Federal Budget 2022 Highlights 

The Federal Budget 2022 introduced several significant changes and updates that are poised to impact both individuals and businesses across Canada. This comprehensive overview aims to provide a detailed analysis of these changes, ensuring that you are well-informed about how they might affect your finances and business operations. 

Expanded Small Business Deduction 

A key highlight of the Federal Budget 2022 is the expansion of the eligibility criteria for the small business deduction. This change allows more medium-sized Canadian-controlled private corporations (CCPCs) to benefit from the small business rate of 9%, as opposed to the general federal corporate rate of 15%. Previously, this rate was available on the first $500,000 of active business income, with restrictions starting when a business’s taxable capital exceeded $10 million, and completely phasing out at $15 million. The new budget proposes a phase-out range of taxable capital from $10 million to $50 million, significantly increasing the threshold and making the deduction accessible to more capital-intensive businesses. 

Measures Against Tax Deferral through Foreign Corporations 

The budget introduces measures to prevent the use of foreign corporations for deferring Canadian tax on passive income. This includes the concept of a “substantive CCPC,” ensuring that the same refundable tax regime applies to these entities. This measure targets those who restructure their CCPCs to avoid additional taxes on investment income, such as moving assets to low-tax jurisdictions or using foreign shell companies. 

Housing Market and Corporate Investment 

The government announced a review of housing as an asset class, focusing on the impact of large corporate players in Canada’s residential housing market. This review may lead to changes in the tax treatment of these entities and is part of a broader strategy to understand and potentially regulate corporate investment in residential real estate. 

Personal Tax Measures 

Enhanced Home Buyers’ Tax Credit 

The budget proposes an increase in the Home Buyers’ Tax Credit from $5,000 to $10,000, providing up to $1,500 in tax relief for eligible first-time home buyers. This measure applies to homes purchased on or after January 1, 2022. 

Tax-Free First Home Savings Account 

A new initiative, the Tax-Free First Home Savings Account (FHSA), is proposed to assist first-time home buyers. Similar to a registered retirement savings plan, contributions to this account will be tax-deductible, and income earned will not be subject to tax. Withdrawals for the purpose of buying a first home will also be non-taxable. 

Multigenerational Home Renovation Tax Credit 

This new refundable tax credit is aimed at supporting the construction of secondary dwelling units for seniors or individuals with disabilities. Eligible expenses up to $50,000 can provide up to $7,500 in tax relief. 

Increased Home Accessibility Tax Credit 

The budget proposes to double the maximum expense limit for the Home Accessibility Tax Credit (HATC) from $10,000 to $20,000, enhancing support for making homes more accessible. 

Residential Property Flipping Rule 

To address concerns about real estate flipping, the budget introduces a rule deeming profits from the sale of residential property owned for less than 12 months as business income, ensuring full taxation. Exceptions are made for sales due to life events. 

Expansion of Medical Expense Tax Credit 

The budget expands the list of eligible medical expenses to include costs related to surrogacy and donations of sperm, ova, or embryos. 

Labour Mobility Deduction for Tradespeople 

A new Labour Mobility Deduction is introduced for tradespeople and apprentices, allowing them to deduct travel and relocation expenses for temporary relocations, up to $4,000 per year. 

Sales Tax Measures and Other Tax Changes 

Taxing Assignment Sales 

The budget proposes that all assignment sales of newly constructed or substantially renovated residential housing be taxable for GST/HST purposes. 

Ban on Foreign Investment in Canadian Housing 

A two-year prohibition is proposed on foreign commercial enterprises and non-residents from acquiring non-recreational residential property in Canada, with certain exemptions. 

National Dental Care Program 

A plan to provide national dental care for families with less than $90,000 annual income is proposed. 

Increased Reporting for RRSPs and RRIFs 

Financial institutions will be required to report the total fair market value of RRSP and RRIF accounts annually, starting with the 2023 tax year. 

Conclusion 

The Federal Budget 2022 encompasses a range of measures affecting various aspects of taxation and finance. While some of these measures are detailed, others await further clarification. It’s crucial for individuals and businesses to stay informed and consult with tax professionals to understand the implications of these changes on their specific circumstances.