Monday was a day of political drama on Parliament Hill. Despite the turmoil, the Fall Economic Statement was eventually released, bringing with it a series of tax incentives aimed at driving business investment.
The Statement projects a budget deficit of $61.9 billion for the 2023-24 fiscal year—significantly exceeding the previous fiscal guardrail of $40.1 billion. Continued deficits of $48.3 billion in 2024-25 and $42.2 billion in 2025-26 are also forecasted.
Personal Tax Changes
There were no changes to the personal tax rates in Canada. The rumoured $250 HST rebate cheque for working taxpayers making up to $150,000 per year was also not part of the Economic Update.
Businesses Tax Changes
While there were no corporate tax rate changes, there were some new initiatives mainly aimed at businesses.
Accelerated Investment Incentive
One of the highlights was the renewal of the Accelerated Investment Incentive (AII). Originally introduced in 2018, the AII is supported by an additional $17.4 billion over four years. This program allows Canadian businesses to claim an enhanced Capital Cost Allowance (CCA) on eligible property—including machinery, buildings, vehicles, and tools—purchased after January 1, 2025, and is available for use before 2030. The program will be phased out starting in 2030 and will cease in 2033. This program was in the process of being phased out, so this announcement will extend the program a few more years.
The AII will allow businesses to claim up to three times the normal CCA deduction in the year of acquisition
Immediate Expensing Measures
Similar to the AII program above, Finance is proposing to re-instate this program for qualifying assets purchased after January 1, 2025, and is available for use before 2030. This will allow for an enhanced 100% write-off for assets in the first year and applies to clean energy equipment and zero-emission vehicles. The program will be phased out starting in 2030 and will cease in 2033. This program was also in the process of being phased out, so this announcement will extend the program a few more years.
SR&ED
To further stimulate research and development (R&D), the Fall Economic Statement introduces enhancements to the Scientific Research and Experimental Development (SR&ED) program, resulting in potentially bigger tax incentives for companies that qualify for the SR&ED program.
Key changes include:
- Increasing the annual expenditure limit for Canadian-controlled private corporations from $3 million to $4.5 million;
- Raising the taxable capital phase-out thresholds from $10 million and $50 million to $15 million and $75 million, respectively;
- Restoring the eligibility of capital expenditures for tax credits.
These changes aim to encourage small and mid-sized businesses to invest more in R&D, enhancing their growth and competitiveness.
Private Sector & Pension Fund Investments
The government also plans to unlock significant private sector and pension fund investments by:
- Removing the 30% rule on pension funds;
- Encouraging venture capital investments;
- Enhancing capital access for mid-cap companies;
- Supporting efforts to secure Canada’s AI advantage.
Together, these measures are designed to drive economic growth and create jobs.
Capital Gains
Finally, the government reiterated its intention to implement changes to the capital gains inclusion rate and increases to the lifetime capital gains exemption (among a number of other earlier proposals such as the Canadian Entrepreneurs’ Incentive, Alternative Minimum Tax, and Employee Ownership Trust Tax Exemption, for example). The changes were first introduced in the 2024 federal budget and updates were included in the proposed amendments released on August 12, 2024; however, they have yet to be passed into law by parliament, so taxpayers have been in a bit of a holding pattern given the new rules are effective as of June 25, 2024.
A Brief Reminder of the Proposed Changes:
For Individuals
- An increase to the capital gains inclusion rate to 2/3, effective for capital gains realized on or after June 25, 2024. However, individuals will retain the 1/2 inclusion rate on the first $250,000 of capital gains annually.
- Added incentives of specific types of business sales:
- An increase to the lifetime maximum capital gains exemption to $1,250,000 for dispositions taking place on or after June 25, 2024, and indexed to inflation commencing in 2026;
- Introduction of the Canadian Entrepreneurs’ Incentive, which halves the prevailing capital gains inclusion rate up to $2 million, but to be phased in over annual increments of $200,000 commencing in 2025.
For Corporations and Trusts
- An increase to the capital gains inclusion rate to 2/3, effective for capital gains realized on or after June 25, 2024. No preferential 1/2 inclusion rate on the first $250,000 of annual capital gains taxed at the corporate or trust level.
While these changes to capital gains have not yet received Royal Assent, the changes will be retroactive to June 25th, 2024, when, or if, the bill does pass. We will be keeping a close eye on Parliament and providing regular updates as they become available.
