How the 2024 federal budget affects small businesses

Every year, the Canadian government announces its federal budget, which outlines its plans for how it will be spending money. Small businesses should pay close attention, because the new governmental policies and allocations can affect how they operate. 

This year, the government is focused on helping small businesses achieve growth and stay competitive. The measures outlined in the 2024 budget can make it easier for new businesses to start-up and existing businesses to scale-up. Let’s look at the details and see how they may affect small businesses like yours.

Empower young entrepreneurs

The latest budget will invest $60 million in Futurpreneur Canada, a national organization that helps young entrepreneurs start and grow their businesses. This investment will be matched by other levels of government and private partners. Futurpreneur Canada has been supporting young entrepreneurs for over 20 years with federal funding of $161.5 million. 

They’ve helped over 17,700 young entrepreneurs launch more than 13,900 businesses, creating thousands of jobs. By 2029, it’s estimated that this funding will support an additional 6,250 businesses owned by young Canadians.

New carbon rebate

The federal government plans to return over $2.5 billion collected through the carbon price’s fuel charge to small businesses. This will be in the form of a refundable tax credit directly distributed by the Canada Revenue Agency. Approximately 600,000 businesses with 499 or fewer employees will be eligible for this rebate.

Increased Lifetime Capital Gains Exemption 

The increase in the Lifetime Capital Gains Exemption (LCGE) limit to $1.25 million benefits small business owners who are planning to sell their businesses. This higher exemption threshold allows them to potentially shield more of their capital gains from taxation, providing a financial incentive for entrepreneurship and business succession planning. 

However, the higher inclusion rate of 66.7% means that a larger portion of capital gains will be subject to taxation. This change could impact the after-tax proceeds that small business owners receive when selling their businesses, potentially reducing the net proceeds available for retirement or investment in other ventures.

Small business owners need to reassess their tax planning strategies considering these changes. They may need to consult with tax advisors to optimize their tax positions, especially if they anticipate selling their businesses in the future. Strategies such as income splitting, estate freezes, and structuring sales transactions may become even more important to minimize tax liabilities and maximize after-tax proceeds.

New Canadian Entrepreneurs’ Incentive

The Canadian government is introducing a new incentive called the Canadian Entrepreneurs’ Incentive. This incentive aims to reduce the inclusion rate (the portion of capital gains subject to tax) to 33.3% on a lifetime maximum of $2 million in eligible capital gains.

Here’s how it works. If you’re a founding investor in certain sectors and own at least 10% of shares in your business, and if your company has been your main job for at least five years, you could qualify for this incentive.

When fully implemented, entrepreneurs could potentially get a total and partial exemption of at least $3.25 million when they sell all or part of their business. This is designed to encourage innovators to keep innovating in Canada.

In simpler terms, this new incentive means that entrepreneurs could pay less tax on their capital gains, making them better off financially when they sell their businesses, especially if they make up to $6.25 million from the sale.

Investment in Canadian start-ups

Starting in 2026-27, the Canadian government plans to invest $200 million over two years in Canadian start-ups through the Venture Capital Catalyst Initiative. This investment aims to make it easier for deserving entrepreneurs to get venture capital funding. Additionally, the initiative will focus on investing in communities that don’t usually get much attention from investors, especially those outside of major cities.

Boost government procurement 

The government wants to increase the amount of goods and services it buys from small and medium-sized businesses (SMBs) and innovative companies. They plan to do this by proposing laws that set specific targets for government procurement from these types of businesses.

Support Indigenous-owned businesses 

The government plans to support businesses owned by Indigenous people by giving $350 million to Indigenous Financial Institutions over the next five years. Additionally, they will allocate $30 million specifically for Métis Capital Corporations.

The bottom line

The 2024 federal budget brings significant opportunities and considerations for small businesses in Canada. With a focus on empowering young entrepreneurs, providing a new carbon rebate, and increasing the LCGE, there are avenues for growth and financial relief. However, the higher inclusion rate for capital gains and the need for reassessing tax planning strategies highlight the importance of staying informed and seeking professional advice. 

Also, the introduction of the Canadian Entrepreneurs’ Incentive and investments in Canadian start-ups and Indigenous-owned businesses highlight the government’s commitment to fostering innovation and inclusivity in the business landscape. As small business owners navigate these changes and opportunities, staying proactive and strategic will be key to maximizing benefits and driving sustainable growth.