policies with respect to the environment. The CRA does note in their response that any concerns regarding tax policy should be directed to the Department of Finance.

Lessons learned

An employer planning to change existing employee benefit programs should not overlook the potential impact of such a change on the tax treatment of employee allowances and reimbursements. In the scenario described in the technical interpretation, an allowance that may otherwise have been non-taxable because it was based solely on kilometres travelled was made fully taxable for the employee by the addition of a small supplement for additional passengers.

An employer’s failure to consult a tax professional regarding the impact of program changes could result in unintended and undesirable tax consequences for their employees.  

Jeanne Posey, Vancouver

In Afshar v Attorney General of Canada, the Federal Court found that a taxpayer’s misunderstanding of the taxation rules or ignorance of the tax-free savings account (TFSA) limits was not a reasonable error for purposes of obtaining a waiver of the penalty tax imposed on the taxpayer’s excess TFSA contributions.

The Court also found that the CRA officer’s decision to deny the taxpayer’s request for relief was reasonable and justified by the facts and the law.

Background and facts

In this case, the taxpayer sought a judicial review of a decision of the Minister of National Revenue. In the decision, a CRA officer declined to exercise their discretion to cancel or waive the tax assessed on her excess TFSA contributions, as well as interest and penalties imposed on the taxpayer for overcontributions.

The taxpayer opened a TFSA in 2010 but made no contributions until 2020, meaning she had accumulated contribution room of just over $68,000 at January 1, 2020. In that year, the taxpayer decided to do some investing using her savings and funds lent to her by family members. Throughout 2020, the taxpayer contributed a little less than $400,000 to her TFSA and made withdrawals of approximately $300,000, resulting in an over-contribution balance of approximately $29,000.

At the start of 2021, an additional $6,000 of contribution room became available, reducing the taxpayer’s overcontribution balance to approximately $23,000. There were no contributions or withdrawals from the taxpayer’s TFSA in 2021.

In July 2021, the CRA issued the taxpayer a TFSA Notice of Assessment (NOA) for the 2020 taxation year advising her that she owed $10,815 in tax based on the excess contributions to her TFSA, as well as a late penalty charge and arrears interest.

Six months after the issuance of the NOA, on January 12, 2022, the taxpayer requested that the CRA cancel the assessed tax and penalties on her excess TFSA contributions on the basis that she did not have enough information about the rules related to TFSAs and that she thought a TFSA operated in the same manner as a regular savings account.

On March 17, 2022, the CRA issued a letter to the taxpayer declining her request to cancel the tax, interest and penalties on the excess TFSA contributions. The letter outlined that the Minister has discretion to cancel all or any part of the tax, interest and penalties associated with an overcontribution to a TFSA, but the overcontribution must have been due to a reasonable error by the taxpayer and the taxpayer must have acted immediately to remove the overcontribution.

On July 26, 2022, the CRA issued a further NOA for the excess TFSA amount for the 2021 taxation year notifying the taxpayer that she now had a balance owing of $14,748, which included tax, interest and penalties relating to the excess balance from 2020 that had not been paid.

On August 17, 2022, the taxpayer requested a review of the initial decision, and a second CRA officer declined the taxpayer’s request for relief in a decision dated February 2, 2023. This second decision was the subject of the taxpayer’s application for judicial review.

Court’s analysis and decision

The issue before the Court was whether the CRA officer’s decision refusing the taxpayer’s request for tax relief was reasonable.

Under section 207.02 of the Income Tax Act (the Act), if a taxpayer has exceeded their contribution room at any time in a calendar month, they are liable to pay a tax of 1% on the highest excess TFSA amount in that month.

For example, TFSA contribution room for 2023 was $6,500. If on January 15, 2023, a taxpayer who had no unused contribution room from prior years contributed $5,000 to their TFSA and then on April 10, 2023 contributed a further $2,500, as of April 10, 2023, the taxpayer would have an overcontribution amount of $1,000 and would be subject to tax. The taxpayer must also file a special TFSA tax return by June 30 of the following year; if the return is filed late and the tax is paid after this date, late-filing penalties and interest also apply.

Subsection 207.06(1) of the Act provides the Minister with the discretion to waive or cancel all or part of the liability to the taxpayer if it can be shown that the liability arose as a consequence of a reasonable error, and that the taxpayer made one or more distributions without delay to remove the excess contribution from the account.

The taxpayer claimed that she was not made aware of the issue by way of an educational letter or provided any warning letters by the CRA regarding the excess contribution amount and the potential tax that would apply. She further contended that the use of parentheses in the drafting of the letter, which stated that her contribution room was ($22,990), was confusing and she had understood that to mean she had available contribution room of $22,990 rather than a negative balance denoting an excess contribution.

However, the Court noted that the July 2021 NOA explained the use of parentheses indicates a negative balance — meaning excess contribution — and the CRA’s initial letter did include commentary regarding the computation of the tax being equal to 1% of the highest excess TFSA amount in the month for each month that the excess amount remained in the taxpayer’s account.

The CRA officer was also bound by the conditions in subsection 207.06(1); therefore, for the Minister to exercise their discretion to cancel or waive penalties, they must be satisfied that the taxpayer’s error was reasonable and that the taxpayer took immediate steps to remove the excess contribution. Neither of these requirements were met in the case at hand.

The Court concluded that the officer’s decision was reasonable and a taxpayer’s own misunderstanding of taxation rules or ignorance regarding TFSA contribution limits is not, on its own, a reasonable error.

Additionally, despite the taxpayer having received two NOAs from the CRA, she failed to withdraw her excess contributions “without delay.”

While the Court noted that the rules governing TFSAs are strict and the calculation of tax on TFSA overcontributions is complicated, a taxpayer’s lack of knowledge or misunderstanding of these rules does not render the CRA’s discretionary decision not to grant tax relief under subsection 207.06(1) of the Act unreasonable.

Lessons learned

Each year on January 1, taxpayers’ annual contribution room for a TFSA resets. The maximum contribution room for 2024 is $7,000. Generally speaking, the TFSA annual contribution limit is indexed for inflation and rounded to the nearest $500.¹

Before you contribute to your TFSA, you should confirm your available contribution room using your own financial records. If you use the CRA's services (e.g., My Account) to check your contribution room, pay close attention to the freshness date of the information and be sure to make adjustments for any subsequent transactions you have made.

It is ultimately the taxpayer’s responsibility to keep track of TFSA transactions to ensure contributions do not exceed allowable contribution limits.² Any funds you withdraw from the TFSA are added to your contribution room in the next year. This means you can recontribute all withdrawals in any subsequent year without affecting your allowable annual contributions. Recontribution in the same year may result in an overcontribution, which would be subject to a penalty tax.

Furthermore, as evidenced by the Court’s decision in this case, the Minister is only able to exercise its discretion to waive or cancel interest and penalties where an excess TFSA contribution is removed without delay. Therefore, if you discover you’ve made an excess contribution in error, it is important to act quickly to withdraw the excess amounts. The taxpayer must also show that the tax arose as a result of a reasonable error — it is clear from the finding in this and other cases that ignorance of the TFSA rules does not constitute reasonable error.³    

Tax Alerts – Canada

Tax Alert 2024 No. 26 – Implementation of Release 2 of the CBSA Assessment and Revenue Management (CARM) project delayed to October 2024

Tax Alert 2024 No. 25 – Federal budget 2024 announces further changes to alternative minimum tax

Tax Alert 2024 No. 24 – Federal budget 2024

Tax Alert 2024 No. 23 – BC amends the definition of software for PST purposes

Tax Alert 2024 No. 22 – Manitoba budget 2024-25