FINANCIAL MATTERS

Alternative Minimum Tax (AMT)

The Alternative Minimum Tax (AMT) is a parallel tax calculation that allows fewer tax credits, deductions and exemptions than under the ordinary personal income tax rules. Taxpayers pay either regular tax or the AMT, whichever is highest Last year’s budget revamped the AMT by proposing increases to the tax rate and broadening the scope of the AMT.

*Changes to the AMT proposals made in this budget include:

*Allowing individuals to claim 80% of the charitable donation tax credit (from the previously proposed 50%)

*Allowing deductions for the Guaranteed Income Supplement, social assistance and workers’ compensation payments

*Fully exempting Employee Ownership Trusts from theAMT.

*Permitting certain disallowed credits under the AMT to be eligible for the AMT carry-forward (that is, the federal political contribution tax credit, investment tax credits and the labour-sponsored funds tax credit).

*An exemption for AMT for certain trusts for the benefit of Indigenous Groups

Planning point: the change to AMT with respect to charitable donation tax credits is a positive change for Canadians planning large donations to charity. It’s important to note that no amendments are made to the previously announced change to inkind charitable donations, where for AMT purposes, the inclusion rate is still proposed to be 30%.

Home Buyers’Plan

The Home Buyers’ Plan (HBP) is a program for first-time homebuyers in Canada It allows first-time homebuyers to withdraw funds from their RRSP to buy or build a first home, for either themselves or for a family member with a disability. Funds withdrawn under the HBP need to be paid back into an RRSP over a 15-year period

The 2024 federal budget proposes to increase the Home Buyers’ Plan limit from $35,000 to $60,000, starting with withdrawals made after budget day. In addition, to further help recent and upcoming first-time homebuyers, this budget proposes to allow Canadians making withdrawals from their Home Buyers’ Plan between January 1, 2022 and December 31, 2025, to have their repayment grace period extended from two years to five years.

Employee ownership trusts (EOTs)

Budget 2023 proposed tax rules to facilitate the creation of employee ownership trusts (EOTs). The 2023 Fall Economic Statement proposed to exempt the first $10 million in capital gains realized on the sale of a business to an EOT from taxation, subject to certain conditions

Budget 2024 provides further details on the proposed exemption and outlines required conditions, including residency requirements for beneficiaries of the EOT, meeting a 50% test for assets used in the active business, and other criteria. If multiple individuals dispose of shares to an EOT and meet the conditions, they may each claim the exemption, however the total exemption cannot exceed $10 million. The individuals would need to agree on how to allocate the exemption.

It’s important to note that there may be events within 36 months after the sale to the EOT which may disqualify the taxpayer from claiming the exemption, for example, if the EOT loses its status as an EOT, or if more than 50% of the assets are no longer used in the active business For AMT purposes, capital gains exempted through this measure would be subject to an inclusion rate of 30%, similar to the treatment for gains eligible for the lifetime capital gains exemption.

These measures would apply to qualifying dispositions of shares that occur between January 1, 2024 and December 31, 2026

Disability Supports Deduction

The Disability Supports Deduction (DSD) allows individuals who have an impairment in physical or mental functions to deduct certain expenses that enable them to earn business or employment income, or to attend school It also proposes that expenses for service animals be included under the DSD However, taxpayers will be able to choose whether the expense would be included in a medical expense tax credit claim, or as a DSD