Special Report - Comprehensive Details from the December 16 Fall Economic Statement

Evelyn Jacks

December 16, 2024.   Amidst the drama of the resignation of the Finance Minister, the Fall Economic Report itself was shocking in it’s revelation of a projected $61.9 Billion dollar deficit for the year 2023-2024 and another $48.3 billion for 2024-2025, with  no end of deficit spending in sight for the rest of this decade.  This will generate public debt charges that grow from $47.3 billion in 2023-2024 to $69.4 Billion in 2029-2030.  These are swoon-worthy numbers that do not take into account the potential economic fallout of threatened tariffs from the U.S. and the effect this might have on nominal GDP, the indicator of growth (or loss) of tax revenues going forward.  Subscribe to KBR now to get the full report, and check out a summary of the tax measures below.

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1. Audits to Increase. Funding of $451.5 million is earmarked for CRA to crack down on tax evasion and in particular the wilful non-compliance of recipients of the Canada Emergency Rent Subsidy and Canada Emergency Wage Subsidy.  If you file a trust return however, expect that CRA is going to take a much closer look.  This budget is giving permanent funding the Trust Filers Verification Program (T3VP). It can be expected that CRA will develop new expertise on the trust filing population and targeting tax avoidance while ensuring compliance.
2. Clarity on Tax Status of the Canada Disability Benefit.  This new program will begin at long last in July 2025, and it has now been confirmed that the $200 a month benefit will be tax exempt.  Previously anticipated to be treated like the GIS, this new tax treatment ensures that recipients do not suffer any clawback of social benefits or refundable credits as a result of a net income inclusion of this benefit.
3. Northern Residence Deduction Changes.  The islands of Haida Gwaii will be included in the Northern Zone for these purposes, allowing for a higher deduction.
4. Capital Gains Deferral Tweaked.  Entrepreneurs who reinvested proceeds of disposition from the sale of one company into the acquisition of another currently may be able to defer capital gains until the sale of the second company.  For dispositions incurring on or after January 1, 2025, preferred shares will qualify for the rollover and the asset limit of eligible small business corporations that qualify for investment will rise to 100 million.  In addition, the period of time to acquire a new company to invest in will increase to the within the year of disposition and one full calendar year following the year of disposition.  Under current rules that new acquisition had to occur within 120 days of the following year. 
5. Canada Carbon Rebate More Advantageous for Small Business.Small businesses with between 1 and 20 employees will qualify for a payment amount that is equivalent to that given to companies with 20 employees, which effectively creates a base payment. However, larger businesses may receive less than under the original design. Payments will be zero once the firm has 500 employees.  In addition, the rebate will now be available to cooperative corporations and credit unions starting in the 2024-2025 fuel charge year.
6. Rural Supplement for Canada Carbon Rebate Expanded.  The eligibility for the 20% rural supplement will be expanded to people who within a Census Metropolitan Area (CMA) live in a census rural area of less than 1000 people or a small population centre of less than 30,000 people. 
7. CCA Accelerated Investment Incentive (AII) and Immediate Expensing Extended without phasing out until 2030.The AII provides for an enhanced first-year deduction for depreciable capital property acquired after November 20, 2018 and available for use before 2028.  Property would normally be subject to half year rules under the capital cost allowance provisions (CCA) will instead qualify for three times the normal first year deduction under this provision.  Now qualifying property acquired on or after January 1, 2025, and becoming available for use before 2030, will qualify for the full AII; with a phase-out period that extends to 2033. 

This incentive also applies to eligible Canadian development expenses and Canadian oil and gas property expenses.

Under the immediate expensing measures for manufacturing or processing machinery and equipment under CCA Class 53 or clean energy generation and energy conservation equipment under Class 43.1 and Class 43.2, as well as zero-emission vehicles under Classes 54, 55 and 56, the 100% immediate write off will be extended for property acquired on or after January 1, 2025 and available for use before 2030, after which there will be a phase out of the provision until 2033.

1. Restrictive Clauses in Employment Contracts to be Restricted.The government intends to restrict the use of non-compete agreements in our economy, with consultations on the matter to launch in early 2025.
2. Red Tape Reduction Office created to boost key sectors in the economy. $27.8 million will be allocated over 5 years starting in 2025-2026 to prioritize telecommunications, transportation, power generation and transmission, innovation, medicine and health. 
3. A lengthy list of previously announced measures, including the increases to capital gains inclusion rate, are intended to proceed.  Most significantly for individuals, business & charities:

− Legislative proposals included in the notice of ways and means motion

tabled on October 29, 2024, related to charities and reproductive services.

− Legislative proposals included in the notice of ways and means motion tabled on September 23, 2024, related to capital gains and the lifetime capital gains exemption.

- Legislative and regulatory proposals released on August 12, 2024, including with respect to the following measures:

- Canadian Entrepreneurs' Incentive

˗ Alternative Minimum Tax

˗ Disability Supports Deduction

˗ Employee Ownership Trust Tax Exemption

˗ Registered Education Savings Plans

˗ Non-Compliance with Information Requests

˗ Avoidance of Tax Debts

˗ Accelerated Capital Cost Allowance for Productivity-Enhancing Assets

˗ Accelerated Capital Cost Allowance for Purpose-Built Rental Housing

˗ Interest Deductibility Limits