2024 Tax Season: Key Changes and Recent Court Cases Shaping Tax Law

2024 Tax Season: Key Changes and Recent Court Cases Shaping Tax Law

During the 2025 tax season (the 2024 tax year), Canadian taxpayers and businesses needed to be aware of significant changes in tax laws and recent court cases that have reshaped tax compliance and planning strategies. With the federal government having cancelled the proposed capital gains inclusion-rate increase on March 21, 2025, the inclusion rate stays at one-half and no rate change is coming in 2026, though the increase to the Lifetime Capital Gains Exemption was kept. However, other changes took effect that required attention.

Key takeaways

  • The Lifetime Capital Gains Exemption rose to $1.25 million effective June 25, 2024, while the proposed capital gains inclusion rate hike was cancelled on March 21, 2025, so the inclusion rate remains one-half.

  • New rules deny deductions for short-term rentals (under 90 consecutive days) that are not permitted by, or do not comply with, provincial or municipal licensing, permit or registration rules, with the denial prorated by the number of non-compliant days.

  • Intergenerational business transfer rules (Bill C-208 successor) and Employee Ownership Trust provisions opened new succession-planning paths for owner-managers.

Major Tax Changes for 2024

1. Increase in Lifetime Capital Gains Exemption

The Lifetime Capital Gains Exemption has been increased to $1.25 million, effective June 25, 2024, from the previous amount of $1,016,836. This applies to the sale of small business shares and farming and fishing property. The capital gains inclusion rate remains one-half, because the proposed increase was cancelled on March 21, 2025.

2. Home Buyers’ Plan (HBP) Enhancements

The withdrawal limit under the HBP has been increased, allowing first-time homebuyers to access more of their RRSP savings to purchase a home. Additionally, the government has introduced a temporary deferral on repayment obligations to provide flexibility for recent buyers.

3. Stricter Rules on Short-Term Rental Deductions

New regulations deny tax deductions for non-compliant short-term rentals, targeting property owners who fail to meet municipal regulations. This aims to curb the proliferation of unlawful rental operations. Read our blog post about GST implications of short-term rentals.

4. Increased Tax Credits and Benefits

  • The Volunteer Firefighters and Search and Rescue Volunteers tax credits have been doubled, acknowledging the essential services these individuals provide.

  • The Canada Carbon Rebate for Small Businesses returned federal fuel charge proceeds to eligible CCPCs with employees in provinces where the fuel charge applied. The fuel charge was removed on April 1, 2025, so the 2024-25 payment was the final one.

  • The Clean Technology Investment Tax Credit and Clean Hydrogen Investment Tax Credit have been refined, making them more accessible for businesses investing in green initiatives.

5. Intergenerational Business Transfers & Employee Ownership Trusts

Changes to the rules governing intergenerational business transfers have been finalized to facilitate succession planning. Similarly, incentives for Employee Ownership Trusts (EOTs) are in place, encouraging business owners to transition ownership to employees tax-efficiently.

Recent Court Cases Impacting Tax Compliance

1. GAAR and Artificial Loss Planning

In Deans Knight Income Corp. v. Canada, 2023 SCC 16, the Supreme Court of Canada held that the general anti-avoidance rule (GAAR) applied to deny a corporation the use of its non-capital losses. The transactions gave new investors significant influence over the corporation without giving them legal control, which sidestepped the loss-restriction rule in subsection 111(5) of the Income Tax Act. The court found that the arrangement defeated the object, spirit and purpose of that rule. The decision confirms that planning which technically complies with a provision can still be challenged under GAAR when it frustrates the provision’s purpose.

2. Employment Status & Gig Workers

In Uber Technologies Inc. v. Heller, 2020 SCC 16, the Supreme Court of Canada held that the arbitration clause in Uber’s driver contracts was unconscionable and unenforceable, allowing a proposed class action by drivers to proceed in Ontario. The court did not decide whether the drivers are employees or independent contractors. That question is still decided on the facts of each working relationship, so companies using gig workers should review how they classify workers and whether they have payroll withholding obligations.

3. Real Estate Flipping & Principal Residence Exemption Denials

In Hansen v. The Queen, 2020 TCC 102, the Tax Court of Canada reviewed a taxpayer who had claimed the Principal Residence Exemption (PRE) on five houses his family bought, improved, lived in for under a year each, and sold between 2007 and 2012. For the two houses sold in 2011 and 2012, the court found he had bought them with at least a secondary intention of reselling at a profit, so the gains were business income and the PRE was denied. The CRA could not reassess the earlier sales from 2007 to 2009 because those years were statute-barred, and the court cancelled the gross negligence penalties. This case underscores the importance of maintaining proper documentation and ensuring that real estate transactions align with personal-use intentions to qualify for the PRE.

4. International Taxation: Offshore Trust Residence

In Fundy Settlement v. Canada, 2012 SCC 14, the Supreme Court of Canada held that a trust is resident where its central management and control actually takes place, not automatically where its trustee lives. The trusts had a Barbados-resident corporate trustee, but the court found that Canadian-resident beneficiaries made the real decisions, so the trusts were resident in Canada and taxable here. The decision remains the leading authority on trust residence and reinforces the necessity for taxpayers to structure and report offshore holdings accurately.

What Taxpayers Should Do

Given these changes and legal precedents, taxpayers and business owners should:

  • Review tax planning strategies with an accountant to ensure compliance with capital gains rules.

  • Ensure short-term rentals meet regulatory requirements to avoid denied deductions.

  • Evaluate business succession plans considering the new rules for EOTs and intergenerational transfers.

  • Maintain thorough records to substantiate tax positions, especially for real estate transactions and offshore holdings.

The 2025 tax season presented new opportunities and challenges. Staying informed and proactive will be key to minimizing liabilities and optimizing tax positions. If you need assistance navigating these changes, reach out to a professional for tailored advice.

Disclaimer: This blog post is for informational purposes only and does not constitute professional tax advice. Always consult with a qualified tax accountant for personalized guidance.

Frequently asked questions

What is the 2024 Lifetime Capital Gains Exemption limit?

$1.25 million, effective June 25, 2024, up from $1,016,836. The LCGE applies to dispositions of qualified small business corporation shares and qualified farm or fishing property. The exemption is indexed to inflation in future years. The new limit applies to dispositions on or after June 25, 2024; dispositions earlier in 2024 were limited to $1,016,836. Sellers planning an exit should confirm the disposition date triggers the new ceiling.

Were the capital gains inclusion rate changes implemented in 2024?

No. The federal government cancelled the proposed increase to the capital gains inclusion rate on March 21, 2025, so it never took effect. The inclusion rate remains 50% for individuals and corporations on all capital gains, and there is no higher 66.67% rate coming on January 1, 2026. Only the increase to the Lifetime Capital Gains Exemption was retained.

What are the new short-term rental deduction rules?

Effective 2024, section 67.7 of the Income Tax Act denies expenses incurred to earn income from a non-compliant short-term rental, meaning residential property rented for less than 90 consecutive days. "Non-compliant" means the province or municipality does not permit short-term rentals at that location, or the rental does not meet applicable registration, licence or permit requirements. The denial is prorated by non-compliant days, and a rental that met the requirements by December 31, 2024 was treated as compliant for 2024. Rentals that comply with local rules keep their deductions. Owners of platforms like Airbnb must confirm local compliance before claiming deductions.

What is the Canada Carbon Rebate for small businesses?

A refundable tax credit that returned a portion of federal fuel charge proceeds to Canadian-controlled private corporations with employees in provinces where the federal fuel charge applied, covering the 2019-20 through 2024-25 fuel charge years. The rebate was calculated per employee and per province and paid automatically with no application, but a corporation had to file its T2 return on time to qualify. The fuel charge was removed on April 1, 2025, so the 2024-25 payment was the last one, and legislation passed on March 26, 2026 made the rebate non-taxable.

What changed with intergenerational business transfers in 2024?

The successor rules to Bill C-208 took effect in 2024, providing a clearer framework for genuine intergenerational transfers of qualifying small business shares to a child or grandchild without being recharacterised as a dividend under section 84.1. The 2024 rules add immediate and gradual transfer options, each with specific tests around control transition, financial involvement, and minimum holding periods. The complexity makes professional advice essential before structuring a family transfer.

How do Employee Ownership Trusts (EOTs) affect succession planning?

EOTs became operative in 2024 as a Canadian succession vehicle similar to U.S. ESOPs. An EOT allows owners to sell qualifying small business shares to a trust held for the benefit of employees, with extended capital gains reserves (up to 10 years) and certain tax deferrals. Up to $10 million of gain may also qualify for an exemption when conditions are met. EOTs add a real third option alongside family succession and external sale, but the trust rules are technical.

Alex Ataman, CPA
Founder
Modern Axis CPA