The above summary highlights certain items from the budget. Refer to the Government of Canada’s budget web page for further details regarding these and other initiatives.
2022 federal budget: housing a focus in new tax and benefit changes
By ATB Wealth 8 April 2022 6 min read
The 2022 federal budget, A Plan to Grow Our Economy and Make Life More Affordable, was tabled April 7, 2022. In this article, we discuss tax and benefit highlights for both individuals and businesses, as well as disbursement quota changes for registered charities.
Chrystia Freeland, Deputy Prime Minister and Minister of Finance, stated that “Housing is the most pressing economic and social issue in Canada today.” Budget 2022 contains a number of measures designed to make housing more affordable for Canadians. We highlight the new Tax-Free First Home Savings Account and several other tax related housing measures.
Tax-Free First Home Savings Account
The 2022 budget introduced the Tax-Free First Home Savings Account (FHSA), a new registered account designed to assist first-time home buyers. Beginning in 2023, Canadian residents over the age of 18 can open an FHSA, provided they have not lived in a home they owned in the current year or any of the four previous years. A contribution of up to $8,000 per year can be made into an FHSA, up to a lifetime limit of $40,000. The $8,000 annual contribution limit resets each year and cannot be carried over from one year to another. These contributions will be tax-deductible, similar to an RRSP contribution.
Investments within an FHSA will grow tax-free while inside the account. If the funds are used for a qualifying home purchase, they can also be withdrawn tax-free. An individual can claim this benefit only once. This benefit cannot be combined with the Home Buyers’ Plan.
If funds in an FHSA are not used for a qualifying purpose, they will be taxable upon withdrawal in a manner similar to RRSP withdrawals. FHSA funds can be transferred tax-free to an RRSP or RRIF, without affecting the individual’s existing RRSP contribution room. Similarly, an individual can transfer funds into an FHSA from their existing RRSP, though this would not create any new RRSP contribution room. Further details will be released at a later date.
First-Time Home Buyers’ Tax Credit
The First-Time Home Buyers’ Tax Credit was originally introduced in 2009 to provide support to Canadians buying their first home. Budget 2022 proposes to double the tax credit from $750 to $1,500 for homes purchased on or after Jan. 1, 2022. The credit is also available to support individuals eligible for the disability tax credit acquiring a more accessible dwelling.
Multigenerational Home Renovation Tax Credit
A new Multigenerational Home Renovation Tax Credit has been proposed starting in 2023, which would provide up to $7,500 in support for constructing a secondary unit for a senior or an adult with a disability. This refundable credit would allow families to claim 15 per cent of up to $50,000 in eligible renovation and construction costs incurred in order to construct a secondary unit for a family member. Expenses would not be eligible for the Multigenerational Home Renovation Tax Credit if they are claimed under the Medical Expense Tax Credit and/or Home Accessibility Tax Credit.
Home Accessibility Tax Credit
The Home Accessibility Tax Credit was originally introduced in 2016 to provide support to seniors and those with disabilities with the cost of accessibility renovations. Budget 2022 proposes to double the limit on qualifying expenses to $20,000 beginning in 2022. As a result, a tax credit of up to $3,000 will be available, rather than the $1,500 previously available.
Taxation of profits from property flipping
Budget 2022 has introduced a new rule to clarify how the proceeds of sale for residential real estate should be taxed. In the past, it has been a question of fact whether a sale of residential real estate should be taxed as a capital gain or as business income. Property flipping is typically considered a business, but the Department of Finance believes some taxpayers have been declaring such sales as capital gains, instead.
Effective Jan. 1, 2023, a new rule will deem profits from sales of residential real estate to be taxed as business income if the property was owned for less than 12 months. Additionally, the Principal Residence Exemption will be unavailable for those sales. There are a broad range of exceptions available for dispositions due to notable life events, such as, among other things, death, matrimonial breakdown, birth of a child, bankruptcy, or moving for new employment.
Other tax and benefit highlights for individuals
Next steps towards a new minimum tax
The Department of Finance has indicated its intention to reconsider the Alternative Minimum Tax (AMT) system for high income earners. The AMT system was originally designed to ensure high income earners cannot take advantage of special tax benefits to reduce their personal tax rate below a minimum level. When it applies, the AMT imposes a tax of 15 per cent of adjusted income, which is calculated separately from regular income. Budget 2022 has announced the government’s intention to review a new minimum tax regime. Details will be released in the fall economic and fiscal update.
Dental care for Canadians
Budget 2022 proposes to provide funding to Health Canada for dental care. The new program will begin with children under 12 in 2022 and expand to children under 18, seniors, and persons living with a disability in 2023, with full implementation by 2025. The program will be available to families with an annual income of less than $90,000, with no co-pays for those with an annual income of less than $70,000.
Small businesses deduction
Companies that benefit from the small business deduction pay federal corporate income tax at a special low rate of nine per cent on up to $500,000 of business income. This special rate is phased out for larger businesses, once their taxable capital employed in Canada grows beyond $10 million. The full small business deduction was previously phased out once a company employed more than $15 million of taxable capital in Canada.
Budget 2022 proposes to make this phase-out more gradual, for taxation years that begin on or after April 7, 2022. Medium-sized businesses will now have access to the small business deduction until their taxable capital employed in Canada reaches $50 million. The threshold for the phase-out remains unchanged, at $10 million.
Intergenerational share transfers
Bill C-208 received Royal Assent on June 29, 2021. The purpose of this legislation was to improve tax treatment when selling a family business to the next generation. Amendments to this legislation have been anticipated to ensure only “genuine” intergenerational business transfers receive this beneficial treatment. The budget announces a consultation process on this matter.
Investment Tax Credit for Carbon Capture, Utilization and Storage
Budget 2022 has introduced the new Carbon Capture, Utilization and Storage (CCUS) credit, a refundable investment tax credit for businesses with eligible expenses relating to the capture of carbon dioxide emissions for storage or use. In order to claim the credit, the business must not only have eligible expenses, but those expenses must relate to an eligible CCUS project, and the captured carbon must be stored or put to an eligible use. The credit is effective as of Jan. 1, 2022.
The credit rate is initially as high as 60 per cent for eligible capture equipment used in direct air capture projects or 50 per cent for capture equipment expenses in other project types. A lower credit of 37.5 per cent is available for eligible transportation, storage, and use equipment. These rates are halved after 2030.
Investment tax credit for investments in clean technology
Budget 2022 announces the government’s intention to create a tax credit of up to 30 per cent, focused on net-zero technologies, battery storage solutions, and clean hydrogen. Details will be provided in the fall economic and fiscal update.
Increased disbursement quota for registered charities
Currently, registered charities are generally required to disburse a minimum of 3.5 per cent of the average value of property not used directly in charitable activities or administration. Following a public consultation in 2021, the budget proposes to introduce a new graduated disbursement quota rate for charities. The disbursement quota rate will be increased to five per cent, for the portion of property not used in charitable activities or administration that exceeds $1 million for fiscal periods beginning on or after Jan. 1, 2023.
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