What's new

We list the service enhancements and major changes below, including announced income tax changes that were not law when this guide was published. If they become law as proposed, they will be effective for 2024 or as of the dates given.

Interest deductibility limits – Exempt interest and financing expenses on purpose-built residential rentals and regulated energy utility businesses

The definition of "exempt interest and financing expenses" in subsection 18.2(1) provides an exemption from the excessive interest and financing expenses limitation (EIFEL) rules for interest and financing expenses (IFE) incurred in respect of the financing of certain Canadian public-private partnership (P3) infrastructure projects.

Budget 2024 proposed to expand the definition of exempt IFE to add:

• An election to exempt IFE incurred in respect of arm's length borrowing or financing used by the taxpayer or the partnership to
  • build or acquire a purpose-built residential rental; or
  • convert a property into a purpose-built residential rental.

A purpose-built residential rental is a building, or a part of a building located in Canada.

• with at least four private apartment units (a unit with a private kitchen, bathroom, and living areas) or 10 private rooms or suites; and
• in which at least 90% of the residential rental units are rented or offered for rent for continuous periods of not less than 28 consecutive days.

Effective on royal assent, this election can be made for fiscal periods starting after September 30, 2023, for interest and financing expenses incurred before 2036.

• An election to exempt IFE incurred in respect of an arm's length borrowing or financing used for the purpose of gaining or producing income from a regulated energy utility business.

A regulated energy utility business is a business carried on by a person or partnership in Canada that meets the following two conditions:

• The business is the production, generation, storage, transmission, distribution, sale, delivery or provision of any input used to produce light, heat, cold or energy.
• The prices of products and services in respect of the business are established or approved by a "government entity" as defined in subsection 241(10).

Effective on royal assent, this election can be made for fiscal periods starting after September 30, 2023.

Withholding or non-resident service providers

Currently, a person who pays a fee, commission or other amount to a non-resident for services provided in Canada is required to withhold 15% of the payment and remit it to the CRA. Effective on royal assent, the CRA will be able to waive this withholding requirement over a specific period under certain conditions.

Avoidance of tax debts

A new supplementary rule was announced to strengthen the existing tax debt anti-avoidance rule that is intended to prevent taxpayers from avoiding their tax liabilities by transferring their assets to non-arm's length persons for  insufficient consideration.

The new supplementary rule would apply when:

• there has been a transfer of property from a tax debtor to another person;
• as part of the same transaction or series of transactions, there has been a separate transfer of property from a person other than the tax debtor to a transferee that does not deal at arm's length with the tax debtor; and
• one of the purposes of the transaction or series of transactions is to avoid joint and several, or solidary, liability. 
• Where these conditions are met, the property transferred by the tax debtor would be deemed to have been transferred to the transferee for the purposes of the tax debt avoidance rule.
• The ITA contains rules to address planning employed by taxpayers to circumvent the tax debt anti-avoidance rules, as well as a penalty for those who engage in, participate in, assent to, or acquiesce in planning activity that they know, or would reasonably be expected to know, is tax debt avoidance planning. 

The penalty is equal to the lesser of:

• 50% of the tax that is attempted to be avoided;
• $100,000 plus any amount the person, or a related person, is entitled to receive or obtain regarding the planning activity.

The penalty is proposed to be extended to tax debt avoidance planning that is subject to the supplementary rule.

In many cases, tax debt avoidance planning is facilitated by a planner who receives a significant fee that is effectively funded by a portion of the avoided tax debt. To further enhance the effectiveness of the tax debt anti-avoidance rule, taxpayers who participate in tax debt avoidance planning will be jointly and severally, or solidarily, liable for the full amount of the avoided tax debt, including any portion that has effectively been retained by the planner. These measures would apply to transactions or a series of transactions that occur after April 15, 2024.

Reportable and notifiable transactions penalty

The application of the general penalty provision under subsection 238(1) for failure to file an information return is removed for reportable or notifiable transactions, as there are specific penalty provisions under the mandatory disclosure rules (MDR) that apply. This is deemed to have come into force on June 22, 2023, which is the coming into force date of the specific penalty provisions under the MDR. 

Non-compliance with information requests

Effective on royal assent, the information gathering provisions are amended by:

• creating a new notice of non-compliance
• allowing the CRA to request that any required information or document be provided under oath
• adding a penalty when the CRA issues a compliance order or a notice of non-compliance
• expanding the rules to stop the reassessment limitation clock

Capital gains inclusion rate

On January 31, 2025, the Government announced deferring—from June 25, 2024 to January 1, 2026—the date on which the capital gains inclusion rate would increase from one-half to two-thirds on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and most types of trusts.

As a result, the CRA will administer the current capital gains inclusion rate of one-half for capital gains realized on dispositions of property (other than property disposed of by way of donation or gift that satisfies specific criteria, or an exchange of a partnership interest that satisfies specific criteria).

To ensure consistency across tax forms, the current version of the  T5013 SCH 6 will be maintained, incorporating both Period 1 and Period 2 fields. This aligns with T1 SCH 3 and T3 SCH 1.

Accelerated capital cost allowance (CCA)

It is proposed that buildings that are new purpose-built residential rentals are provided with an additional 6% allowance (for a combined CCA rate of 10%) and is a separate class 1. A housing project will be a new purpose-built residential rental if it is built for use meeting certain criteria and if construction began after April 15, 2024, and before 2031, becomes available for use before 2036. Investments eligible for this measure will continue to benefit from the accelerated investment incentive (AII), provided the new purpose-built residential rental and becomes available for use before 2028, which currently suspends the half-year rule, providing a CCA deduction at the full rate.

It is proposed that immediate expensing (a 100% first year deduction) will apply to new additions of property to CCA classes 44, 46, and 50, if the property is acquired after April 15, 2024, and becomes available for use before 2027. Property that becomes available for use in 2027 will continue to benefit from the AII.

Clean technology manufacturing ITC – Polymetallic extraction and processing

Because producing qualifying materials may occur during polymetallic projects (projects that produce multiple metals), several adjustments were made to the credit. One of these includes changing the test to a "primarily" test (with 50% rather than 90%) for property used in qualifying mineral activities expected to produce qualifying materials at mine or well sites.

Clean hydrogen ITC

Under proposed changes, effective for property that is acquired and becomes available for use in an eligible project on or after December 16, 2024, the clean hydrogen ITC would be expanded to include methane pyrolysis as an eligible production pathway.

Clean technology ITC

Under proposed changes, for businesses investing in eligible property that is acquired and becomes available for use on or after November 21, 2023, eligibility for the credit would include systems that produce electricity, heat, or both electricity and heat, from eligible waste biomass.