The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, delivered the 2022 Federal Budget on April 7, 2022: A Plan to Grow Our Economy and Make Life More Affordable.
The measures announced focus on economic growth, affordable housing, climate change, and public healthcare.
Below are some of the highlights:
Corporate Tax Measures
Budget 2022 expanded the eligibility to allow more medium-sized Canadian-controlled private corporations (CCPCs) to access the small business deduction. Currently the small business rate of 9% versus the general federal corporate rate of 15% is available on the first $500,000 of active business income. However, access to the small business rate is reduced when a business has taxable capital greater than $10 million and is eliminated at $15 million. The budget has proposed new phase out range of the taxable capital to be $10 million to $50 million, which means small business limit would now be completely reduced at $50 million instead of $15 million. Therefore, this means that more capital intensive businesses that often aren’t eligible could now have access to the small business rate.
Presently, some people are manipulating the Canadian-controlled private corporation (CCPC) status of their corporations to avoid paying the additional refundable corporate income tax that they would otherwise pay on investment income earned in their corporations. For example, this includes moving a corporation into a foreign low-tax jurisdiction, using foreign shell companies, or moving passive portfolios to an offshore corporation.
The Federal budget introduces measures to prevent taxpayers from restructuring CCPCs to avoid the refundable tax regime. This will be achieved by introducing the concept of a “substantive CCPC” to which the same refundable tax regime would effectively apply. This measure would apply to taxation years that end on or after April 7, 2022.
The Government announced a federal review of housing as an asset class to better understand the role of large corporate players and their impact on Canada’s residential housing market. This will include the examination of a number of options and tools, including potential changes to the tax treatment of large corporate players that invest in residential real estate. Further details on the review will be released later this year, with potential early actions to be announced before the end of the year.
Personal Tax Measures
Currently, first -time home buyers are eligible to claim a non-refundable tax credit of $5,000. The Federal budget proposes to increase this amount to $10,000. The enhanced credit will provide up to $1,500 in tax relief to eligible first-time home buyers.
This measure will apply to homes purchased on or after January 1, 2022.
Budget 2022 proposes the new Tax-Free First Home Savings Account (FHSA) to help first-time home buyers save for a home. FHSA will be similar to a registered retirement savings plan, where the contributions will be tax deductible and income earned would not be subject to tax. And any amounts withdrawn would be non-taxable so as long as the funds are withdrawn for the purpose of buying a first home.
To open an FHSA, you must be a Canadian resident, at least 18 years of age, and you can’t have lived in a home that you owned either in the year you open the account or during the prior four calendar years. The annual contribution limit under FHSA is $8,000 and the lifetime limit is $40,000.
Please note that the Home Buyers Plan (HBP) will still be available; however, individuals will only be permitted to make a withdrawal under either FHSA or HBP, in respect of the same qualifying home.
There is a new Multigeneration Home Renovation Tax Credit that is a refundable tax credit, aimed at providing relief for constructing a secondary dwelling unit for a senior or a person with a disability. Eligible expenses would include up to $50,000, thereby providing up to $7,500 in tax relief. The credit is available for qualifying expenses or work performed on or after January 1, 2023.
Under the existing rules, the Home Accessibility Tax Credit (HATC) is a non-refundable tax credit that is available for expenses incurred in connection with alteration of a home to make it more accessible for a qualifying individual. Currently, the maximum expense limit on this tax credit is $10,000 but Budget 2022 proposes to increase this amount to $20,000 for 2022 and subsequent taxation years. This means that eligible individuals can receive a tax credit of up to $3,000 (previously $1,500).
The Government continues to be concerned with individuals who purchase real estate with the intention of “flipping” or selling it within a short period of time. Under the existing tax rules, profits from flipping real estate are to be taxed as business income instead of capital gain tax rates.
To ensure that individuals are not receiving the capital gain tax treatment on these sales, the Government has introduced a new deeming rule to ensure that profits from flipping are subject to full taxation. Effective Jan 1, 2023, profits from the sale of residential real estate, including rental property, that was owned for less than 12 months would be deemed business income.
The exception to this rule would apply to Canadians who sell their home due to a life event, including death, disability, the birth of a child, a new job, separation, personal safety, insolvency, or an involutory disposition such as an expropriation.
The budget is expanding the list of medical expenses for 2022 and subsequent taxation years to include a variety of expenses related to the areas of surrogacy, sperm, ova or embryo donations.
The Federal budget introduces a new Labour Mobility Deduction for tradespeople and apprentices in the construction industry to deduct certain travel and relocation expenses incurred in the course of employment for eligible temporary relocations. This measure will provide a deduction of up to $4,000 per year and will apply to 2022 and subsequent taxation years.
Sales Tax Measures
Currently, when a person makes a new home assignment sale, Goods and Services Tax / Harmonized Sales Tax (GST / HST) may or may not apply, depending on the situation. To address the perceived non-compliance of the current rules by housing speculators, the Federal budget proposes to make all assignment sales of newly constructed or substantially renovated residential housing taxable for GST / HST purposes, effective May 7, 2022.
Other Tax Measures
The Federal budget announces the government’s intention to propose restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non- recreational, residential property in Canada for a period of two years. However, exemptions would apply to refugees, international students on the path to permanent residency and individuals on work permits who are residing in Canada.
Budget 2022 proposes to provide a national dental care plan for families with less than $90,000 annual household income.
Budget 2022 proposes to increase the required reporting to the CRA by financial institutions for RRSP and RRIF accounts. Beginning with the 2023 tax year, financial institutions will be required to annually report the total fair market value of RRSP and RRIF accounts as at December 31, in addition to the current reporting of contributions and withdrawals
To sum up, the Federal budget includes various measures that impact individuals and businesses. However, some of these measures were introduced with varying level of details and certainty. As more information is released in the coming months with respect to some of the measures introduced, it is important to contact us to determine the impact to you and your business. For a detailed summary of the summary, click here.
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