08 Apr 2022 Federal Budget: Summary of Tax Measures
The Minister of Finance, Chrystia Freeland, delivered the 2022 Budget (the “Budget”) on April 7th. The Budget did not contain any significant tax changes, including the rumoured increase to the capital gains inclusion rate or taxation of principal residences.
Highlights of the tax measures announced in the Budget are summarized below.
Business Income Tax
COVID Support Programs
All rebate measures implemented as a result of COVID have not been extended and are based on previously announced expiration dates. This includes the Canada Recovery Hiring Program, Canada Emergency Wage Subsidy, Canada Emergency Rent Subsidy, and all related recovery programs.
Small Business Deduction
The Small Business Deduction (SBD) is phased out once taxable capital exceeds $10 million and fully eliminated once taxable capital exceeds $15 million. The Budget extends the phase out amount so that the upper limit is $50 million. The SBD will be phased out at a rate of $12.50 for every $1,000 of taxable capital in excess of $10 million. This applies to taxation years that begin on or after Budget Day.
Intergenerational Share Transfers
The Budget announces a consultation process to review how the existing rules regarding intergenerational share transfers that were contained in Bill C-208 should be modified to protect the integrity of the tax system while facilitating genuine intergenerational share transfers. The expected consultation is to end by June 17, 2022 with legislative changes to be announced afterwards.
Additional Tax on Banks and Life Insurers
The Budget proposes to introduce a Canada Recovery Dividend of a one-time 15% tax on bank and life insurer groups on their 2021 taxable income in excess of $1 billion. This amount would be payable in 5 annual payments. Further, the Budget proposes an additional 1.5% tax on their taxable income (in excess of $100 million) for taxation years that end on or after Budget Day.
Immediate Expensing of Capital Purchases
The Budget confirms the immediate expensing rules for CCPCs that were introduced in the 2021 Budget. These rules were effective for purchases of capital equipment on or after April 19, 2021.
Capital Cost Allowance on Clean Energy Equipment
The Budget extends the eligibility for the accelerated depreciation rates in Class 43.1 and 43.2 to include air source heat pumps.
Critical Mineral Exploration Tax Credit
The Budget proposes a new 30% tax credit for the exploration of critical minerals, such as copper, nickel, lithium, rare earth, etc.
Employee Ownership Trust
The Budget proposes to create a new Employee Ownership Trust to support employee ownership of businesses and facilitate the transition of privately owned businesses to employees. The details of the rules will be provided at a later date.
Personal Income Tax
Tax-Free First Home Savings Account
The Budget introduces a new Tax-Free Home Savings Account (FHSA) which would allow an annual contribution limit of $8,000 (lifetime contribution maximum of $40,000) starting in 2023. Contributions to the new FHSA would be deductible for tax purposes and income earned inside the FHSA would not be subject to tax. Qualifying withdrawals to acquire a first home would be non-taxable (other withdrawals would be taxable).
There is no change to the existing Home Buyer’s Plan rules and these could be continued to be used. However, you cannot use both the FHSA and HBP on the same purchase.
Home Buyers Tax Credit
The Budget proposes to double the Home Buyers Tax Credit from $5,000 to $10,000 on the purchase of a first home.
Multigenerational Home Renovation Tax Credit
The Budget proposes a new refundable tax credit for a qualifying renovation that creates a secondary dwelling unit for an eligible person (senior or adult with disabilities) to live with a qualifying family member. This tax credit is 15% of the eligible expenses (to a maximum of $50,000 of expenses).
Home Accessibility Tax Credit
The Budget proposes to double the Home Accessibility Tax Credit from $10,000 to $20,000 on eligible renovations to improve accessibility to better support independent living.
Residential Property Flipping Rule
The Budget proposes a new deeming rule to ensure that the profit on selling residential real estate that is owned for less than 12 months is subject to full taxation (not eligible for either capital gains rates or the principal residence exemption). There are several exemptions to the deeming rules, such as death, disability, employment change, etc. This new rule applies to residential properties sold after January 1, 2023.
GST on Assignment Sales
The Budget proposes to make all assignment sales of newly constructed or substantially renovated housing taxable for GST purposes. This gives greater certainty as there were some situations where GST could not apply on the assignment amount.
The Budget proposes to increase the Disbursement Quota for charities from 3.5% to 5.0% on the portion of property not used in charitable activities that exceeds $1 million. Further, the Budget clarifies that expenditures on administration and management are not considered qualifying expenditures for the purpose of the Disbursement Quota. These changes apply to charities with fiscal periods that begin after December 31, 2022.
Further, the Budget proposes to allow charities to make qualifying disbursements to non-qualified donees provided they meet certain accountability requirements.
This information is general in nature and may not be applicable to all taxpayers. Please contact your Clearline advisor to discuss your specific situation.
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