Several significant income tax changes may impact 2024 business tax filings. While the Parliament has passed many significant changes affecting business tax filers into law, several key measures remain unlegislated. A federal election is expected in a few months and taxpayers are left wondering which of the proposed changes will ultimately get passed by the next government.
Here is a brief round-up of what’s new for business:
Enacted changes
Non-compliant short-term rentals
Taxpayers cannot deduct expenses related to operating a “non-compliant short-term rental”. A non-compliant rental is a residential property offered for rent for fewer than 90 consecutive days and is either in a location where such rentals are prohibited or does not comply with applicable registration/licensing requirements.
For 2024, taxpayers may still deduct expenses if all required registrations, licensing and permits were in place by December 31, 2024.
Proposed changes
The following measures have been proposed but are not yet enacted. CPA Canada is monitoring developments on these and other measures and providing updates on our website.
Accelerated capital cost allowance
Immediate expensing for productivity-enhancing assets
Budget 2024 proposes to allow taxpayers to immediately expense the capital cost of certain classes of capital assets that were acquired on or after April 16, 2024, and became available for use before January 1, 2027.
Eligible property acquisitions fall within the following classes:
- Class 44 (patents or rights to use patented information)
- Class 46 (data network infrastructure equipment and related systems software)
- Class 50 (general-purpose electronic data-processing equipment and systems software)
Draft legislation was published for consultation on August 12, 2024, but has not been passed.
Purpose-built rental housing
New purpose-built rental housing where construction begins on or after April 16, 2024, and before January 1, 2031, and that is available for use before January 1, 2036, will benefit from a 10% capital cost allowance (CCA) rate. The “half-year” rule will not apply if the property is put into use before 2028.
Eligible properties include:
- New residential complexes with at least four private apartment units (or ten private rooms/suites), where at least 90% of residential units are held for long-term rental.
- Additions to existing residential complexes meeting the above conditions.
- Conversions of existing non-residential real estate into a residential complex meeting these conditions.
Scientific research and experimental development (SR&ED)
Increased expenditure limit and phase-out threshold
The 2024 Fall Economic Statement (FES) proposes increasing the expenditure limit for the enhanced investment tax credit for Canadian-controlled private corporations from $3 million to $4.5 million.
Additionally, the phase-out threshold will increase from $10 million to $15 million, with full phase-out at $75 million (up from $50 million).
Both changes would apply to taxation years that begin on or after December 16, 2024, if passed.
Extension of enhanced refundable tax credits to eligible Canadian public companies
The FES proposes extending eligibility for enhanced investment tax credits and refundability to eligible Canadian public corporations.
An eligible Canadian public corporation is a corporation that throughout the year:
- is resident in Canada;
- has a class of shares listed on a designated stock exchange or has elected to be a public company; and
- is not controlled directly or indirectly in any manner whatever by one or more non-resident persons.
This extension would apply to taxation years beginning on or after December 16, 2024, if enacted.
Eligibility of capital assets
The FES proposes restoring eligibility of capital expenditures for both investment tax credits and an immediate deduction in computing income.
Eligible capital expenditures would be expenditures incurred for acquiring new or used depreciable property that the SR&ED claimant intends to either:
- use all or substantially all of its operating time in its expected useful life in the performance of SR&ED in Canada; or
- consume all or substantially all of its value in the performance of SR&ED in Canada.
If passed, this measure would apply to property acquired on or after December 16, 2024, with the deduction being available when the property is available for use. In the case of lease costs, this measure would apply to amounts that first became payable on or after that date.
Carbon rebate for small business
The Canada Carbon Rebate for Small Business (CCR-B) provides an automatic, refundable tax credit to Canadian-controlled private corporations (CCPCs) based on the number of employees in eligible provinces.
The former Minister of Finance has indicated on social media that the CCR-B would be “tax-free.” However, no legislation has been published to exempt the CCR-B from income tax. The CRA has informed CPA Canada that CCR-B amounts are taxable as government assistance unless otherwise included in income or used to reduce the cost of a property or expense.
Extension of deadline to contribute to registered charities and claim tax credit in 2024
The Canada Post strike, which began on November 15, 2024, significantly impacted fundraising efforts for some registered charities. In response, the Department of Finance announced on December 30, 2024, that the deadline for making donations eligible for tax support in the 2024 taxation year will be extended to February 28, 2025.
Draft legislation was published on January 23, 2025, which will allow corporations with fiscal years ending between November 14, 2024, and December 31, 2024, to donate to registered charities and claim those donations for the corresponding tax year. The CRA has confirmed that it is administering this donation extension.
The extension applies only to donations made in cash or transferred via cheque, credit card, money order, or electronic payment.
Deferred changes
The increase to the capital gains inclusion rate: Budget 2024 proposed increasing the capital gains inclusion rate from 1/2 to 2/3 for dispositions of capital property occurring on or after June 25, 2024. Under the proposal, individuals would have been allowed to use the 1/2 inclusion rate on the first $250,000 of capital gains annually, with the remainder taxed at the 2/3 rate. For 2024, the 1/2 inclusion rate would apply to all capital gains realized before June 25, as well as the first $250,000 of gains from June 25 to December 31. Corporations, however, would not have benefited from the 1/2 inclusion rate and would have been required to apply the 2/3 inclusion rate to all capital gains realized on or after June 25, 2024 (subject to the passage of legislation).
On January 31, 2025, the Department of Finance announced that the increase to the capital gains inclusion rate will be deferred until January 1, 2026. The CRA has reverted to administering the existing 1/2 inclusion rate. For taxpayers who reported gains or losses using the proposed 2/3 inclusion rate, the CRA indicated that it will "coordinate corrective reassessments" to reverse the application of the 2/3 rate.
Administrative changes
Digital by default: The CRA is transitioning taxpayers to online mail as the default method of delivering most business correspondence starting in the spring of 2025. This change applies to all:
- new business number and program account registrations
- existing businesses registered for My Business Account
- businesses who have a representative that accesses the CRA’s services on their behalf via Represent a Client.
The CRA advises taxpayers to sign in to My Business Account and make sure their email address is up to date.
Taxpayers may elect to receive correspondence by paper mail by filing Form RC681 Request to Activate Paper Mail for Business once it is available, which is expected to be in May 2025.
John Oakey, CPA, is vice-president of taxation at CPA Canada.
Originally published by CPA Canada.
