Federal Budget 2023-24: Highlights
The 2023-24 federal budget was released earlier this week, below are the highlights and key takeaways that we felt were important to share.
One of the biggest changes in this year’s budget is the revamp to the Alternative Minimum Tax (AMT). We will be looking through the details to see which of our clients we feel will be affected by this change and will be reaching out accordingly.
Personal Income Tax Measures
The Alternative Minimum Tax (AMT)
The AMT system is a parallel tax calculation that allows fewer deductions, exemptions, and credits than under the ordinary income tax calculation. An individual pays the AMT or regular tax, whichever is higher.
Budget 2023 proposes to broaden the application of the AMT by:
- Increasing the AMT rate from 15% to 20.5%
- Increasing the AMT capital gains inclusion rate from 80 percent to 100 percent. Currently, the capital gains inclusion rate under the regular tax system is 50 percent.
- Capital loss carry-forwards and allowable business investment losses would apply at a 50 percent rate.
- Include 100 percent of the benefit associated with employee stock options in the AMT calculation. Under the regular tax system, you may be entitled to a 50 percent security options deduction.
- Include 30 percent of capital gains realized on the donation of publicly listed securities that are eligible for the zero percent inclusion rate under the regular tax system.
- Disallowing 50 percent of many personal deductions.
Education for Students
- Registered Education Savings Plans (RESP) withdrawal limits have not increased in 25 years. The budget proposes to increase limits on RESP withdrawals from $5,000 to $8,000 for full-time students, and from $2,500 to $4,000 for part-time students.
- For the school year starting August 1, 2023, the government is increasing Canada Student Grants by 40 percent, raising the interest-free Canada Student Loan limit and waiving the requirement for mature students to undergo credit screening for federal student grants and loans.
Registered Disability Savings Plans (RDSP)
- The budget proposes to extend the Qualifying Family Members (QFMs) measures by three years, to 2026. A QFM who becomes a plan holder before the end of 2026 can remain the plan holder after 2026.
- Broadening the definition of QFM to include a brother or sister of the beneficiary who is 18 years of age or older.
Business Tax Measures
Intergenerational Business Transfers
- Rules have been modified to ensure that only genuine intergenerational share transfers are subject to exclusion.
Employee Ownership Trusts
- Proposed tax changes to facilitate the creation of Employee Ownership Trusts. Selling the business to employees would become a more attractive proposition for owners looking to exit, and employee-owned businesses would be able to re-invest more of their profits in growth.
Share Buyback Tax
- Proposed two percent tax on the net value of an entity’s repurchase of equity. The tax would apply to public corporations but excludes mutual fund corporations. The tax would also apply to real estate investment trusts (REITs), specified investment flow-through (SIFT) trusts and SIFT partnerships if they have units listed on a designated stock exchange.
- Expanded dental coverage program for uninsured Canadians with an annual family income of less than $90,000, with no co-pays for those with family incomes under $70,000. Details are to be released later this year.
- The budget introduced a number of significant business tax incentives to encourage investment in clean energy initiatives. This includes but is not limited to an Investment Tax Credit for Carbon Capture, Utilization, and Storage.
The budget – titled “A Made-in-Canada Plan” encompasses everything from affordability measures for low-income Canadians and funding the next phase of a national dental care program, to personal income tax tinkering and a suite of green technology tax incentives.
Overall, a very expensive budget with little recognition of fiscal constraints. The federal deficit is now projected to be over $43 billion in 2023-24, over $10 billion more than last fall’s economic forecast. Additionally, our country's overall debt is set to rise to $1.31 trillion over the next five years, with higher interest rates the federal government is projected to pay $43.9 billion next year just servicing Canada’s debt. Let's hope that our economic growth keeps pace!
We hope you find this collection of information helpful. Not everything here will be relevant to you. If you would like to discuss this further, please give us a call or speak with your accountant about your personal tax situation.