2025 Federal Budget Highlights

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2025 Federal Budget Highlights

On November 4, 2025, the budget was delivered by the Honourable François-Philippe Champagne, Minister of Finance and National Revenue.

The 2025 Federal Budget focuses on stability, simplicity, and long-term growth. There are no broad tax increases or major new spending programs. Instead, the government is emphasizing restraint, modernization, and productivity.

For individuals and business owners, the goal is clear: help Canadians access benefits more easily, encourage investment in innovation and clean energy, and update trust and estate rules to maintain fairness across the system.

Economic Overview

Canada’s federal deficit is projected at $78.3 billion for 2025–26. The government aims to stabilize the debt-to-GDP ratio while maintaining funding for priorities such as housing, defence, and clean energy.

Spending will focus on programs that improve productivity, while efficiency reviews across departments are expected to reduce overlap and administrative costs. This marks a shift toward sustainable fiscal management and practical, targeted investments.

Personal and Family Tax Measures

Several measures are designed to make life more affordable, particularly for first-time home buyers, caregivers, and lower-income households.

Eliminating the GST for First-Time Home Buyers

First-time home buyers will not pay the 5 percent federal GST on new homes priced up to $1 million. For new homes between $1 million and $1.5 million, a partial GST reduction applies. This change provides meaningful savings and makes new construction more accessible for Canadians entering the housing market.

Home Accessibility Tax Credit

Starting in 2026, expenses can no longer be claimed under both the Home Accessibility Tax Credit and the Medical Expense Tax Credit. The rule prevents duplicate claims but continues to support renovations that make homes safer and more accessible for seniors or individuals with disabilities.

Top-Up Tax Credit

To balance the reduction in the lowest federal tax bracket—from 15 percent to 14.5 percent in 2025, and 14 percent in 2026—the government introduced a Top-Up Tax Credit to preserve the value of non-refundable credits such as tuition, medical, and charitable amounts. This temporary measure, available from 2025 through 2030, ensures Canadians receive the same credit value even as rates decrease.

Personal Support Workers (PSW) Tax Credit

A new refundable tax credit equal to 5 percent of eligible income, up to $1,100 per year, will be available for certified personal support workers beginning in 2026. The measure acknowledges the importance of care professionals and provides direct relief to those in long-term and community-care roles.

Automatic Federal Benefits

Starting in 2025, the Canada Revenue Agency will begin automatically filing simple tax returns for eligible Canadians who do not normally file. This will allow low-income earners and seniors to receive benefits such as the Canada Workers Benefit, GST/HST Credit, and Canada Carbon Rebate automatically. Those with more complex financial situations will continue to file regular returns.

Registered Plans, Trusts, and Estate Planning

The budget introduces several changes affecting trusts and registered plans—key tools in long-term financial and estate planning.

Bare Trust Reporting Rules

Implementation of new bare trust reporting requirements has been delayed. The rules will now apply to taxation years ending December 31, 2026, or later. This postponement gives individuals, trustees, and professionals more time to prepare for the new filing obligations.

The 21-Year Rule for Trusts

Trusts—particularly most personal or family trusts—are generally considered to have sold and repurchased their capital property every 21 years (a “deemed disposition”). This rule prevents indefinite deferral of capital-gains tax on assets that grow in value.

When property is moved on a tax-deferred basis from one trust to another, the receiving trust normally inherits the original 21-year anniversary date so that tax timing does not reset.

Some estate-planning arrangements have transferred trust property indirectly—for example, through a corporation or a beneficiary connected to a second trust—so that the transfer did not appear to be trust-to-trust. These arrangements effectively extended the period before capital gains would be recognized.

Budget 2025 broadens the anti-avoidance rule to include indirect transfers. Any transfer of property made on or after November 4, 2025, that effectively moves assets from one trust to another will retain the original 21-year schedule.

For families that use trusts in estate or business-succession planning, this change reinforces the importance of reviewing structure and timing. Trusts remain valuable for asset protection, legacy planning, and income distribution—this update simply ensures consistent application of the 21-year rule.

Qualified Investments for Registered Plans

Beginning January 1, 2027, all registered plans—RRSPs, TFSAs, FHSAs, RDSPs, and RESPs—will follow a single harmonized list of qualified investments. Small-business shares will no longer qualify for new contributions, though existing holdings will remain grandfathered. The update simplifies compliance and clarifies which assets can be held in registered accounts.

Business and Investment Incentives

For business owners, Budget 2025 provides opportunities to reinvest, innovate, and modernize operations, with emphasis on manufacturing, research, and clean technology.

Immediate Expensing for Manufacturing and Processing Buildings

Businesses can now claim a 100 percent deduction for eligible manufacturing and processing buildings acquired after Budget Day and available for use before 2030. This full write-off improves cash flow and encourages earlier expansion. The benefit will gradually phase out after 2033.

Scientific Research and Experimental Development (SR&ED)

The refundable SR&ED tax credit limit has increased from $3 million to $6 million per year, effective for taxation years beginning after December 16, 2024. This expansion strengthens support for small and medium-sized Canadian businesses investing in innovation and technology.

Tax Deferral Through Tiered Corporate Structures

To prevent deferrals of tax on investment income, new rules will suspend dividend refunds for affiliated corporations with mismatched fiscal year-ends. This ensures consistent taxation within corporate groups and aligns refund timing with income recognition.

Agricultural Co-operatives

The tax deferral for patronage dividends paid in shares has been extended to December 31, 2030, continuing to support agricultural co-operatives and their members.

Clean Technology and Clean Electricity Investment Credits

Clean-technology and clean-electricity incentives have been expanded to include additional critical minerals—such as antimony, gallium, germanium, indium, and scandium—used in advanced manufacturing and renewable energy production. The Canada Growth Fund can now invest in qualifying projects without reducing the amount of credit companies can claim, keeping the incentive structure attractive for green investment.

Canadian Entrepreneurs’ Incentive

The government has confirmed it will not proceed with the previously proposed Canadian Entrepreneurs’ Incentive. The existing Lifetime Capital Gains Exemption remains unchanged and continues to apply to the sale of qualified small-business shares.

Tax Simplification and Repealed Measures

To simplify administration and reduce complexity, two taxes are being repealed:

– Underused Housing Tax, beginning in 2025

– Luxury Tax on aircraft and vessels for purchases made after November 4, 2025

In addition, the Canada Carbon Rebate will issue its final household payment in April 2025, with no rebates available for returns filed after October 30, 2026. These changes are meant to streamline compliance and eliminate programs that were costly to administer.

Government Direction and Spending Priorities

Beyond taxation, the budget sets out the government’s broader policy priorities.

Downsizing Government: A comprehensive efficiency review is underway to eliminate duplication across departments and generate long-term savings.

Cuts to Immigration: To ease pressure on housing and infrastructure, temporary-resident levels will be reduced by about 20 percent over two years, while maintaining pathways for essential workers.

Defence Spending: Canada will invest an additional $7 billion over five years to strengthen NATO participation, Arctic defence, and cybersecurity. By 2030, defence spending is expected to reach 1.8 percent of GDP.

Oil and Gas Emission Cap: A phased-in cap starting in 2026 will allow companies to meet targets through carbon-capture and clean-tech investments rather than penalties.

Final Thoughts

For individuals, the most relevant updates include GST relief for first-time home buyers, improved benefit access, and continued tax relief for caregivers and support workers. For business owners, the focus remains on productivity—through immediate expensing, expanded SR&ED credits, and clean-tech investment incentives. For families using trusts or inter-generational structures, the clarified 21-year rule reinforces transparency in estate planning.

If you’d like to review what these changes mean for you or your business, please get in touch. We can look at your goals and make sure you’re well prepared for the year ahead.

How Business Owners Can Use Charitable Giving in Estate Planning

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Many successful business owners wonder how their hard work will carry forward when they are no longer here. Beyond passing on wealth to family, many also want to leave a lasting impact on their community. Charitable donations in estate planning can achieve both — supporting causes you care about while also creating tax savings. For business owners, this can be a smart way to combine legacy, values, and financial efficiency.

Why Charitable Giving Belongs in Estate Planning

Estate planning is about more than dividing assets. It’s about shaping how your legacy is remembered. Charitable giving allows business owners to extend their values beyond their lifetime. By including donations in an estate, you create a legacy of generosity that reflects what mattered most to you. At the same time, Canada’s tax system provides incentives that reward giving, which can also benefit your estate and heirs.

Tax Benefits of Charitable Donations

When individuals or corporations donate to a registered charity, they may receive tax credits or deductions. For individuals, charitable donations can reduce taxes owed in the year of death and in the estate. Up to 100% of net income can be claimed as a charitable donation on the final tax return. If structured properly, donations made within the estate can also qualify. This can significantly lower taxes owing on things like capital gains triggered at death. For corporations, charitable gifts can be deducted against taxable income, and donations of publicly traded securities can eliminate capital gains tax entirely.

Options for Structuring Charitable Giving

Business owners have several choices for how they structure donations:

  • Direct Gifts: Cash, securities, or property donated directly to a charity.
  • Donor-Advised Funds: A flexible option that allows you to recommend grants to charities over time, while receiving an immediate tax benefit.
  • Private Foundations: Some business owners establish their own charitable foundation to give over generations and involve their families in ongoing philanthropy.
  • Life Insurance: Naming a charity as the beneficiary of a life insurance policy can create a large future gift for a relatively small cost today, while also providing tax benefits.

Using the Estate for Charitable Giving

In recent years, Canada’s tax rules have provided more flexibility for donations made through an estate. If the estate qualifies as a Graduated Rate Estate (GRE) — generally within the first 36 months after death — charitable donations made by the estate can be allocated in several ways.

The executor can choose to apply the donation against:

  • The deceased’s final return (year of death)
  • The year prior to death (as a carry-back)
  • The estate’s income in the year the donation is made

This flexibility allows careful planning to reduce the overall tax burden while maximizing the charitable impact. For example, if the sale of company shares triggers a large capital gain at death, a donation through the GRE can offset that tax liability. Business owners should review how their estate will be structured to ensure they can take advantage of these rules.

Another option involves donating publicly traded securities. If securities are gifted directly to a registered charity or through the GRE, the capital gains tax that would normally apply is eliminated. This makes securities an especially tax-efficient way to give.

Consider Robert, a 62-year-old business owner who recently sold his company. The sale triggered a large capital gain, which would create a significant tax bill at death. To address this, Robert worked with his advisor to donate a portion of his publicly traded shares through his estate. Because his estate qualifies as a GRE, the executor can apply the donation against Robert’s final return, wiping out the tax liability from the capital gain. The result: Robert’s estate pays less tax, his family inherits more of his remaining wealth, and the charity receives a meaningful gift that reflects Robert’s lifelong values.

Aligning Giving with Family Goals

Many business owners also want to teach the next generation about the value of giving back. By including charitable donations in estate planning, you set an example for your family. Involving children or grandchildren in discussions about which causes to support can create a shared legacy that extends beyond money. It’s a chance to pass on values as well as wealth.

Key Considerations Before Moving Forward

Charitable giving can be a powerful tool, but it requires planning. Here are a few things business owners should keep in mind:

  • Ensure donations are made to registered charities that can issue official receipts recognized by the CRA.
  • Review donation timing to make sure gifts qualify for available tax benefits.
  • Confirm whether donations are best made personally, through a corporation, or directly from the estate.
  • Work with your executor and professionals to ensure your estate qualifies as a GRE if that flexibility is important.
  • Document intentions clearly in your estate instructions to avoid confusion later.

By weaving charitable giving into your estate strategy, you can support causes you care about, reduce taxes, and leave a legacy that reflects your values.

This is for informational purposes only and does not constitute financial, legal, or tax advice. Always consult a qualified professional regarding your specific situation. We are not responsible for any actions taken based on this content.

Supporting Your Aging Parents Without Sacrificing Your Own Stability

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Supporting Your Aging Parents Without Sacrificing Your Own Stability

It starts gradually. A missed bill here. A forgotten appointment there. Then one day you realize your parents may no longer be able to manage everything on their own. You want to help—but you also have a job, a family, and your own responsibilities. For many adults, stepping in to support aging parents financially or emotionally is one of the most challenging roles they’ll take on.

As life expectancy increases, more Canadians are finding themselves caring for elderly parents while still raising children or building their own future. The emotional weight is one thing—but the financial implications and paperwork can feel overwhelming. The good news? With thoughtful preparation and open communication, you can protect your loved ones while staying grounded yourself.

Start with Honest, Compassionate Conversations

Talking about money, health, or legal documents with your parents isn’t easy. Many people avoid these topics because they’re uncomfortable or feel “too personal.” But waiting until there’s a crisis—like a fall, hospitalization, or memory loss—can limit your options and lead to rushed decisions.

Start with small, respectful conversations. Ask your parents what they would like help with, and offer to support them in ways that don’t feel intrusive. Share a story about someone else who went through this—it can make the conversation feel less like a confrontation and more like a shared concern.

If you have siblings, try to align with them first. It’s helpful to present a united and supportive front, even if only one person is taking the lead. Having an agreed-upon approach can also reduce misunderstandings or resentment down the line.

Gather the Right Information Early

One of the best things you can do is help your parents create an “Information Checklist.” This isn’t just about knowing where their money is—it’s about understanding the full picture of their finances, obligations, and preferences.

Here are some items to include in that checklist:

  • Personal information: Social Insurance Number, health care card, date of birth, current address, emergency contacts

  • Financial accounts: bank accounts, insurance policies, pensions, RRSPs/RRIFs, TFSAs

  • List of monthly bills: utilities, credit cards, insurance premiums, phone, internet, property tax

  • Legal documents: will, power of attorney (financial and medical), healthcare directive, deeds or titles

  • Login credentials (if possible): online banking, CRA account, utility portals

  • Health records: medication list, primary doctor, pharmacy, care history

Organize everything into one place—either a binder, secure folder, or encrypted digital file. The goal isn’t to take control right away—it’s to be ready if and when it’s needed

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Understand the Legal Side of Helping

Even if your parents trust you to step in, you can’t simply start managing their accounts without legal authority. A power of attorney (POA) document gives you the right to act on their behalf for financial and/or medical matters. This must be signed while your parent is mentally capable.

If you already have POA documents in place, don’t stop there. Reach out to their bank, insurance company, and investment firm to confirm they accept the documents—or if they require their own internal forms. Some institutions may ask for a doctor’s letter confirming incapacity before they will recognize the POA.

Also consider notifying government agencies like Service Canada or provincial health bodies if you have POA status. It can take time for your authority to be processed, so doing it in advance saves delays later.

Without a valid POA, you may need to apply for guardianship or trusteeship through the courts, which can be a lengthy and stressful process.

Create a Plan—And Keep It Flexible

Every parent’s situation is unique. Some may be fiercely independent and want to remain hands-off. Others might be relieved to delegate things like bill payments or appointment scheduling. The key is to agree on a shared plan that respects their wishes while also addressing practical concerns.

For some families, that might mean gradually taking on tasks like organizing bill payments, helping with taxes, or reviewing insurance coverage. For others, it could involve preparing for bigger decisions—like exploring home care options or moving to assisted living.

Try to balance compassion with clarity. It’s okay to say, “I want to make sure everything is in place now, so we don’t have to scramble later.” Helping your parents remain involved in decisions for as long as possible preserves their dignity and autonomy.

You can also revisit the plan as their needs evolve. A yearly check-in to review their financial documents, renew insurance policies, and update contact information is a great habit to adopt.

Use Tools and Resources to Lighten the Load

Managing someone else’s affairs can feel like a second job. Thankfully, there are tools that can help. Automatic bill payments and direct deposit can reduce the risk of missed due dates. Transaction monitoring services can flag suspicious activity and help prevent fraud. Some families use shared calendars or caregiver apps to stay on top of appointments and responsibilities.

Look into local and government resources too. Your province may offer programs that subsidize home care, equipment, or transportation. Some non-profits run adult day programs or offer respite services for caregivers.

If your parents have insurance—like long-term care coverage or disability insurance—review the policy now. Understanding what it does (and doesn’t) cover will help you avoid surprises later.

Moving Forward with Confidence

Caring for aging parents isn’t just about responding to emergencies—it’s about planning ahead so everyone feels supported, respected, and safe. By opening the lines of communication early, organizing important documents, and clarifying legal authority, you’ll be in a much better position to help when it’s needed most.

This stage of life can feel overwhelming, but you don’t have to go through it alone. Start by creating a simple checklist with your parents. Schedule a conversation this month—just one. Taking that small first step today can make a big difference tomorrow. We can help.

Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or tax advice. Always consult a qualified professional regarding your specific situation. We are not responsible for any actions taken based on this content.

Understanding Taxes Payable at Death in Canada

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A common belief among Canadians is that they will be taxed on money they inherit. However, Canada does not impose an inheritance tax. Instead, after someone passes away, their final tax return must be filed, covering the income they earned up to the date of death. Any taxes owed are paid from the estate’s assets before the remaining funds are distributed to the beneficiaries.

While there isn’t an inheritance tax in Canada, other costs are associated with settling an estate. It’s important to understand these costs and how the process works.

Is There an Estate Tax in Canada?

Canada doesn’t have a traditional estate tax, but there are taxes and fees that apply after death. The Canada Revenue Agency (CRA) ensures that taxes are paid on any income earned up to the date of death. If there is a tax balance owing, the executor of the estate must file a final tax return and settle any outstanding taxes.

Earned Income

When you pass away, any earned income up to the date of death is included in your final tax return. This includes salary, wages, and other forms of income earned before death.

Deemed Disposition

Deemed disposition occurs when all your assets are treated as if they were sold at their current market value upon death. This means the difference between the original purchase price and the market value at the time of death is considered a capital gain.

Capital Gains:

If your assets have increased in value, the difference (capital gain) is taxable. Effective June 25, 2024, 50% of this gain is included in your income unless the total gain exceeds $250,000, in which case any amount above the first $250,000 the inclusion rate increases to two thirds.

What Property Does Deemed Disposition Apply To:

  • Non-Registered Investments: Securities, Mutual Funds, ETFs, Bonds
  • Income Properties
  • Businesses
  • Other Assets

Deemed Withdrawal

Deemed withdrawal applies to registered accounts such as RRSPs and RRIFs. The total value of these accounts is added to your income for the year of death, potentially leading to a significant tax liability.

Example: Earned Income, Deemed Disposition, and Deemed Withdrawal (Effective June 25, 2024)
Let’s consider an example to illustrate how earned income, deemed disposition, and deemed withdrawal work together, including how much of the estate is kept after taxes and how much is paid in taxes:

Scenario:

  • John earned $60,000 in salary up to the date of his death.
  • He owns an income property, stock portfolio and an RRSP.
  • Income Property: Purchased for $200,000, now worth $500,000.
  • Stock Portfolio: Purchased for $50,000, now worth $100,000.
  • RRSP: Total value of $150,000.

Earned Income:

  • John’s earned income of $60,000 is included in his final tax return.

Deemed Disposition:

1.  Income Property:

  •    Original Purchase Price: $200,000, Market Value at Death: $500,000
  •    Capital Gain: $500,000 – $200,000 = $300,000
  •    First $250,000 taxed at 50%: $125,000
  •    Remaining $50,000 taxed at two-thirds: $33,333
  •    Total Taxable Gain: $125,000 + $33,333 = $158,333

2.  Stock Portfolio:

  •    Original Purchase Price: $50,000, Market Value at Death: $100,000
  •    Capital Gain: $100,000 – $50,000 = $50,000
  •    Taxable Portion: 2/3 of $50,000 = $33,333 (Net capital gains exceed $250,000)

Deemed Withdrawal:

  • RRSP Value: $150,000
  • Added to Income: $150,000

Total Taxable Income Calculation:

  • Earned Income: $60,000
  • Taxable Gain from Income Property: $158,333
  • Taxable Gain from Stocks: $33,333
  • RRSP Added to Income: $150,000
  • Total Taxable Income: $60,000 + $158,333 + $33,333 + $150,000 = $401,666

Tax Liability:

  • Assuming John’s tax rate is 30%, his tax liability would be:
  • Total Tax Owed: 30% of $401,666 = $120,500

Estate’s Remaining Value:

  • John’s estate would need to pay $120,500 in taxes, which is 16.06% of the total estate value.
  • If the total value of the assets is $750,000 (including the stock portfolio, income property, and RRSP), the remaining value after taxes would be:
  • Remaining Estate Value: $750,000 – $120,500 = $629,500, which represents 83.93% of the estate.

So, after paying $120,500 in taxes, John’s estate would keep $629,500 to be distributed to the beneficiaries.

Strategies to Address Estate Taxes

To manage the tax burden on your estate, several strategies can be considered:

  1. Spousal Rollovers: Deferring taxes on RRSPs, RRIFs, and other assets by transferring them to your spouse can delay the tax liability until those assets are withdrawn or disposed of.
  2. Gifting Assets: Spreading out the gifting of assets over several years can reduce the overall taxable income in the year of death.
  3. Use of Life Insurance: Life insurance can provide funds to cover taxes, ensuring that your estate remains intact for your beneficiaries.
  4. Planning with a Will: Creating a detailed will that considers tax implications can help in minimizing the taxes payable and ensure your wishes are followed.
  5. Consider Trusts: Setting up trusts can be a way to manage and protect your assets, potentially reducing tax burdens.

Implementing these strategies effectively requires careful planning and consideration of your unique circumstances. Professional guidance can help tailor these strategies to your needs.

Understanding these rules helps in planning your estate effectively. For more personalized advice, feel free to contact us.

2024 Federal Budget Highlights

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On April 16, 2024, Canada’s Deputy Prime Minister and Finance Minister, Chrystia Freeland, presented the federal budget.

While there are no changes to federal personal or corporate tax rates, the budget introduces:

  • An increase in the portion of capital gains subject to tax, rising from 50% to 66.67%, starting June 25, 2024. However, individual gains up to $250,000 annually will retain the 50% rate.

  • The lifetime exemption limit for capital gains has been raised to $1.25 million. Additionally, a new one-third inclusion rate is set for up to $2 million in capital gains for entrepreneurs.

  • The budget confirms the alternative minimum tax changes planned for January 1, 2024 but lessens their impact on charitable contributions.

  • This year’s budget emphasizes making housing more affordable. It provides incentives for building rental properties specifically designed for long-term tenants.

  • Introduces new support measures to aid people buying their first homes.

  • Costs for specific patents and tech equipment and software can now be written off immediately.

  • Canada carbon rebate for small business.

Capital Gains Inclusion Rate

The budget suggests raising the inclusion rate on capital gains after June 24, 2024:

  • Corporations and trusts, from 50% to 66.67%.

  • Individuals, on capital gains over $250,000 annually, also from 50% to 66.67%.

For individuals, the $250,000 annual threshold that applies to net capital gains—the amount remaining after offsetting any capital losses. This includes gains acquired directly by an individual or indirectly through entities such as partnerships or trusts. Essentially, this threshold acts as a deductible, considering various factors to determine the net gains eligible for the increased capital gains tax rate.

Individuals in the highest income bracket, who earn above the top marginal tax rate threshold, will face a higher tax rate on capital gains exceeding $250,000 due to these changes. Furthermore, the budget modifies the tax deduction for employee stock options to align with the updated capital gains taxation rates yet maintains the initial 50% deduction for the first $250,000 in gains. Regarding previously incurred financial losses, the budget plans to adjust the value of these net capital losses from past years so that they are consistent with the current gains, upholding the uniformity with the new inclusion rate.

The budget outlines transitional rules for the upcoming tax year that straddles the implementation date of the new capital gains rates. If the tax year begins before June 25, 2024, but ends afterward, capital gains realized before June 25 will be taxed at the existing rate of 50%. However, gains accrued after June 24, 2024, will be subject to the increased rate of 66.67%. It’s important to note that the new $250,000 threshold for higher tax rates will only apply to gains made after June 24.

Consequently, for individuals earning capital gains beyond the $250,000 threshold and who fall into the highest income tax bracket, new rates will be effective as outlined in the table below. Specifically, this pertains to individuals with taxable incomes exceeding $355,845 in Alberta, $252,752 in British Columbia, $1,103,478 in Newfoundland and Labrador, $500,000 in the Yukon, and $246,752 in all other regions.

Further details and guidance on these new rules are expected to be provided in future announcements.

Lifetime Capital Gains Exemption

The budget proposes raising the Lifetime Capital Gains Exemption (LCGE) for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. Additionally, the exemption will once again be adjusted for inflation starting in 2026. This change aims to increase the tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.

 

Canadian Entrepreneurs’ Incentive

The Canadian Entrepreneurs’ Incentive is a new tax measure which provides a reduced inclusion rate on capital gains from the disposition of qualifying small business shares.

Qualifications for the incentive include:

  • Shares must be of a small business corporation directly owned by an individual.

  • For 24 months before selling, over half the corporation’s assets must be actively used in a Canadian business or be certain connected assets.

  • The seller needs to be a founding investor who held the shares for at least five years.

  • The seller must have been actively involved in the business continuously for five years.

  • The seller must have owned a significant voting share throughout the subscription period.

  • The incentive does not apply to shares linked to professional services, financial, real estate, hospitality, arts, entertainment, or personal care services sectors.

  • The shares must have been acquired at their fair market value.

  • The incentive allows for a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years.

This measure will apply to dispositions after December 31, 2024.

Alternative Minimum Tax (AMT)

The 2023 budget included updates to the AMT, with proposed changes outlined in the summer of 2023. The budget suggests revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.

Further proposed changes to the AMT include:

  • Permitting deductions for the Guaranteed Income Supplement, social assistance, and workers’ compensation benefits.

  • Exempting employee ownership trusts (EOTs) entirely from AMT.

  • Allowing certain tax credits, like federal political contributions, investment tax credits (ITCs), and labour-sponsored funds tax credit, to be carried forward if disallowed under the AMT.

These changes would take effect for tax years beginning after December 31, 2023. Additionally, the budget proposes technical amendments that would exempt specific trusts benefiting Indigenous groups from the AMT.

Employee Ownership Trust (EOT) Tax Exemption

The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met:

  • Sale of shares must be from a non-professional corporation.

  • The seller, or their spouse or common-law partner, must have been actively involved in the business for at least two years prior to the sale.

  • The business shares must have been solely owned by the seller or a related person or partnership for two years before the sale, and mainly used in active business.

  • At least 90% of the EOT’s beneficiaries must be Canadian residents after the sale.

  • If multiple sellers are involved, they must jointly decide how to divide the $10 million exemption

  • If the EOT doesn’t maintain its status or if the business assets used in active business drop below 50% at any point within 36 months after the sale, the tax exemption may be revoked.

  • For Alternative Minimum Tax purposes, the exempted gains will face a 30% inclusion rate.

  • The normal reassessment period for the exemption is extended by three years.

  • The measure now also covers the sale of shares to a worker cooperative corporation.

This exemption is valid for sales occurring from January 1, 2024, to December 31, 2026.

Home Buyers Plan (HBP)

The budget proposes enhancements to the HBP for 2024 and beyond, effective for withdrawals after April 16, 2024. These include:

  • Raising the RRSP withdrawal limit from $35,000 to $60,000 to support first-time homebuyers and purchases for those with disabilities.

  • Extending the grace period before repayment starts from two to five years for withdrawals made between January 1, 2022, and December 31, 2025, deferring the start of the repayment period and thereby providing new homeowners additional time before they need to commence repayments

Interest Deductions and Purpose-Built Rental Housing

The budget proposes a selective exemption from the Excessive Interest and Financing Expenses Limitation (EIFEL) rules for certain interest and financing expenses related to arm’s length financing. This exemption is for the construction or purchase of eligible purpose-built rental housing in Canada and applies to expenses incurred before January 1, 2036. To qualify, the housing must be a residential complex with either at least four private apartment units, each with its own kitchen, bathroom, and living areas, or 10 private rooms or suites. Additionally, at least 90% of the units must be designated for long-term rental. This exemption will be effective for tax years starting on or after October 1, 2023, in line with the broader EIFEL regulations.

Accelerated Capital Cost Allowance (CCA) – Purpose built rental housing

The budget introduces an accelerated CCA of 10% for new rental projects that start construction between April 16, 2024, and December 31, 2030, and are completed by December 31, 2035. This accelerated depreciation applies to projects that convert commercial properties into residential complexes or expand existing residential buildings that meet specific criteria under the EIFEL rules. However, it does not cover renovations to existing residential complexes.

Additionally, these investments will benefit from the Accelerated Investment Incentive, which allows for immediate depreciation deductions for properties put into use before 2028. Starting in 2028, the regular depreciation rules, including the half-year rule, will apply.

Accelerated Capital Cost Allowance (CCA)- Productivity-enhancing assets

The budget introduces immediate expensing for newly acquired properties that become operational between April 16, 2024, and December 31, 2026. This applies to specific categories such as:

  • Class 44- Patents and rights to patented information

  • Class 46- Data network infrastructure and related software

  • Class 50- General electronic data-processing equipment and software

Properties that are put into use between 2027 and 2028 will continue to benefit from the Accelerated Investment Incentive.

To qualify for this accelerated depreciation, the property must not have been previously owned by the taxpayer or someone closely connected to them, and it must not have been received as part of a tax-deferred deal. Also, if a tax year is shorter, the depreciation will be adjusted accordingly and will not carry over to the next year.

Canada Carbon Rebate for Small Businesses

The budget introduces a Canada Carbon Rebate for small businesses, offering a new refundable tax credit automatically. To be eligible, a Canadian-controlled private corporation must:

  • File a tax return for its 2023 tax year by July 15, 2024, for the fuel charge years from 2019-20 to 2023-24. For subsequent fuel charge years, it must file a tax return for the tax year that ends within that fuel charge year.

  • Employ 499 or fewer people across Canada during the year that corresponds with the fuel charge year.

The amount of the tax credit for each eligible business will depend on:

  • The province where the company had employees during the fuel charge year.

  • The number of employees in that province multiplied by a rate set by the Minister of Finance for that year.

  • The CRA will automatically calculate and issue the tax credit to qualifying businesses.

We can help!

Wondering how this year’s budget will impact your finances or your business? We can help – give us a call today!

Estate Freeze

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In 2015, CIBC conducted a poll to see how many Canadian business owners had a business transition plan. Almost half of them didn’t have one.

No business owner likes to think about handing over their business they’ve built from the ground up. But the fact of the matter is, you will have to do it eventually. Even more concerning, what if you were to become ill or incapacitated? Making a decision of this magnitude during trying times would not be ideal.

Your two main choices for passing on your business are:

  • Selling it

  • Transferring ownership to a successor of your choice (this can either be a family member or a non-family member such as a key employee)

When you die, all your capital property is deemed to have been sold immediately before your death. This includes your business. This means that capital gains taxes will be charged on whatever the fair market value (FMV) of your business is considered to be at the time of your death.

The higher the FMV of your business, the higher the capital gains taxes that will be charged. Your successors may not have the funds to pay these taxes which may force them to sell the business in order to fund the tax liability; thus, not to reaping the benefits of all your hard work as intended. 

The good news is that there’s a way to protect your business; an estate freeze.

What is an estate freeze?

For the business owner, an estate freeze can be an integral part of your estate planning strategy. The purpose of an estate freeze is to lock-in (freeze) the value of the business, freeing the successor from the tax liability that may arise should the business’ value increase.

This is how an estate freeze works:

  1. As a business owner, you can lock in or “freeze” the value of an asset as it stands today. Your successors will still have to pay taxes on your business when they inherit it – but not as much as if you hadn’t “frozen” your business and your company had increased in FMV.

  2. You continue to maintain control of your business. As well, you can receive income from your business while it is frozen.

  3. Your successor now benefits from the business’ future growth, but they won’t have to pay for any tax increases that occur before they inherit the business.

Freezing the value of your business can help you plan your tax spending properly. Selecting to “freeze” your business can help give you peace of mind that your successors won’t have to spend a considerable part of their inheritance on excessive taxes.

What happens when you freeze your estate?

  1.  When you execute an estate freeze, the first thing you need to do is exchange your common shares for preferred shares.  Your new preferred shares will have a fixed (a.k.a. “frozen”) value equal to the company’s present fair market value. Make sure you have everything in place to properly determine the fair market value before you exchanging your shares. 

  2. Your company will then issue common shares, which your successors subscribe to for a nominal price (for example, 1 dollar). Note that your successors don’t own the stock yet – subscribing to the stocks means they will take ownership of the stocks at a future date.

As part of your estate freeze, you must have a shareholders’ agreement ready to bring in new shareholders. This agreement should list any terms and conditions related to the purchase, redemption, or transfer of your company’s common shares. 

1. You can choose to receive some retirement income from your preferred shares by cashing in a fixed amount gradually. This action will reduce your preferred shares’ total value, reducing income tax liability upon death. For example:

  • Your shares are worth $10,000,000, and you need $100,000 annually. You can then redeem $100,000 worth of shares.

  • If you live for 30 more after you freeze your estate, you will have withdrawn $3,000,000 of your shares. This reduces the value of your shares to $7,000,000. 

  • At your death, your tax liability is lower than it would have been had your shares remained at the original value of $10,000,000. 

2. You can opt to maintain voting control in your company. This can be complicated (so you should consult a licensed professional), but you can set up your estate freeze so that you still have voting control in your business with your preferred stock. 

How you can benefit from an estate freeze

  1. You get peace of mind. The most important benefit to a tax freeze is that you know, whoever your successors are, they will receive what they are entitled to and not have to deal with any unpredictable tax burdens. Since an estate freeze fixes the maximum amount of taxes to be paid, you can properly plan how much money to set aside for this tax liability. One option is to have a life insurance policy equal to the amount of the tax liability, with your successor as the beneficiary, so you know they will have enough money to pay for these taxes.

  2. You encourage participation in growing your business. Your chosen successors will be motivated to help the company grow, as they know they will benefit in the future.

  3. Further tax reductions. If your shares qualify for lifetime capital gains exemption, then an estate freeze also helps further reduce your successor’s tax liability.

Is an estate freeze the right strategy for you?

There are a few things you need to consider when deciding if an estate freeze is right for you or not. 

  1. Retirement funding. What kind of retirement savings, if any, do you have? If you have money put aside in RRSPs, TFSAs, or even have a pension from a previous job, then an estate freeze may be the right choice for you. If you were planning to sell your company and live off the proceeds in retirement, then it likely is not the right choice for you.

  2. Succession plans. Do you have someone in mind who would be a suitable successor? Just because you think your child, spouse, or best employee may want to take over your business doesn’t mean they do. Talk to anyone you are considering making a successor and see if they are both interested in and able to keep your business going. 

  3. Family relationships. Trying to figure out how to select a successor if you have several children may be challenging. It can cause a lot of strain amongst your children if they are all named successors if only some of them are actively interested in running the business. You may want to consider only making one child a successor and providing for your other children in different ways, such as making them a life insurance beneficiary. 

If you decide to pursue an estate freeze for your business, you are helping plan for your heirs’ future and cutting down on the amount of taxes that will eventually have to be paid.  That being said – an estate freeze can be complicated, and all the steps must be performed correctly. Be sure to consult an experienced professional be taking any steps to freeze your estate.

Succession Planning for Business Owners

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Succession Planning for Business Owners

Business owners deal with a unique set of challenges. One of these challenges includes succession planning. A succession plan is the process of the transfer of ownership, management and interest of a business. When should a business owner have a succession plan? A succession plan is required through the survival, growth and maturity stage of a business. All business owners, partners and shareholders should have a plan in place during these business stages.

We created this infographic checklist to be used as a guideline highlighting main points to be addressed when starting to succession plan.

Needs:

  • Determine your objectives- what do you want? For you, your family and your business. (Business’ financial needs)

  • What are your shares of the business worth? (Business value)

  • What are your personal financial needs- ongoing income needs, need for capital (ex. pay off debts, capital gains, equitable estate etc.)

There are 2 sets of events that can trigger a succession plan: controllable and uncontrollable.

Controllable events

Sale: Who do you sell the business to?

  • Family member

  • Manager/Employees

  • Outside Party

  • There are advantages and disadvantages for each- it’s important to examine all channels.

Retirement: When do you want to retire?

  • What are the financial and psychological needs of the business owner?

  • Is there enough? Is there a need for capital to provide for retirement income, redeem or freeze shares?

  • Does this fit into personal/retirement plan? Check tax, timing, corporate structures, finances and family dynamics. (if applicable)

Uncontrollable Events

Divorce: A disgruntled spouse can obtain a significant interest in the business.

  • What portion of business shares are held by the spouse?

  • Will the divorced spouse consider selling their shares?

  • What if the divorced spouse continues to hold interest in the business without understanding or contributing to the business?

  • If you have other partners/shareholders- would they consider working with your divorced spouse?

Illness/Disability: If you were disabled or critically ill, would your business survive?

  • Determine your ongoing income needs for you, your spouse and family. Is there enough? If there is a shortfall, is there an insurance or savings program in place to make up for the shortfall amount?

  • Will the ownership interest be retained, liquidated or sold?

  • How will the business be affected? Does the business need capital to continue operating or hire a consultant or executive? Will debts be recalled? Does the business have a savings or insurance program in place to address this?

Death: In the case of your premature death, what would happen to your business?

  • Determine your ongoing income needs for your dependents. Is there enough? If there is a shortfall, is there an insurance or savings program in place to make up for the shortfall amount?

  • Will the ownership interest be retained, liquidated or sold by your estate? Does your will address this? Is your will consistent with your wishes? What about taxes?

  • How will the business be affected? Does the business need capital to continue operating or hire a consultant or executive? Will debts be recalled? How will this affect your employees? Does the business have a savings or insurance program in place to address this?

Execution: It’s good to go through this with but you need to get a succession plan done.  Besides having a succession plan, make sure you have an estate plan and buy-sell/shareholders’ agreement.

Because a succession plan is complex, we suggest that a business owner has a professional team to help. The team should include:

  • Financial Planner/Advisor (CFP)

  • Succession Planning Specialist

  • Insurance Specialist

  • Lawyer

  • Accountant/Tax Specialist

  • Chartered Life Underwriter (CLU)

Next steps…

  •  Contact us about helping you get your succession planning in order so you can gain peace of mind that your business is taken care of.

Estate Planning for Business Owners

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Estate Planning for Business Owners

What happens when the children grow up and they are no longer dependent on their parents? What happens to your other “baby”- the business? Estate planning for business owners deals with the personal and business assets. Business succession planning is different because it deals with your business assets only and can also take place while you’re alive. You need to have an estate plan regardless if you have a succession plan or not. Estate planning for business owners is typically more complicated because the estate plan needs to deal with:

  • Complex business and personal relationships

  • Bigger and more intricate estates

  • Tax issues

  • Business Succession

When putting an estate plan for a business owner together, one of the most difficult conversations is around fair or equal distribution of assets. What if one of the children are working in the business how do you treat them? Before you begin putting a plan in place, we always encourage open conversation and a family meeting between the parents and children to provide context behind decisions and therefore it minimizes the surprises and provides an opportunity for children to express their concerns.

We’ve put together an infographic checklist that can help you get started on this. We know this can be a difficult conversation so we’re here to help and provide guidance.

Adult Children

  • Fair vs Equal (also known as Equitable vs Equal) – like what’s considered to be fair may not necessarily be equal. ex. Should the daughter that’s been working in the family business for 10 years receive the same shares as the son who hasn’t worked in the family business at all?

  • Are the adult children responsible enough to handle the inheritance? Or would they spend it all?

  • Who works in the family business? Is it all the kids or just one of them?

Family Meeting

  • Encourage open conversation with parents and kids so context can be provided behind the decisions, there are no surprises and allows the kids to express their interests and concerns.

  • Facilitate a family meeting with both generations, this will help promote ongoing family unity after death and decrease the chances of resentment later.

  • Start looking at considerations for a succession plan for the business. (This needs to be documented separately.)

Assets/Liabilities

  • What are your assets? Create a detailed list of your assets such as:

  • Home, Real Estate, Investments- Non registered, TFSA, RRSP, RDSP, RESP, Company Pension Plan, Insurance Policy, Property, Additional revenue sources, etc..

  • What about shares in your business? How does this need to be addressed?

  • What are your liabilities? Create a detailed list of your liabilities such as:

  • Mortgage, Loans (personal, student, car), Line of Credit, Credit card, Other loans (payday, store credit card, utility etc.)

  • Did you personally guarantee any business loans and how does this need to be addressed?

  • Understand your assets-the ownership type (joint, tenants in common, sole etc.), list who are the beneficiaries are for your assets

  • Understand your liabilities- are there any co-signors?

Make sure you have a will that:

  • Assigns an executor.

  • Provide specific instructions for distribution of all assets.

  • Consider a power of attorney for use when you’re incapacitated or otherwise unable to handle your affairs.

  • Always choose 2 qualified people for each position and communicate with them.

Taxes and Probate

  • How much are probate and taxes? (Income tax earned from Jan 1 to date of death + Taxes on Non Registered Assets + Taxes on Registered Assets, Taxes on Business Shares)

  • Are there any outstanding debts to be paid?

  • You’ve worked your whole life- how much of your hard earned money do you want to give to CRA?

  • How much money do you want to to give to your kids while you’re living?

Consider the following:

  • The use of trusts.

  • The use of an estate freeze if you wish to gift while you’re living.

  • The use of a holdco for effective tax planning.

  • Once you determine the amount of taxes, probate, debt, final expenses and gifts required, review your life insurance coverage to see if it meets your needs or if there’s a shortfall.

Execution:It’s good to go through this but you need to do this. Besides doing it yourself, here’s a list of the individuals that can help:

  • Financial Planner/Advisor (CFP)

  • Estate Planning Specialist

  • Insurance Specialist

  • Lawyer

  • Accountant/Tax Specialist

  • Chartered Life Underwriter (CLU)

  • Certified Executor Advisor (CEA)

Next steps…

  •  Contact us about helping you get your estate planning in order so you can gain peace of mind that your family is taken care of.