HBP on your RRSP, capital gains tax: see how Canada’s 2024 budget affects you

An increase in capital gains tax, a raft of measures for housing and an increase in excise duty on tobacco…. See what changes for you in the federal government’s budget tabled Tuesday.

Increase in capital gains tax for the richest

The wealthiest Canadians will soon have to pay more taxes. Currently, capital gains are taxed at 50%. As of June 25, winnings that exceed the $250,000 mark will be taxed two-thirds by the federal government.

What does that mean ? Let’s take the example of the sale of a second home, such as a chalet. If you make a profit of $300,000 at the time of the transaction, you will no longer be taxed on $150,000 by Ottawa, but on approximately $158,330 — since the first $250,000 is taxed at 50% and the $50,000 remaining, at approximately 66%.

It remains to be seen whether Quebec will follow suit. “It is very likely that the two levels of government will harmonize,” estimates Stéphane Leblanc, tax partner at Ernst & Young. “They have always agreed on capital gains tax,” he adds.

In such a scenario, this would mean that a Quebecer earning a salary of $400,000 and realizing a capital gain of $300,000 would have to pay approximately $4,400 more in combined income tax, according to calculations by Mr. Leblanc.

This measure should affect approximately 0.13% of the richest Canadians, or approximately 40,000 people, according to federal government estimates. At the personal income tax level, the measure should generate 8.8 billion in revenue over five years for the government.

New withdrawal limit for the RAP

It will now be possible to withdraw up to $60,000 from your registered retirement savings plan (RRSP) as part of the home buyers’ plan (RAP), a program which allows you to withdraw sums for the purchase of ‘a first property. Until then, the maximum withdrawal limit was $35,000.

The measure applies to withdrawals “made after budget day”, specifies Ottawa, i.e. Tuesday. However, financial institutions may take some time to adapt.

Furthermore, under current rules, the equivalent of the amounts withdrawn under the HBP must be repaid into your RRSP over a maximum period of 15 years, starting from the second year following the withdrawal. If this deadline is not respected, penalties apply.

However, given the current pressure on borrowers, Ottawa is proposing a grace period of three additional years for people who have made a withdrawal or who will do so between 1er January 2022 and December 31, 2025. Thus, for these people, the repayment period will begin five after withdrawal.

Mortgage loans insured over 30 years… for something new

Another measure taken to ease pressure on borrowers: Ottawa is proposing that loans insured by the Canada Mortgage and Housing Corporation (CMHC) can now be repaid over 30 years instead of 25 years.

But the eligibility criteria are restricted to be able to benefit from this extended amortization period: you must be a first-time buyer and the property you are purchasing must be new construction.

This change will come into effect on 1er next August.

Tools for tenant protection

For tenants, the government is deploying a Tenant Protection Fund to which it is allocating a sum of $15 million over five years. This fund will be used to finance legal aid organizations and tenant rights organizations, in order to support those who are facing excessive rent increases or who are victims of renovations.

In addition, Ottawa wants to put in place a new Canadian Charter of Tenants’ Rights, which would be developed and implemented with the provinces. This charter would notably require owners to provide a clear history of rents for an apartment and would impose a uniform lease on a national scale. The Quebec government has already shown itself to be strongly opposed to this idea.

Credit score change for tenants

Another measure for tenants, Ottawa wants to work with financial institutions so that the credit score takes into account rent payments made on time.

This measure would reward diligent tenants by possibly allowing them to borrow on better terms, once they want to take out a mortgage loan for the purchase of a first property.

Increase in tax on tobacco and vaping products

Consumers of tobacco and vaping products will also have to pay a little more.

Starting Wednesday, the federal government will increase the excise tax rate on tobacco products by $4 per carton of 200 cigarettes. An increase which is in addition to the automatic inflationary adjustment of $1.49 which came into force on 1er last April.

Regarding the excise tax rate on vaping products, it will increase from $1 to $2.24 starting on 1er next July.

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