5 tax changes to watch for in the upcoming federal budget

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What might be within the federal budget that Finance Minister Chrystia Freeland is delivering on April 16? It’s actually anybody’s guess, however some insights could be gleaned from the federal government’s current pre-budget report, in addition to from numerous pre-budget business newsletters, every providing up their very own predictions and proposals of what is perhaps in retailer.

Let’s assessment some potential tax adjustments we may see subsequent month.

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Different minimal tax

Among the many 359 suggestions contained throughout the Standing Committee on Finance’s 344-page report is that earlier than continuing with the proposed adjustments to the Alternative Minimum Tax, the federal government ought to decide the affect these adjustments may have on charitable revenues by conducting an unbiased financial and monetary evaluation.

The AMT imposes a minimal degree of tax on taxpayers who declare sure deductions, exemptions or credit to cut back the tax they owe to very low ranges. In final yr’s federal funds, the federal government introduced that “to raised goal the AMT to high-income people,” a number of adjustments could be made to the foundations for calculating the AMT, starting in 2024.

The adjustments, which have been formally launched in Parliament final summer season, however haven’t but been handed into legislation, embody elevating the AMT charge to twenty.5 per cent from 15 per cent, rising the quantity of revenue under which AMT won’t apply ($173,205 in 2024) and broadening the AMT base by limiting extra quantities that cut back taxes. All provinces and territories additionally impose AMT, which is usually calculated as a share of the federal AMT.

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Since AMT can solely come up in 2024 in case your revenue calculated below the foundations exceeds the $173,205 AMT exemption, most taxpayers don’t have to fret about it. However AMT could be a problem for higher-income taxpayers who make charitable items in 2024 due to a few adjustments that particularly goal charitable giving.

First, solely 50 per cent of the donation tax credit score is permitted when calculating the AMT, in keeping with the at the moment drafted AMT guidelines for 2024. This alone, nonetheless, isn’t sufficient to trigger AMT, even for high-income donors. It’s solely a priority when a donor earns some tax-preferred revenue or takes sure deductions. For instance, a donor who has a big capital achieve, workout routines qualifying worker inventory possibility advantages or has losses carried ahead from a previous yr might be affected.

The second AMT adjustment is expounded to in-kind donations of publicly traded shares, mutual funds or segregated funds to a registered charity. Beginning this yr, the draft AMT laws requires 30 per cent of the capital beneficial properties on securities which might be donated in form to be included in revenue for AMT functions. Since solely 50 per cent of the donation credit score is now allowed for AMT functions (as defined above), the result’s that the AMT might consequence on some vital donations of publicly listed securities in 2024.

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A lot lobbying by the charitable sector has taken place for the reason that new AMT guidelines have been initially launched, and the federal government will hopefully backtrack and reverse these two tax measures that would discourage, or on the very least cut back, massive charitable items in 2024 and future years.

Lifetime capital beneficial properties exemption

One other suggestion contained within the authorities’s pre-budget report is to extend the lifetime capital beneficial properties exemption (LCGE) that applies on the sale of certified small enterprise company shares, and farm or fishing property. For 2024, the LCGE exempts a bit greater than $1 million of capital gains arising from the sale of any of those properties from tax, with the unsheltered portion taxable on the regular 50 per cent capital beneficial properties inclusion charge.

The Canadian Federation of Agriculture advisable rising the LCGE for farming properties “to be extra consistent with present market values to permit extra exemption on lands bought to new entrants and/or younger farmers.” Equally, the Canadian Federation of Unbiased Enterprise advisable the LCGE be bumped as much as $1.2 million on the sale of all small and medium-sized enterprises.

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Retirement taxes

A number of of the assorted suggestions contained within the C.D. Howe Institute’s 2024 Shadow Budget have been aimed toward supporting Canada’s ageing inhabitants. For these of us nonetheless saving for retirement, the institute advisable rising the registered retirement financial savings plan contribution restrict by three share factors of revenue per yr — from the present 18 per cent to 30 per cent of the prior yr’s earned revenue — over 4 years.

For present seniors, C.D. Howe is asking for an instantaneous one-percentage-point discount of minimal withdrawals from registered retirement revenue funds (RRIFs) for every age, starting with the 2024 taxation yr. That is in keeping with the June 2023 findings of a government study on RRIFs, which indicated many seniors really feel that RRIF minimal withdrawals, and their interplay with different income-tested authorities advantages such because the Assured Revenue Complement, restrict their potential to optimize their monetary planning by their retirement years.

Prime tax bracket

The highest federal tax charge of 33 per cent at the moment kicks in at an revenue of greater than $246,752 for 2024. It’s possible you’ll recall the NDP’s 2021 pre-election platform proposed to extend the highest charge by two share factors to 35 per cent.

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Is that this nonetheless on the desk, given the minority authorities and the Liberal-NDP Supply and Confidence Agreement signed again in March 2022? Exhausting to inform, but when it goes by, this might convey the highest mixed federal/provincial marginal tax charge to roughly 56 per cent in British Columbia, Ontario and Nova Scotia, and to 57 per cent in Newfoundland and Labrador.

Capital beneficial properties inclusion charge

Within the weeks main as much as each spring funds, we all the time speculate about whether or not the federal government may improve the capital beneficial properties inclusion from 50 per cent to some larger quantity. The NDP’s 2021 election platform proposed a hike to 75 per cent.

My guess is {that a} normal improve within the inclusion charge is unlikely given the current adjustments to the AMT for 2024, which make capital beneficial properties taxable at a 100 per cent inclusion charge for top income-earners topic to AMT.

That mentioned, if a change is introduced to the overall capital beneficial properties inclusion charge, it might doubtless be efficient as of funds day (April 16). This implies traders who worry a bump within the inclusion charge may take into account accelerating any planning, together with a possible rebalancing of their portfolios by taking beneficial properties now, thereby locking in a 50 per cent inclusion charge.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Property Planning with CIBC Personal Wealth in Toronto. [email protected].

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