2024 Fall Economic Statement

• Canada’s general government deficit-to-GDP ratio of 2 per cent in 2024 is the lowest in the G7, tied with Germany. The United States deficit currently sits at 7.6 per cent of GDP, while France is at 6 per cent and the United Kingdom is at 4.3 per cent.
• Canada’s projected net debt-to-GDP ratio for 2024 is 14.4 per cent, compared to the G7 average, excluding Canada, of 103.8 per cent. Canada’s net debt burden is still lower today than in any other G7 country prior to the pandemic—an advantage that Canada is forecasted to maintain through 2026.
• The Canadian economy is now 7.3 per cent larger than it was before COVID first hit and there are 1.4 million more jobs in Canada.
• Canada had the second lowest mortality rate from COVID in the G7.
• Private sector economists predict interest rates will be down to 2.75 per cent by mid-next year. The Bank of Canada was the first G7 central bank to lower interest rates.
• Inflation in Canada is at its lowest level in over 3.5 years. After easing to 1.6 per cent in September, and settling at the 2 per cent target in October, inflation is expected to remain near 2 per cent over the 2025-2029 forecast period.
• Inflation for groceries has fallen from a peak of 11.4 per cent in January 2023 to a recent low of 1.4 per cent this past April, before edging back up to 2.7 per cent in October.
• Overall, Canada has seen inflation decline faster and with lower cumulative inflation than in the U.K. and the U.S. From 2019 to 2024, cumulative inflation in Canada has been 5.8 and 4.2 percentage points lower than in the U.K. and U.S., respectively.
• Wage growth has now outpaced inflation for the past 21 consecutive months. This is the longest streak in the G7, contributing to Canada recording the strongest growth in real wages—wages after accounting for inflation—since pre-pandemic in the G7, at more than 5 per cent.
• Canada’s unemployment rate rose from a low of 5 per cent in early 2023 to 6.8 per cent in November 2024. Employment has increased by 7.4 per cent since 2019, the strongest increase in the G7.
• Underpinning Canada’s long tradition of fiscal responsibility are AAA credit ratings from Moody’s, S&P, and DBRS Morningstar. Canada is one of only two G7 economies, along with Germany, to have an AAA rating from at least two of the three major global credit rating agencies. Canada’s AAA credit ratings help maintain investors’ confidence and keep Canada’s borrowing costs as low as possible.
• The 2023-24 deficit will exceed Budget 2024’s $40.1 billion by a whopping $22 billion. $21.1 billion (of the $22 billion overage) is due to contingent liabilities related to Indigenous litigation and write-downs of COVID loans.

What is SR&ED?

The Scientific Research and Experimental Development (SR&ED) is a tax incentive program for businesses conducting research and development in Canada. Qualifying expenditures are fully deductible in the year they are incurred and, these expenditures are generally eligible for an investment tax credit.

Proposed Changes

The FES proposes some welcome changes to the SR&ED program which include:

• An increase of the annual expenditure limit on which the enhanced 35 per cent rate can be earned from $3 million to $4.5 million. As a result, qualifying CCPCs would be able to claim up to $1.575 million per year of the enhanced, fully refundable tax credit.
• The taxable capital phase-out thresholds for determining the expenditure limit would also be increased from $10 million and $50 million to $15 million and $75 million, respectively.
• To allow capital expenditures to be eligible for both the deduction against income and the ITC components of the SR&ED program.

The proposed changes would apply for tax years that begin on or after December 16, 2024.

What is it?

The Accelerated Investment Incentive provides an enhanced first-year capital cost allowance (CCA) for most depreciable capital property.

Proposed Changes

The FES proposes to fully re-instate the AII and immediate expensing measures for a five-year period, with a four-year phase-out after 2029. Eligible property that is acquired and becomes available for use before 2030 can benefit from up to three times the normal first-year CCA deduction (for property subject to the half-year rule) under the AII.

What is it?

Under the Income Tax Act, individuals are allowed to defer taxation on capital gains realized on the qualifying disposition of Eligible Small Business Corporation (ESBC) shares to the extent that proceeds from the disposition are used to acquire replacement ESBC shares within the year of disposition, or up to 120 days following that year. To qualify as an ESBC share, a share must be a common share issued by an ESBC to the individual and the total carrying value of the assets of the ESBC and related corporations must not exceed $50 million immediately before and immediately after the share was issued.

Proposed Changes

The 2024 Fall Economic Statement proposes to increase the eligibility period to acquire replacement shares and to expand what qualifies as an ESBC share. First, the period to acquire replacement shares would be expanded to encompass the year of disposition and the entire calendar year after the year of disposition. Second, an ESBC share would include both common and preferred shares. Finally, the limit to the carrying value of the assets of the ESBC and related corporations would be increased to $100 million.

These changes would be effective for qualifying dispositions that occur on or after January 1, 2025.

What is it?

In provinces where the fuel charge applies, a portion of fuel charge proceeds from the price on pollution will be returned to eligible small- and medium-sized businesses via the Canada Carbon Rebate for Small Businesses, an automatic, refundable tax credit provided directly to eligible businesses.

Corporations do not have to apply for the tax credit; the payment amounts will be automatically determined by the Canada Revenue Agency.

The Canada Carbon Rebate for Small Businesses will generally be available to Canadian-controlled private corporations (CCPCs) that had 499 or fewer employees in Canada throughout the calendar year in which the applicable fuel charge year began.

Proposed Changes

The FES proposes to modify certain elements of the design of the tax credit for the 2024-25 and later fuel charge years, including implementation of a minimum rebate amount:

• An eligible corporation with 1 to 20 employees across Canada would receive a payment corresponding to it having 20 employees.
• Extend the availability of the tax credit to cooperation corporations and credit unions.
• Implement a phase-out of the rebate where the number of employees across Canada exceeds 300. The rebate will be completely eliminated where the number of employees reaches 500.

Currently, there is limited reporting required by NPOs that claim an income tax exemption. An NPO is required to file an annual information return if one of the following conditions are met:

• the total of all passive income in the fiscal period exceeds $10,000;
• the organization’s total assets at the end of the preceding fiscal period exceeded $200,000; or,
• an information return was required to be filed by the organization for a preceding fiscal period.

The FES proposes to amend the Income Tax Act to require NPOs with total gross revenues over $50,000 to also file the annual NPO information return.

The FES also proposes to amend the Income Tax Act to require NPOs that do not meet the thresholds for filing the annual NPO information return to file a new, short-form return that contains basic information about the organization, including:

• its business number or trust number;
• the name of the organization and its mailing address;
• the names and addresses of the directors, officers, trustees or similar officials;
• a description of the organization’s activities, including whether it conducts activities outside Canada;
• the organization’s total assets and liabilities and annual revenues; and,
• other prescribed information.

These measures would apply to the 2026 and subsequent taxation years.