federal budget highlights
The 2022 federal budget was released April 7th, and we wanted to provide you with some highlights and important takeaways. Of note there were no changes to federal personal income tax rates announced.
Carbon Capture Tax Credit
Starting in 2022, companies will be able to claim a tax credit of up to 60 per cent for direct air capture projects and 50 per cent for all other eligible carbon capture projects. The government will decrease the tax credit rates by 50 per cent in 2031 to incentivize companies to build their carbon capture projects now, not later.
Home Ownership Tax-Free Savings Account
The federal budget promises to introduce tax-free savings accounts that would give first-time home buyers the chance to save up to $40,000. Contributions would be tax-deductible and withdrawals to buy a first home would not be taxed. The program starts next year and is expected to provide $725 million in support over five years. Like an RRSP, contributions would be tax-deductible, and withdrawals to purchase a first home—including investment income—would be non-taxable, like a TFSA.
Cutting Taxes for Canada’s Growing Small Businesses
Small businesses currently benefit from a reduced federal tax rate of 9% on their first $500,000 of taxable income, compared to the general federal corporate tax rate of 15%. A business can no longer access this lower rate once its level of capital employed in Canada exceeds $15 million. The federal budget proposes to start phasing out access to the small business rate at $50 million rather than $15 million to support small to medium businesses in growing and creating jobs. This measure would apply to taxation years that begin on or after Budget Day.
Multigenerational Home Renovation Tax Credit
The federal budget proposes to introduce a 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, starting in 2023.
New Dental Care Program
The government is promising $5.3 billion over five years and $1.7 billion each year thereafter for a national dental care program. It will begin this year with children under 12 years old and expand to cover Canadians under 18 years old, seniors and people with disabilities in 2023. The program, which is to be fully implemented by 2025, is limited to families with incomes of less than $90,000 a year. For those with an income of less than $70,000, no co-payments will be required.
New Minimum Tax on Top Earners
The government is moving to introduce a new minimum tax that goes further than the current regime to prevent wealthy Canadians from lowering their tax bills. Details on a new approach “that will go further towards ensuring that all wealthy Canadians pay their fair share of tax” won’t come until the fall economic and fiscal update.
Anti-flipping and Banning Foreign Investment
To ensure profits from flipping properties are taxed fully and fairly, the federal budget proposes to introduce new rules so that any person who sells a property they have held for less than 12 months would be subject to full taxation on their profits as business income, applying to residential properties sold on or after January 1, 2023. Exemptions would apply for Canadians who sell their home due to certain life circumstances, such as a death, disability, the birth of a child, a new job, or a divorce.
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.
Taxing Excess Profits at Banks
To pay for some of the new spending, the government is rolling out a tax on excess profits at banks and insurance companies that the Finance Department expects to reel in $6.1 billion over five years. The federal budget includes a one-time, 15-per-cent charge on taxable income above $1 billion for the 2021 tax year for the country’s big financial institutions.
The government also plans to permanently increase the corporate income tax rate for banking and life insurance groups by 1.5 percentage points for taxable income above $100 million.
These highlight the basics from an investment standpoint however, if you have any questions or would like to discuss the federal budget further, please give us a call. Our door is always open.