Highlights of the 2024 Federal Budget and Budget Bill

On May 2, 2024, the federal government introduced Bill C-69, An Act to implement certain provisions of the budget tabled in Parliament on April 16, 2024, for first reading. Bill C-69 contains legislation that, if passed, would enact certain measures outlined in the 2024 Budget, “Fairness for Every Generation” (Budget) that was previously tabled on April 16, 2024.

In this FTR Now, we discuss proposals in the Budget and proposed legislative amendments in Bill C-69 that will be of interest to employers, pension plan administrators and human resources professionals.

Key Canada Labour Code Amendments

Employee Misclassification

If passed, Bill C-69 would establish a presumption that any person receiving remuneration from an employer, other than a manager or a person employed in a confidential capacity in matters related to industrial relations, is an employee. An employer would bear the burden to prove otherwise. Additionally, Bill C-69 would amend the Canada Labour Code (CLC) to include a prohibition on treating employees as independent contractors or any other categorization. Both of these proposed amendments aim to address employee misclassification.

Policy on Disconnecting From Work

Bill C-69, if passed, would introduce a requirement that an employer implement a policy on disconnecting from work. The policy would need to establish:

guidelines regarding work-related communication outside of scheduled working hours, including the employer’s expectations and the opportunities for employees to disconnect
any exception to the rule and its underlying rationale
the effective date of the policy and any other prescribed requirements

An employer would be required to provide a copy of the policy to every covered employee and post the policy in a readily accessible place in the workplace where employees could see it. It would need to be updated every three years and an employer would be required to consult with employees and provide them with at least 90 days to provide comments on any draft or amended policy. The initial version of the policy would need to be brought into effect within one year of this section of the CLC coming into force.

Bill C-69 would permit an employer to exclude from the policy’s application employees exempt from the “Hours of Work” requirements of the CLC. It would also introduce special rules for employees covered by a collective agreement.

Increase to the Volunteer Firefighter and Search and Rescue Tax Credits

Currently, the volunteer firefighter tax credit and the search and rescue volunteer tax credit allow individuals who performed at least 200 hours of combined volunteer service during the year as a volunteer firefighter or a search and rescue volunteer to claim a 15% non-refundable tax credit based on an amount of $3,000.

Bill C-69 contains amendments to the Income Tax Act (ITA) that, if passed, would increase both tax credits to $6,000, therefore increasing the maximum tax relief to $900. This change would apply to the 2024 and subsequent tax years.

Federally Regulated Pension Plan Investments

In the Budget, the federal government expressed its belief that encouraging pension funds to invest in Canada would help grow the Canadian economy and, correspondingly, proposed draft legislation in Bill C-69 relating to investments of federally regulated pension plans.

Investment Disclosure

Bill C-69 contains proposed amendments to the Pension Benefits Standards Act, 1985 that, if passed, would enable and require the Office of the Superintendent of Financial Institutions to publish prescribed information related to the investments of prescribed pension plans. While corresponding regulations have not been published, in the Budget the government indicated that the legislation would apply to large federally regulated pension plans and the information to be disclosed would include the distribution of plan investments by jurisdiction and, within each jurisdiction, by asset class. The government has not yet specified what will constitute a “large federally regulated pension plan.”

The federal government states that it will continue to engage with provinces and territories to discuss similar disclosures by Canada’s largest pension plans.

Working Group on Domestic Investments

In the Budget, the federal government announced it will launch a working group chaired by the former governor of the Bank of Canada Stephen Poloz and supported by the Deputy Prime Minister and Minister of Finance to “find more opportunities for Canada’s largest pension funds to drive economic growth at home.” The working group will focus on the following areas:

digital infrastructure and AI investment
physical infrastructure
airport facilities
venture capital investments
building more homes, including on public lands
the removal of the 30% rule for domestic investments

Qualified Investments for Registered Savings Plans

The Budget announced a consultation on modernizing the rules governing the types of investments that can be made through registered savings plans.

Assets held in registered savings plans—such as registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), tax-free savings accounts (TFSAs), deferred profit sharing plans (DPSPs) and other registered savings vehicles—can be invested only in qualified investments.

Since their introduction in 1966, the qualified investment rules have expanded incrementally and now include more than 40 types of assets, including mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates (GICs).

The Budget invites comments and suggestions on how the qualified investment rules could be modernized to become clearer and more coherent. Specific changes being considered include the following:

how rules relating to investments in small business can be harmonized to apply consistently to all types of registered savings plans
whether annuities that are qualified investments only for RRSPs, RRIFs and registered disability savings plans (RDSPs) should continue to be qualified investments
whether to retain the conditions that certain pooled investment products must meet to be a qualified investment (e.g., the formal registration process for registered investments)
whether and how the qualified investment rules could promote an increase in Canadian-based investments
whether crypto-backed assets are appropriate as qualified investments for registered savings plans

Interested parties are invited to submit comments by email to QI-consultation-PA@fin.gc.ca. The consultation remains open until July 15, 2024.

Capital Gains Inclusion Rate Increase

The Budget indicated there will be future amendments to the ITA that lay the groundwork for a planned increase to the capital gains inclusion rate from 50% to 66.67% in respect of capital gains realized after June 24, 2024 (increasing the tax payable on capital gains by one third from the current rate). These amendments were not included in Bill C-69 and the federal government has indicated it intends to implement this increase with a series of legislative amendments over the coming months, and details regarding the implementation of this increase remain subject to change. For example, the government has identified the need for transitional rules for tax years that began before June 25, 2024, and end on or after that date, and has indicated that “additional design details will be released in the coming months.”

For individuals, it is expected that, if legislation is introduced that mirrors the comments in the Budget, the inclusion rate will be increased only if they have more than $250,000 in capital gains in the year. Net capital losses from previous years will be adjusted when calculating offsets against capital gains after June 24, 2024, to account for the difference in inclusion rates and maintain equivalency between capital gains and losses before and after June 24, 2024.

Based on comments in the Budget, it is also expected that there will be a one-third deduction of the taxable benefit to employees claiming an employee stock option deduction to reflect the newer, higher capital gains inclusion rate, but employees would be entitled to deduct one half of the taxable benefit to a combined limit of $250,000 for both employee stock options and capital gains.

Employee Ownership Trusts

First announced in March 2023, the Budget signaled the government’s intention to introduce proposed amendments to the ITA regarding the exemption on capital gains realized upon the sale of shares to an “employee ownership trust” (EOT). The proposed amendments, if enacted as discussed in the Budget, would add a new s. 110.61 to the ITA in order to exempt the first $10M of capital gains realized by an individual or individuals upon the sale of shares to an EOT, provided that the list of conditions in s. 110.61(1) are met, including that:

the acquiring EOT has not previously acquired shares that have been deducted pursuant to s. 110.61,
the shares have not been owned by anyone other than the issuing entity or a related entity for at least 24 months prior to the disposition,
the shares derive more than half of their fair market value from assets used principally in an active business for at least 24 months prior to the disposition,
the issuing corporation is not a professional corporation, nor is it affiliated with any professional corporations in which it owns (directly or indirectly) any shares,
the EOT does not control any corporation whose employees are beneficiaries of the EOT,
any individual claiming the deduction is at least 18 years of age at the time of disposition,
for any continuous period of 24 months before the disposition, the individual (or their spouse or common law partner) was “actively engaged on a regular and continuous basis” in the business,
at least 75% of the EOT’s beneficiaries reside in Canada at the time of the disposition (reduced from 90% in the April Budget announcement), and
a joint election form is filed with the Canada Revenue Agency (CRA) by all parties to the disposition, including the EOT, any purchaser corporation owned by the EOT, and the individual or individuals claiming the deduction.

The total amount claimed by all individuals as a result of the disposition to the EOT could not exceed $10M.

The Budget also indicated that amending legislation would include a “disqualifying event” which would make the EOT deduction unavailable, or if the EOT deduction has already been claimed, the deduction would be retroactively denied. The disqualifying event would have to occur within the first 24 months (reduced from 36 months in the Budget), and would be triggered if:

the relevant EOT loses its status as an EOT, or
less than 50 per cent of the fair market value of the qualifying business’ shares is attributable to assets used principally in an active business at the beginning of two consecutive taxation years of the corporation

If the disqualifying event occurred more than 24 months after the disposition, the EOT would be deemed to have realized a capital gain equal to the entire amount claimed as a deduction from the original disposition.

Withholding Rules for Non-resident Service Providers

The Tax Measures: Supplementary Information document published together with Budget announced the government’s intention to expand the CRA’s ability to waive the withholding requirement for payments to non-resident service providers, provided certain conditions are met. It would be expected that this discretionary power would have been enacted through the addition of a new provision to the ITA, but the amendment was not included in Bill C-69.

Other Items of Note in the Budget

The federal government has begun rolling out the Canadian Dental Care Plan, under which all uninsured Canadians with a net family income of up to $90,000 will be eligible to participate.
The federal government intends to create a national universal pharmacare program as set out in a new proposed statute, the Pharmacare Act. If passed, the first phase of this program would provide coverage for a number of contraceptive and diabetes medications.

We will continue to monitor the progress of Bill C-69 through the legislative process and will share updates on any additional legislation introduced to reflect Budget proposals not contained in this bill. In the meantime, please feel free to reach out to your regular Hicks Morley lawyer should you require further information about the initiatives contained in the Budget or Bill C-69.

The article in this client update provides general information and should not be relied on as legal advice or opinion. This publication is copyrighted by Hicks Morley Hamilton Stewart Storie LLP and may not be photocopied or reproduced in any form, in whole or in part, without the express permission of Hicks Morley Hamilton Stewart Storie LLP. ©

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