2024 Federal Budget: 4 key takeaways

Well, the ink is dry on the latest federal budget.

With a targeted spend of $535 billion that will cover a wide range of measures and impact Canadians across every demographic, there is quite a lot to unpack.

However, we’ve extracted 4 key takeaways (that will likely be) most relevant to you.

1: Amortization on insured mortgages for new builds has been stretched to 30 years for first-time homebuyers

According to a recent survey from NerdWallet, owning a home is a priority for 67% of Canadians.

Yet higher interest rates, stricter regulations (i.e. mortgage stress test), and soaring home prices have all contributed to making the cost of home ownership too great for many first-time buyers.

The new 30-year amortization on insured mortgages is meant to help make first-time home purchases more attainable.

Timeline:	Effective August 1, 2024
Caveats:	Must be a new-build; only available on insured mortgages (down payment of less than 20%).
Pros:	Lower mortgage payments (as they will be spread out over a longer period). Plus, you may qualify for a purchase amount that perhaps you wouldn’t have been able to within a 25-year amortization period (under the mortgage stress test).
Cons:	May end up paying more interest over the long run.

However, over time (as you work your way up the pay grid), you could always reduce the amortization period once you’re able to take on higher payments. In the end, it’s all about giving you a better shot at entering the world of home ownership.

Looking to purchase your first home? Be sure to check out our Home-buying 101 series.

If you have an existing mortgage, amortization relief could also be on the horizon for you.

The latest federal budget has additionally proposed changes to the Canadian Mortgage Charter that would allow permanent amortization relief to all qualifying existing homeowners (including insured homeowners at risk) without fees or penalties. Should you find yourself experiencing financial hardship at any point, this may be something you can leverage to help lessen the burden.

2: The Home Buyers’ Plan maximum withdrawal limit has been increased

With the Home Buyers’ Plan (HBP), Canadians are able to withdraw tax-free funds from their RRSP to put towards the down payment on their first home.

Previously, the maximum amount for HBP withdrawals was set at $35,000.

However, as of the latest federal budget, this amount has been increased to $60,000.

Timeline:	Effective immediately
Caveats:	Withdrawals must be paid back in full within 15 years to avoid being taxed—with the first repayments to your RRSP beginning no later than 5 years from the date of withdrawal (up from the previous 2-year grace period).
Pros:	Further incentive to maximize RRSP contributions early on in your career, as you will now have access to even more savings to put towards a first-time home purchase through the HBP (couples can combine their HBP withdrawals for a total of $120,000).
Cons:	While the ability to withdraw a larger amount from your RRSP to put towards that first home is a good thing, it also means having to pay back a larger amount.

To get ahead of the curve, be sure to put a repayment plan in place as soon as you make that HBP withdrawal—then do your best to stick to it. Although you have 5 years before having to start paying it back (and 15 years to be paid back in full), time has a way of flying by—especially where money matters are concerned.

Tip: Maximize your first-time home-buying potential by leveraging the First Home Savings Account in addition to the HBP.

3: The introduction of automatic enrolment in the Canada Learning Bond

The Canada Learning Bond (CLB) is money the federal government adds to a Registered Education Savings Plan (RESP), over and above the Canada Education Savings Grant (CESG). With the CLB, eligible children and youth can receive an initial payment of $500 for every year until age 15—up to a maximum of $2,000. Furthermore, recipients can earn an additional $100 for each future year they qualify (after receiving the first $500). However, since the CLB is tied to a family’s income level, your child may not qualify for this additional amount every year.

In the latest federal budget, the government has proposed amending the Canada Education Savings Act so that enrolment in the Canada Learning Bond becomes automatic.

Timeline:	Starting in 2028, all children born in 2024 onwards will automatically have an RESP opened for them (and that’s where all eligible CLB payments will be deposited).
Caveats:	Auto-enrolment would be reserved only for children who don’t already have an RESP started for them by the time they turn 4. Also note that in order to open an RESP for your child and apply for CLB benefits, you will have to set up a Social Insurance Number in their name.
Pros:	Offers the next generation of young Canadians the earliest possible starting point when it comes to saving for their post-secondary education.
Cons:	None—after all, it’s free money for their education.

Since not all youth attend college or university directly after high school, another proposed change is extending the age in which the CLB can be retroactively claimed from 20 to 30.

This would enable those who need a little extra time before starting their post-secondary academic career to still benefit from this contribution to their education savings.

4: Changes to the capital gains inclusion rate

The capital gains inclusion rate is the portion (of capital gains) on which tax is paid.

This applies to annual gains above $250,000 for individuals and to all gains for corporations and trusts, where the new rate will rise from 50% to 66.7%.

Timeline:	Comes into effect for dispositions on or after June 25, 2024, including sales of non-principal residences (such as cottages, vacation homes or investment properties).
Caveats:	According to the CRA, you realize a capital gain when you sell your home—and yet you don’t have to pay tax on the gain if the property was solely your principal residence for every year you owned it (a principal residence applies to a house, cottage, condominium, apartment in an apartment building or duplex, trailer, mobile home or houseboat that an individual usually inhabits).
Pros:	The verdict is still out on this one—yet it is estimated the government will rake in $19.5 billion over the next 5 years (so it’s a definite plus for them).
Cons:	Will impact those who purchased second (or multiple) homes for recreation or to earn extra income (i.e. investment properties). Some of you may have even purchased these types of properties as part of an extended financial plan for retirement, over and above your pension income. In addition to non-principal residences, this change also applies to non-registered investments.

The one silver lining for individuals perhaps is that while the capital gains inclusion amount will be taxed at the higher 67% rate for amounts over $250,000—amounts at and below $250,000 will still be taxed at the old 50% rate (whereas for corporations and trusts, the higher inclusion rate will apply to all gains realized on or after June 25, 2024).

Thank goodness for small favours as they say.

Keep in mind, however, that capital gains inclusion rates have changed before and could very well change again at some point.

While federal budgets come and go, financial literacy lasts a lifetime.

If you’re looking to make better sense of any of the aforementioned federal budget-related items or would like some guidance when it comes to your own day-to-day budget, we’re here to help. Plus, from the pay grid to your pension plan, we offer perspective into your world. It’s the kind of educator-specific insight that will help you to identify and overcome any challenges so you can ultimately chart a course for reaching your financial dreams and goals.

Let’s make it happen

Brokerage License 12185. O.A.C

Sources:

https://www.canada.ca/en/department-finance/news/2024/04/remarks-by-the-deputy-prime-minister-on-putting-homeownership-back-within-reach-and-supporting-canadian-homeowners.html
https://www.bnnbloomberg.ca/majority-of-canadians-determined-to-own-a-home-despite-affordability-challenges-survey-1.1878575