2022 Federal budget
What it means for you
On April 7, the 2022 Federal budget was presented. Below you’ll find the key takeaways and a summary that highlights the proposals which are not law yet. If you’re interested to learn more about how this budget could impact your financial plan, talk to an IG Advisor.
Tax-Free First Home Savings Account (FHSA)
The budget proposes to create a new registered account that will help first-time homebuyers save for a down payment. Contributions will be tax deductible (as with an RRSP) and savings will grow tax free. Withdrawals made to buy a first home will not be taxable (unlike most RRSP withdrawals).
To be eligible, you’ll need to be a resident of Canada, aged 18-plus, who has not owned a home during the year the account is opened or the four preceding years. Maximum contributions will be $8,000 per year, with a lifetime limit of $40,000. FHSAs are planned to start at some point in 2023.
Residential property flipping rule
A new rule will be introduced for properties sold from January 1, 2023. Profits from the sale of residential properties (including rentals) that are owned for less than 12 months will be fully taxable as business income. Profits won’t be eligible for the 50% capital gains inclusion rate or principal residence exemption.
Small business deduction
For Canadian-controlled private corporations, the budget proposes to extend the range over which the small business limit may be reduced by extending the top-end of the taxable capital range to $50 million. Therefore, the small business limit would be reduced over the new range of $10 million to $50 million of taxable capital.
Help with aging at home
The Home Accessibility Tax Credit will increase from $10,000 to $20,000 for expenses incurred from 2022 onwards (for people who claim the disability tax credit or those aged 65-plus). The new Multigenerational Home Renovation Tax Credit will provide up to $7,500 in support of constructing a secondary suite for an eligible senior/adult with a disability.
2022 Federal budget summary
On Thursday, April 7, 2022, Deputy Prime Minister and Minister of Finance Chrystia Freeland presented the 2022 federal budget, which contains several measures of interest to IG Wealth Management and its clients. This summary contains highlights of these proposals, which are not yet law. Clients should contact their IG Wealth Management Consultant for information on how these proposals may affect their financial plans.
Measures impacting individuals
Tax-Free First Home Savings Account (FHSA)
Budget 2022 proposes to create a Tax-Free First Home Savings Account (FHSA), a new registered account to help individuals save for their first home. Contributions to an FHSA will be tax deductible, and income earned in an FHSA will not be subject to tax. Qualifying withdrawals from an FHSA made to purchase a first home will be non-taxable, but withdrawals for other purposes will be taxable.
To open an FHSA, an individual must be a resident of Canada and at least 18 years of age. In addition, the individual must not have lived in a home that they owned either:
- At any time in the year the account is opened, or
- During the preceding four calendar years
Individuals will be limited to making non-taxable withdrawals in respect of a single property in their lifetime.
The lifetime limit on contributions will be $40,000, subject to an annual contribution limit of $8,000. Unused annual contribution room cannot be carried forward, meaning an individual contributing less than $8,000 in a given year will still have an annual limit of $8,000 in subsequent years.
Individuals may transfer funds from an RRSP to an FHSA on a tax-free basis, subject to the $40,000 lifetime and $8,000 annual contribution limits.
Once an individual has made a non-taxable withdrawal to purchase a home, they will be required to close their FHSAs within one year from the first withdrawal and will be ineligible to open another FHSA.
If an individual has not used the funds in their FHSA for a qualifying first home purchase within 15 years of first opening an FHSA, their FHSA must be closed, and the withdrawal will be taxable unless transferred on a tax-deferred basis to an RRSP or RRIF. Such a transfer will not affect contribution RRSP room.
Home Buyers’ Plan
The Home Buyers’ Plan (HBP) allows first-time homebuyers to withdraw up to $35,000 from an RRSP to purchase or build a home without having to pay tax on the withdrawal. Amounts withdrawn under the HBP must be repaid to an RRSP over a period not exceeding 15 years, starting the second year following the year in which the withdrawal was made.
The HBP will continue to be available, but individuals cannot make both an FHSA withdrawal and an HBP withdrawal in respect of the same qualifying home purchase.
The government will need to work with financial institutions to create the infrastructure so that FHSAs can be established.
First-Time Home Buyers’ Tax Credit
Budget 2022 proposes to double the First-Time Home Buyers’ Tax Credit amount from $5,000 to $10,000, which would provide up to $1,500 in tax relief to eligible first-time home buyers.
This measure would apply to homes purchased on or after January 1, 2022.
Residential property flipping rule
Effective for properties sold on or after January 1, 2023, Budget 2022 proposes to introduce a new deeming rule to ensure profits from residential real estate “flipping” are always fully taxable. Profits arising from the disposition of residential properties, including rental properties, that are owned for less than 12 months, would be deemed to be business income. If the deeming rule applies, profits would not be eligible for the 50% capital gains inclusion rate or the principal residence exemption. This new deeming rule would not apply for dispositions related to certain life events.
Multigenerational Home Renovation Tax Credit
Budget 2022 proposes to introduce a new Multigenerational Home Renovation Tax Credit which would provide up to $7,500 in support for constructing a secondary suite for a senior or an adult with a disability. A qualifying renovation must be of an enduring nature and must create a new secondary dwelling unit to permit an eligible person to live with a qualifying relation. The value of the credit would be 15% of the lesser of eligible expenses and $50,000.
This measure would apply to work performed and paid for and/or goods acquired on or after January 1, 2023.
Home Accessibility Tax Credit
The Home Accessibility Tax Credit is a non-refundable tax credit available for eligible home renovation expenses incurred in respect of an eligible dwelling of an individual who is eligible to claim the disability tax credit at any time in a tax year, or an individual who is 65 years of age or older at the end of a tax year. Budget 2022 proposes to increase the annual expense limit from $10,000 to $20,000 for expenses incurred in 2022 and subsequent taxation years.
Medical Expense Tax Credit for Surrogacy and Other Expenses
Budget 2022 proposes to broaden the accessibility of the 15% non-refundable Medical Expense Tax Credit (“METC”) by expanding the definition of “patient“ in cases where an individual would rely on a surrogate or donor in order to become a parent. The term patient would now include a surrogate mother and a donor of sperm, ova or embryo, allowing for expenses paid with respect to such a patient to qualify under the METC.
New labour mobility deduction for tradespeople
Budget 2022 proposes a new deduction for eligible workers in the construction industry of up to $4,000 in eligible expenses incurred for certain temporary work relocations. The measure would apply to 2022 and subsequent tax years.
Commitment to examine a new minimum tax regime
Budget 2022 announces the government’s intention to explore a new minimum tax regime. This new minimum tax would be specifically targeted at high income earners whose average tax rate may be below a particular threshold. Details on a proposed approach will be released in the 2022 fall economic and fiscal update.
Measures impacting businesses
Small business deduction
Currently, the small business limit is reduced on a proportional basis when:
- The combined taxable capital employed in Canada of a Canadian-controlled private corporation (CCPC) and its associated corporations is between $10 million and $15 million, or
- The combined “adjusted aggregate investment income” of a CCPC and its associated corporations is between $50,000 and $150,000.
The small business limit will be the lesser of the two amounts determined, based on these business limit reductions, and the limit is required to be shared among associated corporations.
For taxation years beginning on or after budget day, budget 2022 proposes to extend the top-end of the taxable capital range from $15 million to $50 million.
Critical Mineral Exploration Tax Credit
Budget 2022 proposes to introduce a new 30% Critical Mineral Exploration Tax Credit (CMETC) for specified mineral exploration expenses incurred in Canada and renounced to flow through share investors.
The CMETC would apply to expenditures renounced under eligible flow-through share agreements entered into after budget day and prior to April 1, 2027.
Flow-through shares for oil, gas and coal activities
Budget 2022 proposes to no longer allow oil, gas and coal exploration or development expenditures to be renounced to a flow-through share investor.
This change would apply to expenditures renounced under flow-through share agreements entered into after March 31, 2023.
Intergenerational share transfers (update on Bill C-208)
Last summer, Bill C-208 enacted changes to the Income Tax Act intended to level the playing field for parents who wish to sell the shares of a qualified small business corporation or the shares of a family farming or fishing corporation to their children. The legislation however may unintentionally permit surplus stripping without requiring a genuine intergenerational business transfer to take place. Budget 2022 announces a consultation process on how the existing rules could be modified, with amended legislation intended to be tabled later this year.
Canadian-controlled private corporation investment income
Some Canadians 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. Budget 2022 proposes to introduce amendments to the Income Tax Act to ensure that the investment income earned and distributed by private corporations that are in substance CCPCs would be subject to tax as a CCPC.
Dental care for Canadians
Budget 2022 proposes to provide funding to Health Canada to provide dental care for Canadians. This will start with children under 12 in 2022, and then expand to children under 18, seniors and persons living with a disability in 2023, with full implementation by 2025. The program would be restricted to families with an income of less than $90,000 annually, with no co-pays for those with annual income under $70,000.
A ban on foreign investment in Canadian housing
Budget 2022 announces the government’s intention to implement 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. Certain exceptions would apply.
Budget 2022 proposes to eliminate excise duty for beer containing no more than 0.5% alcohol by volume on July 1, 2022, bringing the tax treatment of such beer in line with the treatment of wine and spirits with the same alcohol content.