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For long-time movie enthusiasts, the 1966 epic The Good, The Bad and the Ugly remains one of the most influential westerns of all time. The plot revolved around three gunslingers attempting to find a fortune in a cache of Confederate gold amid the chaos of the American Civil War while participating in battles, confrontations and duels along the way. It starred Clint Eastwood as "the Good", Lee Van Cleef as "the Bad", and Eli Wallach as "the Ugly" – who collectively put up an incredible performance as the main trio.

Fast forward 58 years for an apparent reboot in a modern Canadian setting. This time, the plot ostensibly revolves around three government bodies – Canada Revenue Agency (CRA), Department of Finance (DOF), and Prime Minister’s Office (PMO) – attempting to find a fortune in a cache of taxpayer dollars amid the chaos of the Canadian parliamentary system while participating in battles, confrontations and duels along the way. As there is no defined casting for “the Good”, “the Bad” and “the Ugly” in the reboot, we took the opportunity to list, for each category, two specific tax changes in 2024 that are most relevant to Canadian business owners.

The Good

1. LCGE Gets a Boost – Twice in One Year

For dispositions of shares of a qualifying small business, the Lifetime Capital Gains Exemption (LCGE) increased from $971,190 for dispositions in 2023 to:

$1,016,836 for dispositions between January 1, 2024 to June 24, 2024 (as originally scheduled for indexation); and
$1,250,000 for dispositions between June 25, 2024 to December 31, 2024 (as introduced in the 2024 federal budget).

For business owners in Ontario, the LCGE of $1,250,000 represents potential tax savings of up to $334,500 per person; the total tax savings can be further enhanced through certain tax planning techniques. Equally important is the need to “purify” the business and maintain the qualifying status going forward. (Please talk to one of our team members for more information about this planning opportunity.)

2. CGIR Holds at One-Half… For Now

Notwithstanding the well-publicized proposal to increase the Capital Gains Inclusion Rate (CGIR) to two-thirds effective June 25, 2024, and CRA’s confirmation that it would administer the increased CGIR based on proposed legislation, despite parliament prorogation (more on that below), the CGIR officially remained one-half throughout 2024.

The Bad

3. AMT Reboot Puts More Taxpayers at Risk

The revamped Alternative Minimum Tax (AMT) regime came into effect on January 1, 2024. Put simply, AMT imposes a minimum level of tax on taxpayers who claim certain tax benefits (e.g. deductions, exemptions and credits) to reduce their tax liability. In the past, AMT was not of great interest because in practice, occurrence was quite rare. However, the revamped AMT regime can now catch many unsuspecting business owners and their families under normal circumstances. For this reason, year-end tax planning has become more important than ever before.

4. GAAR Gets Sharper Teeth

The General Anti-Avoidance Rule (GAAR) also underwent significant changes effective January 1, 2024. One such change was expanding the definition of an “avoidance transaction” to include transactions where one of the main purposes of the transaction is to obtain a tax benefit. It also introduced a new “economic substance” test to catch transactions that are perceived to be significantly lacking in economic substance, and a new 25% penalty for avoidance transactions effective June 20, 2024.

The Ugly

5. Trust Reporting Rules Spark Chaos

The enhanced reporting rules for trust became effective for taxation years ending on or after December 31, 2023. This means that all inter-vivos trusts (including family trusts) were subject to additional information disclosure to the CRA, with the requisite tax return due on March 30, 2024. Bare trusts were also subject to these enhanced reporting rules, until they were not – on March 28, CRA announced a last-minute filing exemption for bare trusts, to the chagrin of many accountants.

6. CGIR Saga: A Year of Proposals, Reversals, and Resignations

As noted earlier, in its April 16, 2024 federal budget, DOF proposed to increase the CGIR from one-half to two-thirds effective June 25, 2024. However, as the proposal was introduced without draft legislation, there was uncertainty as to the related mechanics and implications thereof until Finance Minister Chrystia Freeland finally tabled a Notice of Ways and Means Motion (NWMM) on June 11 and released additional technical amendments on August 12 and September 23. In anticipation of the CGIR hike taking effect, some accountants proactively implemented tax plans for their clients to trigger capital gains before June 25, only for that day to pass with nothing changed. Adding to the political drama, Chrystia Freeland resigned as Finance Minister on December 16 (hours before she was to deliver the 2024 Fall Economic Statement), and later stated that she would drop the CGIR proposal completely if elected as the next Prime Minister of Canada. Meanwhile, the NWMM was never passed into law, and effectively died on the table when Parliament went into prorogation on January 6, 2025 (after the PMO announced the resignation of Prime Minister Justin Trudeau); technically, this act nullifies all NWMMs and other parliament bills not yet passed into law, but the scene went off script: On January 7, CRA announced that it would administer the increased CGIR retroactively to June 25, 2024 based on proposed (but now cancelled) legislation. In an attempt to finally bring some closure to the CGIR saga, on January 31, 2025, DOF postponed the implementation date of January 1, 2026, which forced CRA to revert back to the one-half CGIR for 2024 and 2025.

(Epilogue: CRA is currently running into a software issue with e-filed returns that report a capital gain realized in 2024, but we will leave this development as the opening act for next year’s sequel.)

Conclusion

In a famous scene from The Good, The Bad and the Ugly, Clint Eastwood’s character, Blondie, was counting Angel Eyes’ men. “One, two, three, four, five, six. Six. Perfect number.” While the integer six is indeed a perfect number in mathematics (because 1 + 2 + 3 = 6), it is also the perfect number to stop here in this blog (because 2 + 2 + 2 = 6). Please contact a member of our tax team at ConnectCPA for more tax planning (or movie) tips.

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