Canadians had a front row seat to a very unexpected turn of political events on Monday as the federal government unveiled its 2024 Fall Economic Statement. While many anticipated the usual update on the nation’s fiscal outlook, the announcement was preceded by a surprising shift in leadership. Finance Minister Chrystia Freeland resigned abruptly, with Public Safety Minister Dominic LeBlanc stepping in to take her place, adding to an already hefty ministerial portfolio.

The stunning leadership change occurred alongside the tabling of a Fall Economic Statement that underscored Canada’s increasingly debt-dependent financial situation. The federal deficit for the 2023–24 fiscal year, which ended on March 31, 2024, reached $61.9 billion—significantly exceeding the previous promised cap of $40.1 billion.

Looking ahead, Ottawa projects deficits of $48.3 billion for 2024–25, $42.2 billion for 2025–26, and $31 billion for 2026–27. While the government’s estimates suggest that the deficit will drop below 1 per cent of GDP by 2026–27 (one of the government’s fiscal anchors), many economists have questioned whether Ottawa will meet those targets (with questions swirling around which party is likely to succeed the Liberals next year, should the government fall in the next election). The debt-to-GDP ratio, another key fiscal anchor, is expected to decline gradually each year until 2029–30.

Fiscal hurdles aside, the 2024 Fall Economic Statement eschewed tax increases and included more than $24 billion in new spending measures aimed at addressing affordability and promoting economic growth. Some of the most notable proposals include:

HST holiday: A temporary suspension of the Harmonized Sales Tax (HST) on qualifying goods is in effect until February 15^th, 2025. The tax break carries an estimated cost of $1.6 billion. However, funding for proposed $250 tax rebate cheques was not included in the Fall Economic Statement, as the measure failed to gain opposition support in Parliament.

Accelerated Investment Incentive and immediate expensing: The government reinstated this business-friendly incentive, providing an enhanced first-year capital cost allowance on most depreciable capital property as well as immediate expensing for manufacturing and processing machinery and equipment, clean energy generation and energy conservation equipment and zero-emission vehicles. These incentives would apply to qualifying property acquired and made available for use from January 1, 2025 to December 31, 2029, with a four-year phase-out thereafter. Government projections put the cost of the measure at $17.4 billion by 2029–30.

Scientific Research and Experimental Development (SR&ED) enhancements: Changes to the SR&ED program would include raising the annual expenditure limit ‘… on which Canadian-controlled private corporations are entitled to earn an enhanced 35 per cent investment tax credit, from $3 million to $4.5 million.” The prior-year taxable capital phase-out thresholds for the enhanced credit would increase from $10 million and $50 million to $15 million and $75 million, respectively. In addition, the enhanced refundable SR&ED credit would be extended to

eligible Canadian public corporations. Immediate changes were also proposed to allow capital expenditures for deductions of income and investment tax credit components of the SR&ED program, similar to the rules existing prior to 2014.

Investment flexibility: The Fall Economic Statement proposes to remove the 30 per cent limit on Canadian pension fund investment in domestic entities. Additionally, the government is considering changes that would make it easier for private sector entities to increase their investment in municipal-owned utility corporations.

Venture capital and mid-cap growth funding: The government pledged $1 billion for the Venture Capital Catalyst Initiative and an additional $1 billion for mid-cap growth investments.

Canada Carbon Rebate expansion: Small businesses with 1–20 employees would now qualify for enhanced payments, while larger businesses will see a phased reduction as employee numbers approach 500. Cooperative corporations and credit unions would now be eligible for this rebate, as well. The Canada Carbon Rebate’s rural top up would also be expanded to include a greater number of small communities within census metropolitan areas.

Housing initiatives: To help address housing affordability, the government would double the loan limit under the Canada Secondary Suite Loan Program to $80,000, spend $362.7 million over five years to extend the Federal Community Housing Initiative and accelerate $2 billion in low-cost financing for apartment construction. An additional $50 million would be allocated for affordable housing providers to engage in pre-development work, while an additional $600 million in interest-free loans to help lower home energy costs would be made available through the Canada Greener Homes Loan Program.

Tax modernization and digital support: The government proposed exploring new initiatives such as introducing automatic tax filing for some Canadians starting as early as the 2025 tax year. The government also committed up to $500 million over four years to help small businesses adopt digital technologies.

Artificial intelligence and innovation support: Funding would support artificial intelligence commercialization, with $150 million over three years for the Global Innovation Clusters and $24 million over two years for the National AI Institutes.

Additional support for entrepreneurs and small businesses: Measures include a proposed $189 million over five years for the Black Entrepreneurship Program, along with enhanced financial safeguards under the Consumer-Driven Banking Framework.

Environmental and clean energy incentives: The Fall Economic Statement outlined details on the 10 per cent refundable tax credit for qualifying electric vehicle (EV) building property investments available to Canadian corporations.

Public safety investments: A $1.3 billion package would boost funding for border security, cybersecurity and law enforcement, while $597.9 million over three years would support firearm removal and compensation initiatives.

CRA enforcement: An additional $451.5 million over five years would enhance Canada Revenue Agency audit and tax compliance efforts.

The government also confirmed that it plans to proceed with (or obtain royal assent for) legislation introducing changes to previously announced measures including changes to capital gains inclusion rates and lifetime capital gains exemptions, the Alternative Minimum Tax, the Canadian Entrepreneurs’ Incentive, the Employee Ownership Trust Tax exemption—and more.

The RH Partners Tax Team

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