28 Mar 2023 Federal Budget: Summary of Tax Measures
The Minister of Finance, Chrystia Freeland, delivered the 2023 Budget (the “Budget”) on March 28th. Highlights of the tax measures announced in the Budget are summarized below.
The Budget did not contain any tax rate changes, including the rumoured increase to the capital gains inclusion rate.
Business Income Tax
Employee Ownership Trusts
The Budget allows for the creation of Employee Ownership Trusts (EOTs) on or after January 1, 2024. EOTs are a form of employee ownership where a trust holds shares of a corporation for the benefit of a corporation’s employees. By giving employees the ability to use corporate funds to pay for shares, EOTs can be used to facilitate the purchase of a business by its employees without requiring them to pay for the shares directly. With these new rules, Employee Ownership Trusts become another important tool for succession planning.
Intergenerational Share Transfers
The Budget amends the rules introduced in Bill C-208 regarding intergenerational share transfers.
This Budget proposes to provide some additional flexibility to facilitate intergenerational share transfers transactions by introducing either immediate business transfer or gradual business transfer options. The capital gains reserve will be extended to 10 years for these transactions in certain circumstances. Further, these rules now apply to purchases made by children, grandchildren, stepchildren, children-in-law, nieces and nephews, and grandnieces and grandnephews. These measures apply to transactions that occur on or after January 1, 2024.
Investment Tax Credits
The Budget proposes several investment tax credits such as those for clean hydrogen projects, geothermal energy, clean technology manufacturing, and changes to those previously implemented for zero-emission technology manufacturers.
Tax on Share Buybacks
The Budget confirms the previously announced 2% tax on the repurchase of shares by public companies. This tax applies to repurchases that occur on or after January 1, 2024.
General Anti-Avoidance Rule (GAAR)
The Budget proposes to amend the GAAR rule by adding a preamble, changing the avoidance transaction standard, introducing an economic substance rule, introducing a penalty of 25% of the tax benefit, and extending the reassessment period. Further consultations will be had before the revised legislative proposals are released.
Personal Income Tax
The Budget provides a top up to the GST Credit of up to $153 per adult and $81 per child. Like the GST Credit, this is income-tested and phased out depending on income. This top up is retroactive to the January 2023 payment and paid once legislation has been passed.
Tradespeople’s Tool Expense Deduction
The Budget doubles the existing Tradespeople’s Tool Expense Deduction from $500 to $1,000. This allows for a deduction for the costs of eligible new tools acquired as a condition of employment. This increase is for the 2024 and future taxation years.
Registered Education Savings Plans (RESP)
The Budget changes the withdrawal rules for RESPs by allowing Educational Assistance Payments (EAPs) of up to $8,000 from $5,000. These changes would be effective immediately.
Alternative Minimum Tax (AMT)
The Budget proposes several changes to the calculation of the AMT. Changes are proposed to limit the exemptions, deductions, and credits included in the AMT calculations. The Budget also proposes to increase the AMT rate from 15% to 20.5%. This change is for the taxation years after 2023.
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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