Federal Budget 2022

Federal Budget 2022

On April 7th, 2022 the Federal Budget was released. This budget paper provides an overview and highlights key features included in the budget. For now, the budget includes proposals only, until legislation is brought forward and passed.

Personal Tax Changes:

1. Tax-Free First Home Savings Account introduced

This is a new registered account to help individuals save for their first home. This is almost a hybrid of RRSP and TFSA. The front-end is like RRSP where you can put money into the account and get tax deductions, while when money is withdrawn to buy a home it will be like TFSA where the profit is tax-free. There are a lot of details. Key features include a max limit of $40,000. The annual contribution limit is $8000 which cannot be carried forward. The plan can last for 15 years. The money withdrawn after this period will not be tax free. This will be probably implemented sometime in 2023. The government will work with financial institutions to implement.

2. First time home buyers tax credit doubled

The first-time home buyers tax credit. The credit amount is being doubled to make it $10,000, which would provide a 15% non-refundable tax credit of up to $1,500. This credit can be split with the spouse to maximum benefit. This applies to the tax year 2022

3. Home Accessibility Tax Credit (HATC) increased 

The HATC is a non-refundable tax credit that helps support independent living for seniors who are 65 years of age or over at the end of a tax year and those who are eligible to claim the Disability Tax Credit (DTC) at any time in a tax year. The annual expense limit for this credit is doubled. It increased to $20,000. This means you can get a maximum credit of up to $3,000 for accessibility renovations or alternations.

4. Multigenerational Home Renovation tax credit 

The Budget introduced this fairly substantial credit. You could buy or create a secondary unit inside a home for a senior or an adult with a disability. The eligible cost that can be claimed is up to $50,000. At 15% credit, this translates to a benefit of up to $7,500. This credit will be applicable from 2023 onwards.

5. Residential property flipping rule

The government was not happy with the idea of buying a home and quickly selling it to make a profit. Under this new rule, if the property is sold within 12 months of buying, then it will be deemed to be business income. This means such properties are not eligible for the 50% capital gains inclusion rate or the Principal Residence Exemption (PRE). However, there are exemptions for individuals who sell their homes due to life events including death, household addition, separation, etc.

6. Ban on foreign investment in Canadian housing

The government proposes restrictions that will prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring nonrecreational, residential property in Canada for a period of two years. This is to ensure housing is affordable to Canadians. We wait for the details that will emerge.

7. Dental care for children and seniors

Starting in 2022, the Budget proposes to provide funding to Health Canada to provide dental care for Canadians. The first phase will start with under 12-year-olds in 2022. It will expand to under 18-year-olds, seniors and persons living with a disability in 2023. Full implementation will be completed by 2025.

Corporate and Business Tax changes:

8. Small business reduced tax rate phase-out threshold increased

Eligible CCPC enjoys a reduced tax rate on the first $500,000 of qualifying active business income. This benefit is phased-out when the taxable capital of previous years exceeds the threshold of the $10m limits. The upper limit is now increased from $15m to $50m. After this upper limit, the favourable tax rate is completely removed. This will apply for taxation years that begin on or after the budget day (Apr 7th, 2022).

9. Tax rate increase for financial institutions

The budget paper proposes corporate tax rate increase from 15% to 16.5% for financial institutions. There would be an exemption on the first $100m taxable income

10. Rollover for small business investments:

We wait for the details that will emerge. Very limited information was released in the budget proposal

To view the complete budget document, click here
If you are considering forming a Corporation, read our blog on Consider Incorporation

Disclaimer:
The above information may include rounding differences and is intended to provide general information. It should not be used without consultation from accounting and tax professionals. Capital Business & Tax Consulting will not be held liable for any problem that may arise from the use of this information.