Understand Key Changes for Small Businesses in the 2024 Canadian Federal Budget

As we move deeper into 2024, the conversation around the economic environment for small businesses in Canada is continuing to grow in depth and complexity. At FreshBooks, we are committed to understanding and communicating public policies that affect you and your business.

The ongoing changes and challenges faced by small business owners require a proactive approach to advocacy and support, which is why the role of policymakers is more critical than ever before. It’s equally important for small business owners to remain informed about the various ways these measures can shape their own long-term plans and growth.

The recently tabled 2024 Canadian Federal Budget introduces several changes aimed at fostering the growth and resilience of small businesses across the country.

As small businesses continue to navigate economic pressures, we wanted to highlight a few of the more notable measures from the budget as you prepare for the year ahead.

Capital Gains Taxation Adjustments

One of the significant highlights of this budget is the modification of capital gains taxes, which directly affect small business owners.

The lifetime capital gains exemption has increased from $1 million to $1.25 million, allowing many entrepreneurs to realize more tax-free income upon the sale of their business.

Additionally, the introduction of the Canadian Entrepreneurs’ Incentive offers a lower capital gains inclusion rate of 33.3% on the next $2 million in gains, but only for certain sectors when fully implemented.

However, not all industries and job types will have full access to these benefits. While the capital gains inclusion rate has been raised to 66.7% for some sectors, other industries like professional corporations, financial services, and the hospitality sector are not part of the new incentive​ at this time. If you have questions about this initiative and how it might impact your business, speak with your tax advisor.

Carbon Tax Rebates

The budget also addresses the long-standing issue of carbon tax rebates for small businesses. A total of $2.5 billion has been earmarked for carbon tax rebates, targeting an estimated 600,000 small and medium enterprises (SMEs).

This initiative aims to assist businesses with fewer than 500 employees by issuing rebate cheques based on the number of workers they employ. More details will be released in the coming months.

Support for Innovation and Employee Ownership

In a move to encourage innovation and investment in productivity-enhancing assets, the budget introduces an accelerated capital cost allowance (CCA). This allows businesses to write off the full cost of certain assets, like computers and data infrastructure, effective immediately up to January 2027.

Additionally, the budget promotes employee ownership trusts (EOTs), providing a special capital gains exemption of up to $10 million for business owners selling their businesses to their employees. This could foster more sustainable business transitions and enhance employee engagement and investment in the businesses they work for.

Broad Implications for Small Business Owners

Overall, the 2024 Federal Budget presents a nuanced suite of measures intended to bolster small businesses in Canada. While the increased exemptions and rebates offer a welcome relief, business owners will need to navigate these changes carefully, potentially seeking financial advice to best leverage the new policies for their growth and sustainability.

We at FreshBooks will continue engaging with policymakers at all levels of government on small business owner initiatives. If you are a small business owner or entrepreneur, we will continue to be your advocate on the issues that matter to you and your business.