Budget 2024 – Pension and Employee Benefit Plan Roundup
April 17, 2024
The Federal Government issued Budget 2024 yesterday. In this post, we discuss announcements relating to pension funds, employee ownership trusts, and worker cooperatives.
Budget 2024 did not introduce any significant substantive measures relating to pension plans or employee life and health trusts. Moreover, Budget 2024 did not address the application of the new trust reporting requirements to non-exempt employee benefit plan trusts. We understand that these issues continue to be considered by Finance and the Canada Revenue Agency.
Pension Fund Investment Matters
As described in our earlier blog post, in the 2023 Fall Economic Statement, the Federal Government announced that it would:
- “Work collaboratively” with Canadian pension funds to create an environment that encourages and identifies more opportunities for investments in Canada;
- “Explore” removing the “30 per cent rule”[1] from its investment regulations in Canada; and
- Impose new disclosure requirements concerning investments by large federally regulated pension plans.
In Budget 2024, the Federal Government reaffirms these commitments and provides some additional detail.
Encouraging Pension Funds to Invest in Canada
The Federal Government reiterates that Canadian pension funds are critical to ensuring that Canadians can “enjoy a secure and dignified retirement” and states that it believes that the Canadian economy is “full of investment opportunities”, including public and private equity, infrastructure, real estate, and bonds. According to the Federal Government, increased domestic pension fund investments would help to grow the Canadian economy and provide the “stable long-term returns needed to deliver strong pensions for Canadians.”
Budget 2024 announces that the Federal Government will work with pension plans to create a working group, led by Stephen Poloz (former Governor of the Bank of Canada) and supported by the Deputy Prime Minister and Minister of Finance to “explore how to catalyze greater domestic investment opportunities”. In addition to exploring removing the 30 percent rule, as announced in the Fall Economic Statement, the Working Group will focus on:
- digital infrastructure and AI investment,
- physical infrastructure,
- airport facilities,
- venture capital investments, and
- building more homes.
With respect to investments in airport facilities, Budget 2024 also announces that the Minister of Transport will release a policy statement this summer that “highlights existing flexibilities under the governance model for Canada’s National Airport System” in order to attract capital.
Clean Electricity Investment Tax Credit
Budget 2024 also announces that the Clean Electricity Investment Tax Credit announced in the 2023 Fall Economic Statement will be a refundable tax credit, made available to certain tax-exempt entities, including pension investment corporations. This deviates from the Carbon Capture, Utilization, and Storage Tax Credit, Clean Technology Tax Credit, and Clean Hydrogen Tax Credits, which are only available for taxable Canadian corporations.
Transparency from Canada’s Largest Pension Plans
Budget 2024 proposes to amend the Pension Benefits Standards Act, 1985 to enable and require the Office of the Superintendent of Financial Institutions to publicly release information about the pension fund investments by large federally regulated plans, including the distribution of investments by jurisdiction and, within each jurisdiction, by asset class. This adds detail to the announcement in the 2023 Fall Economic Statement, but still does not indicate what “large” means for this purpose. Budget 2024 also announces that the Federal Government will engage with the provinces and territories regarding similar disclosures for provincially and territorially regulated plans.
Other Pension Matters
Disclosure under the Pooled Registered Pension Plans Act
Budget 2024 announces that the Pooled Registered Pension Plans Act will be amended to ensure that all members of a pooled registered pension plan are provided with similar disclosures.
CPP Amendments
Budget 2024 announces a number of changes to CPP legislation, which will be implemented “in coordination with provincial partners”. This includes:
- a top-up to the CPP Death Benefit for certain contributors,
- a “partial” children’s benefit for part-time students,
- extended eligibility for disabled contributor’s children’s benefit when a parent reaches age 65, and
- an end to eligibility for a survivor pension in cases where people are legally separated after a division of pensionable earnings.
Employee Ownership Trusts
In Budget 2022, the Federal Government announced that it would amend the Income Tax Act to introduce employee ownership trusts (“EOTs”), in order to facilitate employee ownership of businesses. An EOT is intended to hold shares of a corporation for the benefit of its employees. One benefit to the structure is to enable employees to purchase a business without having to pay directly. Generally, the EOT would borrow funds from the corporation to facilitate the purchase and the loan would be repaid through the corporation’s future earnings.
In its 2023 Fall Economic Statement, the Federal Government proposed to exempt the first $10 million in capital gains realized through the sale of a corporation to an EOT. This measure is intended to encourage business owners to choose to sell to EOTs.
Budget 2024 introduces a number of technical details concerning the $10 million exemption. This includes a requirement that the business owner hold the shares for at least 24 months prior to the sale and the identification of “disqualifying events” that could void the exemption after the fact.
Worker Cooperative Corporations
Budget 2024 also proposes to amend the Income Tax Act to introduce another vehicle to facilitate employee ownership: worker cooperative corporations (“WCC”). Sales to a WCC would qualify for the same exemption on the first $10 million in capital gains. Budget 2024 indicates that a WCC would generally be required to meet the criteria to qualify as a “worker cooperative” under the Canada Cooperatives Act.
While the details on WCCs in Budget 2024 are scant, it is possible that this vehicle is intended as an option allowing more democratic governance than the EOT. More details are to be released in the coming months.
[1] The “30% Rule” restricts pension plans from holding 30 per cent or more of the voting shares of a corporation.
Practice Area
Pension and Benefits
