2022 Federal Budget Highlights
On April 7, 2022 the latest federal budget was introduced. The good news? No changes were proposed for business or personal tax rates, nor the inclusion rate on taxable capital gains.
Overall spending was lower compared to previous years, with the deficit for the fiscal year ending in 2022 projected to hit $113.8 billion, down from $327.7 billion in the prior year.
We’ve noted some measures that we thought might have relevance to you. More details on these and other measures can be read in greater detail in the full summary of highlights here.
Access to the small business deduction will be enhanced for corporations with taxable capital between $10 million and $50 million. The reduced corporate rate for those who qualify is 9%, versus the general corporate income tax rate of 15%.
Private corporations, which are not Canadian-controlled private corporations (CCPCs) but are factually controlled by one or more Canadian persons, will be subject to the same investment rules as a CCPC. This is intended to put a stop to the practice of corporations paying lower taxes by becoming non-Canadian controlled private corporations.
A previously announced measure that will now come into play is the temporary immediate expensing for certain property acquired by a CCPC. This will now be limited to $1.5 million per tax year.
The government has also reiterated its intention to amend the legislation to restrict non-legitimate intergenerational business transfers, while continuing to facilitate legitimate business successions.
Real estate has been an area of high interest to many people over the past couple of years. Here are a few important changes in that area.
- Residential real estate sales within a year of purchase will be fully taxable as business income, not capital gains and not eligible for the principal residence exemption.
- A Tax-Free First Home Savings Account (FHSA), will allow first-time home buyers to contribute a lifetime maximum of $40,000 and an annual maximum of $8,000. Contributions provide a front-end tax deduction, like an RRSP, and investment income is not taxed while inside the FHSA. Withdrawals, when used for a qualifying home purchase, are not taxable.
- A Multigenerational Home Renovation Tax Credit will provide a refundable tax credit to support constructing a secondary suite for an eligible person, such as a senior who is 65+ years of age or an adult 18+ years of age and eligible for the disability tax credit, to live with a qualifying relation.
- Both the First-Time Home Buyers’ Tax Credit and the Home Accessibility Tax Credit were doubled.
The minimum amount charities must spend per year to keep their charitable status, called the disbursement quota for charities, will be increased from 3.5% of a charity’s eligible assets to 5%. This will impact people who have donor advised funds, and they may want to discuss with their advisors how this change might impact their plans.
Charities will also be allowed to make qualifying disbursements to organizations that are not qualified donees, provided that these disbursements help further the charity’s charitable purposes, and the charity ensures the funds are applied to charitable activities.
Previously Announced Measures
The government reiterated its intention to proceed with the luxury tax, which will apply to
certain vehicles and aircraft with a price that exceeds $100,000, and boats with a price that
exceeds $250,000 before GST/HST. The luxury tax will be determined as the lesser of 10% of the total price, or 20% of the total price exceeding the price threshold.
A number of other previously announced tax and related measures can be found in the full summary.
We’re happy to answer any questions you may have about the budget or any other tax-related questions. Please contact your advisor directly.
Sources: Government of Canada