Federal Budget 2024: Pension & Benefit Related Highlights
April 24, 2024
Budget 2024, entitled Fairness For Every Generation, was tabled by Deputy Prime Minister and Federal Finance Minister, Chrystia Freeland, on April 16, 2024, in the House of Commons. Below is a summary of announcements pertinent to pension, benefits and executive compensation.
Pension Investment Updates
The Federal Government continues to explore ways to encourage pension funds to invest in Canada. Budget 2024 makes the following announcements relevant to pension fund investment:
- Pension Fund Investment Working Group: Budget 2024 announces that a working group will be created, led by Stephen Poloz (former Governor of the Bank of Canada) and supported by the Deputy Prime Minister and Minister of Finance, in collaboration with pension plans, to explore how to increase domestic investment opportunities for Canadian pension funds. Identified areas of focus include: digital infrastructure and AI investment; physical infrastructure; airport facilities; venture capital; and home development. Consistent with previous announcements, the working group will also consider the benefits of removing the “30% rule” for domestic investments. The 30% rule currently restricts pension plans, with limited exceptions, from investing in the securities of a corporation to which are attached more than 30% of the votes that may be cast to elect directors.
- Public Disclosure of Pension Investments: Budget 2024 also announces that the Federal Government intends to amend the Pension Benefits Standards Act, 1985 (Canada) and associated regulations to require the Office of the Superintendent of Financial Institutions (OSFI) to publicly disclose information related to the investments of large federally-regulated pension plans. Budget 2024 does not identify what constitutes a “large plan” for this purpose and the precise information to be disclosed will be set out in regulations. Budget 2024 does note that large federally-regulated plans will be required to disclose information related to the distribution of plan investments by jurisdiction and, within each jurisdiction, by asset class. This announcement builds upon the previous announcement in Budget 2023 that federally-regulated pension plans will be required to publicly disclose their exposure to crypto assets.
The Federal Government has indicated that it will engage with the provinces and territories to discuss similar disclosures by provincially-regulated pension plans.
- Clean Electricity Investment Tax Credit: The Federal Government has committed to introducing the Clean Electricity Investment Tax Credit by the end of 2024. The Clean Electricity Investment Tax Credit was previously announced in Budget 2023 and will be available to pension investment corporations.
Increased Capital Gains Inclusion Rate and Employee Stock Options
In Budget 2024, the Federal Government announced its intention to increase the capital gains inclusion rate for capital gains realized on or after June 25, 2024. Currently, only 50% of capital gains are included in income. The proposed amendments would increase the inclusion rate from one-half to two-thirds on capital gains realized annually above $250,000 by individuals, and on all capital gains realized by corporations and trusts.
The increased capital gains inclusion rate will also impact the employee stock option regime. Currently, certain employee stock options are eligible for a 50% tax deduction if the option meets specific conditions. This results in eligible employee stock options effectively receiving capital gains-like treatment. Budget 2024 announced that this regime will be updated so that individuals claiming the employee stock option deduction will now be provided with a one-third deduction (instead of one-half) if the option meets certain conditions and that this change will also only apply over the $250,000 annual limit (which will be a combined limit with any capital gains realized in the year). Employers will need to be aware of these new rules when calculating the appropriate tax to withhold from benefits related to the exercise of employee stock options.
Qualified Investments for Other Registered Plans
Budget 2024 invites stakeholders to provide suggestions on how the qualified investment rules for other registered plans (e.g., RRSPs, RRIFs, DPSPs, TFSAs) could be modernized. Specific issues under consideration include the harmonization of the small business investment rules; whether certain types of annuities should continue to be qualified investments; whether to continue the formal registration process for certain pooled investment products; whether and how qualified investment rules could promote an increase in Canadian-based investments; and whether crypto-backed assets are appropriate qualified investments for registered savings plans.
Stakeholders may submit comments until July 15, 2024.
Changes to the Home Buyers’ Plan and Registered Retirement Savings Plan Withdrawals
Budget 2024 introduces proposed amendments to the Income Tax Act (Canada), which will increase the Home Buyers’ Plan RRSP withdrawal limit from $35,000 to $60,000, and allow first-time home buyers who made a first withdrawal between January 1, 2022 and December 31, 2025 to postpone repayment of their home buyers’ plan withdrawal for an additional three years (i.e., until the fifth year after the withdrawal). The new withdrawal limit will become available to first-time home buyers after April 16, 2024.
Canada Pension Plan Enhancements
Budget 2024 proposes amendments to the Canada Pension Plan. The Federal Government has indicated that it will amend the Canada Pension Plan to: provide a top-up to the death benefit for certain contributors; introduce a partial children’s benefit for part-time students; extend eligibility for the disabled contributor’s children’s benefit when a parent reaches age 65; and end eligibility for a survivor’s benefit to individuals who are legally separated after a division of pensionable earnings.
Pooled Registered Pension Plans
The Federal Government signalled its intention to amend the Pooled Registered Pension Plans Act to ensure that all members of a pooled registered pension plan are provided with similar information about the plan.
The Pharmacare Act
Budget 2024 reaffirmed the Federal Government’s commitment to universal pharmacare. At the time Budget 2024 was released, Bill C-64, known as the Pharmacare Act was undergoing its second reading in the House of Commons. The Pharmacare Act sets the stage for the initial phase of a nationwide universal pharmacare system, with a current focus on enhancing access to contraception and diabetes medications.
Canadian Dental Care Plan
Budget 2024 also provided an update on the progress of the national dental care program. The Canadian Dental Care Plan was initially introduced in Budget 2023, and rollout is ongoing. By May 2024, all seniors aged 65 and older will be able to apply, followed by persons with disabilities with a valid Disability Tax Credit certificate, and children under the age of 18. The intention is for all uninsured Canadians between the ages of 18 and 64, with a family income up to $90,000, to be eligible to visit an oral health provider under this plan in 2025.
As a reminder, in response to the implementation of the Canadian Dental Care Plan, issuers of T4 Statements of Remuneration Paid and T4A Statements of Pension, Retirement, Annuity, and Other Income must now indicate whether a payee or any of a payee’s family members had access to dental insurance or coverage, including health spending and wellness accounts, due to the payee’s current or past employment.
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