Federal 2022 Budget

On April 7, 2022, Chrystia Freeland presented the 2022 Federal Budget. Here is a summary of the tax changes that may impact your family and your business and does not cover the entire budget. Please note that is meant to be a high-level summary of the tax changes. Pease contact me to discuss your personal circumstances.

Personal tax changes

No major changes were announced with respect to changing the capital gain rate, the principal residence exemption and there are no wealth taxes being introduced in this budget.

Changes that were announced in the budget were:

Introduction of the Tax-First Home Savings Account – Expected launch 2023

This registered account allows people to save for a home as long as they do not live in a home that they owned either at the any time in the year the account is opened or during the 4 preceding calendar years.

Contributions to this plan are tax-deductible and withdrawals are tax-free if the funds are used to buy a home. You can only make a non-taxable withdrawal in respect of one property in your life and must close the plan within a year of the first withdrawal.

Contributions are limited to $40,000 in a person’s lifetime and the annual contribution limit is $8,000 a year starting in 2023. You cannot carry-forward any unused room to a following year.

Funds can be transferred to a RRSP or RRIF on a tax-deferred basis or must be withdrawn within 15 years of first opening an account.

An RRSP can be used to fund a First-Home Savings Account (FHSA), subject to the $40,000 lifetime and $8,000 annual contribution limit. RRSP contribution is not restored. You cannot use the RRSP Home Buyers Plan and the FHSA in respect of the same house.

Home Buyers Tax Credit – Effective January 1, 2022

Currently this credit is available to first time home buyers (which includes people of not owned a house in the last 5 years) and the credit is worth $750 in federal tax savings.

The budge proposes to the double the federal tax savings to $1,500.

Multigenerational Home Renovation Tax Credit – Effective January 1, 2023

This new tax credit allows a homeowner to renovate, alter or add to their home a space to allow certain relatives to live in with the home owner such as building a self-contained basement unit for your parents.

The credit would be worth 15% of eligible expenses up to $50,000 or $7,500 tax credit.

Home Accessibility Tax Credit – Effective January 1, 2022

This tax credit is eligible for individuals, 65 or older, or an individual who qualifies for the disability tax credit. Currently, the credit is worth 15% of eligible expenses up to $10,000 or a $1,500 tax credit.

The budget proposes to increase the amount of eligible expenses to $20,000 or increase the tax credit to $3,000.

Residential Property Flipping Rule – Effective January 1, 2023

With this new rule, if you sell a residential home within 1 year of purchase, any gain will automatically be considered business income which is fully taxable and the principal residence exemption will not be available unless it is for one of the following reasons:

Death
Household addition (birth, adoption, care of elderly parent)
Separation
Personal safety
Disability or illness
Employment (new job or loss of job)
Insolvency
Involuntary (disaster, expropriation)

Comment: If you own a property for 12 months or more or you meet one of the criteria, you may still have to prove to CRA that the property was your principal residence.

Labour Mobility Deduction for Tradespeople – Effective January 1, 2022

Tradespeople will be allowed to deduct lodging, transportation and meals when they move 150km to work in a temporary relocation that must be at least for 36 hours.

Amounts claimed under this rule would not be eligible as moving expenses or vice versa.

Medical Expense Tax Credit for Surrogacy and Other Expenses – Effective January 1, 2022

Costs which are eligible for reimbursement under the Assisted Human Reproduction Act for surrogacy and gamete and embryo donations would be eligible as a medical expense.

Coming Soon - Proposed changes to the Altnertaive Minimum Tax

The goverment is looking at updating the Alternative Minimum Tax with proposed deatils being provided in the 2022 economic and fiscal update. The government noted that about 28% of people whose gross inocome (taxable income adjusted to having capital gains and dividends reported as their actual amounts) is over $400,000 pay 15% or less of their gorss income in fedeal income taxes.

Business tax changes

Additional taxes on Bank and Life Insurers – Effective for 2021 and later taxation years

Banks and life insurers groups will be subject to a one-time tax of 15% of profits over $1 billion for its 2021 taxation year and 1.5% surtax of profits over 100 million starting April 7, 2022.

Comment: Bank and life insurers may cite this tax as a reason for increasing rates and fees.

Investment Tax Credit for Carbon Capture, Utilization and Store – Effective January 1, 2022

This tax credit would be refundable (receive the credit even if the company is in a loss position) and for 2022 to 2030, the rates range from 37.5% to 60% of eligible projects. The rates decrease by 50% for 2031 to 2040.

Companies interested in claiming this credit would have to “contribute to public knowledge sharing in Canada” and would have to “produce a climate-related financial disclosure report”

Air-Source Heat Pumps tax incentives – Effective January 1, 2022

Air-Source heat pumps will qualify for higher rates of tax depreciation that is allowed for clean energy equipment. As well, companies that manufacture these heat pumps will be taxed at 50% of their regular tax rate.

Critical Mineral Exploration Tax Credit – Effective April 7, 2022 to March 31, 2027

Investors who buy “flow-through” shares for companies that do mining in Canada are currently eligible for 15% tax credit of expenses given up by the companies and transferred to the investors.

The Budget proposes to increase the tax credit to 30% for “critical minerals” that are used in the manufacturing of zero-emission vehicles, advanced materials, clean technology and semi-conductors. Examples of these minerals are copper, nickel, lithium, cobalt, zinc, magnesium.

Flow-Through Shares for Oil, Gas, and Coal Activities – Effective April 1, 2023

Similar to the critical minerals exploration tax credit described above, investors in companies that explore for oil, gas and coal could write off up to 100% of their investment.

The budget proposes to eliminate the ability for investors to receive this tax treatment.

Comment: The government is making a strong statement about its environment goals.

Small Business Deduction – Effective April 7, 2022

Corporate groups that have “taxable capital” of over $15 million lose the ability to claim the small business deduction (the low tax rate available to businesses) which is $500,000.

The budget proposes to increase the phase-out range from $15 million to $50 million. As such, Companies would lose $25,000 of the small business deduction for $1 million of taxable capital over $10 million.

Other items

The government is still looking to make sure that the taxation on transferring intergeneration businesses is done in a fair way.
Rules to prevent Canadian private corporations of deferring taxes on investments by moving the company outside of Canada are being introduced.
Digital Economy Platform Sharers will be required to inform CRA about Canadians activities via their home country tax authority. For example, Uber would report specified information to the IRS about their Canadian drivers, which the IRS would transmit to the CRA and the CRA would use that information to see if Canadian Uber drivers were reporting income.
If you sell an interest in a new home before completion, GST will be appliable on all transactions starting May 7, 2022. However, the deposit given to the builder would not be subject to HST which is an improvement over the current rule of the deposit being taxable.
New “sin tax” on vaping products effective October 1, 2022.
Wine taxes are increasing due to a settlement with the World Trade organization effective June 30, 2022
Beer containing less than .5% alcohol will have its “sin tax” removed effective July 1, 2022