On December 16, 2024, the Government of Canada released its 2024 Fall Economic Statement. Projecting a deficit of $48.3 billion for 2024-25, the government’s economic statement focuses on generating strong economic growth and reducing costs to raise the country’s wages and put more money in Canadians’ pockets.
As we reflect on this day—one that will be remembered as both historic and contentious in the Canadian Parliament—it is undeniable that this moment marks a pivotal inflection point in Canada’s political and economic trajectory. Despite the day being filled with some of the most egregious populist gimmicks and the resignation of the Minister of Finance, the 2024 Fall Economic Statement sinks considerable teeth into Canada’s well-studied productivity problem and economic malaise. The government is emphasizing the attraction of private capital, fostering innovation, and improving the competitiveness of Canadian industries by providing incentives for technology-focused investments. In addition, several interesting tax measures were introduced, as summarized below.
Scientific Research and Experimental (SR&ED) Development Measures
SR&ED Program Update
The fall economic statement introduces several measures designed to enhance economic growth and support Canadian businesses, focusing on direct funding for clean technology, artificial intelligence (AI), and critical minerals. Along with direct funding measures, a key area of focus is the SR&ED program, which has been expanded to provide enhanced support for businesses engaged in research and development (R&D) activities. Key enhancements to the SRED program include expanded accessibility by Canadian public corporations, modernized expenditure limits, and the reinclusion of capital expenditures when used in qualifying R&D.
Newly Eligible Canadian Public Corporations
A significant change introduced by the government is the expansion of eligibility for the enhanced 35% tax credit rate on up to $4.5 million of qualifying SR&ED expenditures annually. This limit is subject to a phase-out based on the corporation’s average gross revenue over the three preceding years, starting at $15 million and ending at $75 million. Prior qualification tests have relied on more traditional metrics such as taxable capital and taxable income. Considering the precarious situation most scaling growth companies experience, the revenue metric is much more helpful in achieving lift-off to a global scale for these Canadian public companies.
Changes to CCPC Enhanced ITC Eligibility
The economic statement also modifies the rules for determining a Canadian-controlled private corporation’s (CCPC’s) eligibility for the enhanced SR&ED Investment Tax Credit (ITC). Key changes include:
- Increased Expenditure Limit: The expenditure limit for the enhanced 35% ITC rate for CCPCs has been increased from $3 million to $4.5 million. This allows eligible CCPCs to claim up to $1.575 million per year in fully refundable tax credits;
- Increased Taxable Capital Phase-Out Thresholds: The taxable capital phase-out thresholds have been raised from $10 million and $50 million to $15 million and $75 million, respectively. This means that CCPCs can maintain their enhanced credit eligibility even with higher levels of taxable capital; and
- New Election for Revenue-Based Method for CCPCs: CCPCs now have a new option to elect a revenue-based method for determining their expenditure limit for the enhanced SR&ED credit. This allows CCPCs to calculate their limit using the same gross revenue phase-out structure as Canadian public corporations, which provides added flexibility.
Inclusion of Capital Expenditures as Qualifying for SR&ED ITCs
The fall economic statement reintroduces capital expenditures as qualifying for the SR&ED program. This applies to depreciable property acquired on or after the date of the statement. Key points include:
- Eligible Expenditures: Capital expenditures on new depreciable property used “all or substantially all” in SR&ED activities in Canada are now eligible;
- Deduction Against Income: These expenditures can be fully deducted in the year the property becomes available for use, or carried forward;
- Qualifying Expenditures for Tax Credit: Capital expenditures are eligible for the SR&ED Tax Credit, with some exceptions, such as property previously used or leased by another party;
- Shared-Use Property: Property used for both SR&ED and other activities can still qualify as “shared-use equipment”; and
- Partial Refundability for CCPCs: Credits earned on capital expenditures for CCPCs are partially refundable at a rate of up to 40%, unlike fully refundable credits for current expenditures up to their expenditure limit.
New Patent Box Regime
To further support innovative companies developing intellectual property resulting from their R&D, the government intends to implement a patent box regime, providing tax benefits for income from patents. This will provide further downstream benefits to increase the return on investment to Canadian companies performing corporate R&D. Details will be provided in the spring in Budget 2025.
The measures announced in the economic statement represent a strategic move to support innovation and economic growth in Canada. By expanding eligibility, increasing support, and reintroducing capital expenditure eligibility, the government aims to create a more favourable environment for businesses investing in R&D. These changes are expected to positively impact various sectors and position Canada as a leader in emerging technologies. Combining these measures creates a more robust and flexible system for businesses to pursue research and innovation, ultimately leading to a more competitive and prosperous Canadian economy.
The interplay between investment strategies, direct funding mechanisms, and tax incentives has become increasingly intricate and complex. It is strongly recommended that public companies not currently taking advantage of tax incentives or direct government funding review their current and forward-looking investments for potential government funding sources of cash flow. Ryan Tax, SR&ED, and Government Funding professionals can assist you in drawing this road map to success for your technology-driven projects.
Personal Tax Measures
Disability Tax Credit
Commencing July 2025, the Canada Disability Benefit will provide up to $2,400 annually to support low-income, working-age Canadians, who are eligible for the Disability Tax Credit. The economic statement proposes to exempt amounts received under the Canada Disability Benefit from income also extending its exclusion from income-tested benefits and programs.
Eligible Small Business Corporation Deferral
Currently, individuals are allowed to defer taxation on capital gains realized on the qualifying disposition of Eligible Small Business Corporation (ESBC) where replacement occurs within the year of disposition, or up to 120 days following that year.
The economic statement increases the period to acquire replacement eligible small business corporations to include both the current year and subsequent year of disposition and to include both common and preferred shares. Furthermore, the limit to the carrying value of the assets for ESBC treatment would increase to $100 million.
Corporate Tax Measures
Accelerated Investment Incentive
The Accelerated Investment Incentive currently provides an enhanced first-year capital cost allowance (CCA) for most depreciable capital property and was scheduled for full phase-out after 2027.
The government proposes to fully reinstate the Accelerated Investment Incentive for qualifying property acquired on or after January 1, 2025, and that becomes available for use before 2030. Phase-out would commence in 2030, with the incentive being fully eliminated for property that becomes available for use after 2033.
Immediate Expensing
Currently, the following asset classes that provided for 100% deduction were subject to phase-out between 2023 and 2027.
- Manufacturing or processing machinery and equipment under CCA Class 53;
- Clean energy generation and energy conservation equipment under Class 43.1 (and Class 43.2 for property acquired before 2025); and
- Zero-emission vehicles under Classes 54, 55, and 56 qualified for an enhanced first-year allowance that provided a 100% deduction for property that became available for use before 2024.
The government intends to reinstate immediate expensing measures for qualifying property acquired on or after January 1, 2025, and that becomes available for use before 2030. The immediate expensing measures would be phased out starting in 2030 and fully eliminated for property that becomes available for use after 2033.
EV Supply Chain Investment Tax Credit
The economic statement provides details with respect to the Budget 2024 announcement for a refundable electric vehicle (EV) Supply Chain Investment Tax Credit equal to 10% of the capital cost of eligible building property used in qualifying EV supply chain segments.
In general, qualifying criteria include:
- The tax credit would be available only to taxable Canadian corporations that invest directly in eligible property. The credit would not be available to partnerships or trusts;
- The EV Supply Chain Investment Tax Credit would be available for buildings and structures, including their component parts, that are described in paragraph (q) of capital cost allowance Class 1 of Schedule II of the Income Tax Regulations;
- To be eligible for the credit, all or substantially all of the use of property would have to be in one or more of the three qualifying EV supply chain segments: (a) EV Assembly, (b) EV battery production, or (c) Cathode active material production; and
- A corporation would be required to invest at least $100 million in property eligible for the Clean Technology Manufacturing Investment Tax Credit that has become available for use in each of the three segments.
Clean Economy Investment Tax Credits
The fall economic statement also contained measures further clarifying and/or enhancing previously announced Clean Economy Investment Tax Credits as follows:
- The Canada Carbon Rebate for Small Businesses will generally be available to CCPCs that had 499 or fewer employees in Canada throughout the calendar year in which the applicable fuel charge year began. Corporations that filed their tax returns for 2023 by July 15, 2024, have already received the benefit. The government proposes to modify the 2024-25 fuel charge year to correspond to the 2024 calendar year for the purpose of testing the number of employees;
- The government announced various qualifying criteria for eligibility for the Clean Electricity Investment Tax Credit to make it available to provincial and territorial crown corporations;
- A proposal to include the Canada Infrastructure Bank as an eligible entity under the Clean Electricity Investment Tax Credit. Also proposed is an exception for financing provided by the Canada Infrastructure Bank that would not reduce the cost of eligible property for the purpose of computing the Clean Electricity Investment Tax Credit; and
- The government proposes that the Clean Hydrogen Investment Tax Credit be expanded to include methane pyrolysis as an eligible production pathway.
Commodity Tax Measures
GST/HST Break for Holiday Essentials
The government reaffirmed its commitment to provide relief from the rising cost of living. One measure designed to provide this assistance is the recently implemented temporary GST/HST relief on certain taxable supplies for the period from December 14, 2024, to February 15, 2025. For more information on the GST/HST relief for holiday essentials, see CRA Issues Further Guidance on Temporary GST/HST Relief.
Combating Carousel Schemes
The government will investigate opportunities to address the increasing use of carousel schemes. Under these schemes, fraud is committed through the use of fictional organizations to remove GST/HST revenues from the tax system.
Previously Announced Measures
The fall economic statement once again reaffirms the government’s intention to move forward with numerous previously announced tax measures. While legislative proposals to implement several of the changes have been previously introduced, proposed amendments for many other measures remain outstanding, with announcement dates reaching as far back as 2019.
More Information
Further information on the Federal Fall Economic Statement 2024 may be found on the Government of Canada’s website.
If you have any questions about how these proposed changes might impact your organization, please do not hesitate to contact the Ryan TaxDirect® line at 1.800.667.1600 or taxdirect@ryan.com.
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