I’ve nominated myself to provide you with two highlights from last week’s federal budget announcement, and before I get into the nitty gritty, I provide you with a summary of my qualifications for undertaking this task. My undergraduate studies took a rather meandering path through geography, political science, a few language courses and I ended up with something like a quadruple minor in philosophy, feminist political theory, possibly enough literature courses to comprise an English minor. In the name of transparency I ought to disclose that I signed up for a summer course on Kierkegaard and Nietzsche but ended up attending and completing all of the course work for the philosophy of science. The written petition I had to submit to be retroactively enrolled in the course I took versus the course for which I was enrolled also qualified me for some sort of certificate in written advocacy. Good preparation for law school I suppose. Aaaaalll of which is to say, I’m surprised that none of my fellow bloggers have commented yet on last week’s federal budget. I’ve picked two key announcements that may impact your work as an estate planner.

The big headline for many of our clients may be the change to the capital gains rates. The budget proposes to increase the Lifetime Capital Gains Exemption up to $1.25 million of eligible capital gains for dispositions that occur on or after June 25, 2004, with indexation of that exemption resuming in 2026.

The capital gains inclusion rate is set to change for gains realized on or after June 25, 2024. Currently, 50% of a capital gain is included in calculating a taxpayer’s income. The rate also applies to capital losses. The Budget proposed to increase the inclusion rate from 50% to 66.67% for corporations and trusts.

For individuals, the rate is set to increase 50% to 66.67% on the portion of capital gains realized in the year that exceed $250,000. If a capital gain is realized, say on July 1 sale of a non-exempt cottage residence, of $1M, the first $250,000 of that gain is subject to a 50% inclusion, the remaining $750,000 is taxed at the inclusion rate of 66.67%. This 2-tiered inclusion rate is not available for corporations or trusts. The ease with which I just arithmeticked that example should not alarm you: I did sign up for both a statistics course and a modern symbolic logic course during the above noted-undergraduate tour de force. Both courses involved calculus, so, humble brag: I used to know how to math.

The second budget highlight likely to impact estate planning was the adjustment to the alternative minimum tax (“AMT”) for charitable donations. The AMT system was introduced in Canada in the 1980s as a way to apply a minimum level of income tax upon taxpayers who are able to use various deductions (such as charitable donations), to reduce their tax owing to very low levels. Changes were made to the AMT system in the 2023 budget, and legislation was introduced in summer 2023 to restrict the donation credit available to offset an AMT calculation to 50%. The charitable sector opposed this change and the federal government has amended it with the 2024 budget. The limit was raised, allowing donors to claim 80% of the donation credit to be claimed when calculating AMT.

For those of us who tend not to get too far into the weeds with tax planning, philosophers, linguists, geographers and the like, these are the two big take aways to know about from last week’s budget. We still need to know where the landmines are, and what our clients might be worried about considering the budget.

Knowing that these changes may impact the funds available in an estate after tax, to support dependants for example, may trigger the need to deepen the conversation with clients about the timing of winding up businesses, realizing capital gains, of making charitable donations, of funding cottage trusts and all those issues which can crop up as part of a thorough estate planning process. If you need somebody to weigh in on what Kierkegaard might have had to say about any of these issues, I humbly remind you that I did not actually take that class.

Jane Martin

ScotiaTrust

Estate and Trust Consultant Team Lead