The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, today tabled her second budget – “A Plan to Grow our Economy and Make Life Affordable”.
The following is a brief overview of the key tax measures.
Personal Income Tax Measures
Personal Tax Rates
Budget 2022 does not propose any changes to personal tax rates and does not propose changes to the capital gains inclusion rate.
Tax-Free Home Savings Account
Budget 2022 proposes to create the Tax-Free First Home Savings Account (FHSA), a new registered account to help individuals save for their first home. Contributions to an FHSA would be deductible and income earned in an FHSA would not be subject to tax. Qualifying withdrawals from an FHSA made to purchase a first home would be non-taxable.
The lifetime limit on contributions would be $40,000, subject to an annual contribution limit of $8,000. The full annual contribution limit would be available starting in 2023. Unused annual contribution room cannot be carried forward, meaning an individual contributing less than $8,000 in a given year would still face an annual limit of $8,000 in subsequent years.
Individuals would be limited to making non-taxable withdrawals in respect of a single property in their lifetime. Once an individual has made a non-taxable withdrawal to purchase a home, they would be required to close their FHSAs within a year from the first withdrawal and would not be eligible to open another FHSA.
If an individual has not used the funds in their FHSA for a qualifying first home purchase within 15 years of first opening an FHSA, their FHSA would have to be closed. Any unused savings could be transferred into an RRSP or RRIF or would otherwise have to be withdrawn on a taxable basis.
Individuals would also be allowed to transfer funds from an RRSP to an FHSA on a tax-free basis, subject to the $40,000 lifetime and $8,000 annual contribution limits. These transfers would not restore an individual’s RRSP contribution room.
The government will work with financial institutions to have the infrastructure in place for individuals to be able to open an FHSA and start contributing at some point in 2023.
Home Buyers’ Tax Credit
Budget 2022 proposes to double the First-Time Home Buyers’ Tax Credit amount to $10,000, which would provide up to $1,500 in tax relief to eligible home buyers. Spouses or common-law partners would continue to be able to split the value of the credit as long as the combined total does not exceed $1,500 in tax relief.
This measure would apply to acquisitions of a qualifying home made on or after January 1, 2022.
Multigenerational Home Renovation Tax Credit
Budget 2022 proposes to introduce a new Multigenerational Home Renovation Tax Credit. The proposed refundable credit would provide recognition of eligible expenses for a qualifying renovation. A qualifying renovation would be one that creates a secondary dwelling unit to permit an eligible person (a senior or a person with a disability) to live with a qualifying relation. The value of the credit would be 15 per cent of the lesser of eligible expenses and $50,000.
This measure would apply for the 2023 and subsequent taxation years, in respect of work performed and paid for and/or goods acquired on or after January 1, 2023.
Home Accessibility Tax Credit
To better support independent living, Budget 2022 proposes to increase the annual expense limit of the Home Accessibility Tax Credit to $20,000.
The Home Accessibility Tax Credit is a non-refundable tax credit that provides recognition of eligible home renovation or alteration expenses in respect of an eligible dwelling of a qualifying individual. A qualifying individual is an individual who is eligible to claim the Disability Tax Credit at any time in a tax year, or an individual who is 65 years of age or older at the end of a tax year.
The value of the credit will now be calculated by applying the lowest personal income tax rate (15 per cent in 2022) to an amount that is the lesser of eligible expenses and $20,000.
This measure would apply to expenses incurred in the 2022 and subsequent taxation years.
Residential Property Flipping Rule
Budget 2022 proposes to introduce a new deeming rule to ensure profits from flipping residential real estate are always subject to full taxation. Specifically, profits arising from dispositions of residential property (including a rental property) that was owned for less than 12 months would be deemed to be business income.
The new deeming rule would not apply if the disposition of property is in relation to at least one of the following life events: death, a household addition, a separation, personal safety, disability or illness, an employment change, insolvency or an involuntary disposition.
Where the new deeming rule applies, the Principal Residence Exemption would not be available.
Where the new deeming rule does not apply because of a life event listed above or because the property was owned for 12 months or more, it would remain a question of fact whether profits from the disposition are taxed as business income.
The measure would apply in respect of residential properties sold on or after January 1, 2023.
Labour Mobility Deduction for Tradespeople
Budget 2022 proposes to introduce a Labour Mobility Deduction for Tradespeople to recognize certain travel and relocation expenses of workers in the construction industry, for whom such relocations are relatively common. This measure would allow eligible workers to deduct up to $4,000 in eligible expenses per year.
For the purposes of this deduction, an eligible individual would be a tradesperson or an apprentice who:
- makes a temporary relocation that enables them to obtain or maintain employment under which the duties performed by the taxpayer are of a temporary nature in a construction activity at a particular work location; and
- ordinarily resided prior to the relocation at a residence in Canada, and during the period of the relocation, at temporary lodging in Canada near that work location.
To ensure that the measure does not subsidize long-distance commuting or expenses of those who choose to live far from where they typically work, it would further be required that the particular work location not be in the locality in which the eligible individual principally works (i.e., carries on employment or business activity).
This measure would apply to the 2022 and subsequent taxation years.
Medical Expense Tax Credit for Surrogacy and Other Expenses
Budget 2022 proposes to provide a broader definition of patient in cases where an individual would rely on a surrogate or a donor in order to become a parent. In these cases, patient would be defined as:
- the taxpayer;
- the taxpayer’s spouse or common-law partner;
- a surrogate mother; or
- a donor of sperm, ova or embryos.
This broader definition would allow medical expenses paid by the taxpayer, or the taxpayer’s spouse or common-law partner, with respect to a surrogate mother or donor to be eligible for the Medical Expense Tax Credit (METC).
Budget 2022 proposes to allow reimbursements paid by the taxpayer to a patient, under the expanded definition proposed above, to be eligible for the METC, provided that the reimbursement is made in respect of an expense that would generally qualify under the credit.
Budget 2022 also proposes to allow fees paid to fertility clinics and donor banks in order to obtain donor sperm or ova to be eligible under the METC.
Only expenses incurred in Canada would be eligible.
This measure would apply to expenses incurred in the 2022 and subsequent taxation years.
Amendments to the Children’s Special Allowances Act and to the Income Tax Act
As a consequence of An Act respecting First Nations, Inuit and Métis children, youth and families, which came into force on January 1, 2020, Budget 2022 proposes legislative amendments to the Children’s Special Allowances Act and its regulations and to the Income Tax Act to ensure that the special allowance, the Canada Child Benefit and the Canada Workers Benefit amount for families continue to support children in need of protection. Budget 2022 also proposes to amend the Income Tax Act to ensure consistent tax treatment of kinship care providers and foster parents who receive financial assistance from Indigenous communities.
Business Income Tax Measures
Corporate Tax Rates
Budget 2022 does not propose any changes to business income tax rates.
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Canada Recovery Dividend and Additional Tax on Banks and Life Insurers
Budget 2022 proposes to introduce the one-time Canada Recovery Dividend (CRD) and an additional tax on banks and life insurers.
Canada Recovery Dividend
Budget 2022 proposes to introduce the CRD in the form of a one-time 15-percent tax on bank and life insurer groups.
The CRD liability would be imposed for the 2022 taxation year and would be payable in equal amounts over five years.
Additional Tax on Banks and Life Insurers
Budget 2022 proposes to introduce an additional tax of 1.5 per cent of the taxable income for members of bank and life insurer groups (determined in the same manner as the CRD).
The proposed additional tax would apply to taxation years that end after Budget Day. For a taxation year that includes Budget Day, the additional tax would be prorated based on the number of days in the taxation year after Budget Day.
Investment Tax Credit for Carbon Capture, Utilization, and Storage
Carbon capture, utilization, and storage (CCUS) is a suite of technologies that capture carbon dioxide (CO2) emissions from fuel combustion, industrial processes or directly from the air, to either store the CO2 (typically deep underground) or use the CO2 in industry.
Budget 2022 proposes to introduce an investment tax credit for Carbon Capture, Utilization, and Storage (CCUS) (the CCUS Tax Credit). The CCUS Tax Credit would be refundable and available to businesses that incur eligible expenses starting on January 1, 2022.
This measure would apply to eligible expenses incurred after 2021 and before 2041.
Clean Technology Tax Incentives – Air-Source Heat Pumps
Capital Cost Allowance for Clean Energy Equipment
Budget 2022 proposes to expand eligibility under Classes 43.1 and 43.2 to include air-source heat pumps primarily used for space or water heating.
This expansion of Classes 43.1 and 43.2 would apply in respect of property that is acquired and that becomes available for use on or after Budget Day, where it has not been used or acquired for use for any purpose before Budget Day.
Rate Reduction for Zero-Emission Technology Manufacturers
Budget 2022 proposes to include the manufacturing of air-source heat pumps used for space or water heating as an eligible zero-emission technology manufacturing or processing activity. Eligible activities would include the manufacturing of components or sub-assemblies only if such equipment is purpose-built or designed exclusively to form an integral part of an air-source heat pump.
Critical Mineral Exploration Tax Credit
Budget 2022 proposes to introduce a new 30-per-cent Critical Mineral Exploration Tax Credit (CMETC) for specified minerals. The specified minerals that would be eligible for the CMETC are: copper, nickel, lithium, cobalt, graphite, rare earth elements, scandium, titanium, gallium, vanadium, tellurium, magnesium, zinc, platinum group metals and uranium.
The CMETC would apply to expenditures renounced under eligible flow-through share agreements entered into after Budget Day and on or before March 31, 2027.
Flow-Through Shares for Oil, Gas, and Coal Activities
Budget 2022 proposes to eliminate the flow-through share regime for oil, gas, and coal activities by no longer allowing oil, gas and coal exploration or development expenditures to be renounced to a flow-through share investor.
This change would apply to expenditures renounced under flow-through share agreements entered into after March 31, 2023.
Small Business Deduction
Small businesses may benefit from a reduced corporate income tax rate of 9 per cent – a preference relative to the general corporate income tax rate of 15 per cent. This rate reduction is provided through the “small business deduction” and applies on up to $500,000 per year of qualifying active business income (i.e., the “business limit”) of a Canadian-controlled private corporation (CCPC). There is a requirement to allocate the business limit among associated CCPCs.
In order to target the preferential tax rate to small businesses, the business limit is reduced on a straight-line basis when:
- the combined taxable capital employed in Canada of the CCPC and its associated corporations is between $10 million and $15 million; or
- the combined “adjusted aggregate investment income” of the CCPC and its associated corporations is between $50,000 and $150,000.
The business limit is the lesser of the two amounts determined by these business limit reductions.
Budget 2022 proposes to extend the range over which the business limit is reduced based on the combined taxable capital employed in Canada of the CCPC and its associated corporations. The new range would be $10 million to $50 million.
This measure would apply to taxation years that begin on or after Budget Day.
International Financial Reporting Standards for Insurance Contracts (IFRS 17)
On May 28 2021, the Government issued a news release (May 2021 Release) to announce that it intends to generally support the use of IFRS 17 accounting for income tax purposes. However, adjustments would be made to recognize underwriting profits as taxable income so that it remains aligned with economic activities. More specifically, the contract service margin (CSM) would not be considered a deductible reserve for tax purposes. The Government’s overall objective is to recognize income for tax purposes when the key economic activities occur.
Following extensive consultations with the insurance industry, Budget 2022 proposes to maintain the policy intent described in the May 2021 Release, but proposes to make certain relieving modifications, as well as consequential changes to protect the minimum tax base for life insurers.
Budget 2022 proposes that all of these measures, including the transitional rules discussed above, would apply as of January 1, 2023.
Hedging and Short Selling by Canadian Financial Institutions
Budget 2022 proposes amendments to the Income Tax Act to
- deny the dividend received deduction for dividends received by a taxpayer on Canadian shares if a registered securities dealer that does not deal at arm’s length with the taxpayer enters into transactions that hedge the taxpayer’s economic exposure to the Canadian shares, where the registered securities dealer knew or ought to have known that these transactions would have such an effect;
- deny the dividend received deduction for dividends received by a registered securities dealer on Canadian shares that it holds if it eliminates all or substantially all of its economic exposure to the Canadian shares by entering into certain hedging transactions; and
- provide that in the above situations, the registered securities dealer will be permitted to claim a full, rather than a two-thirds, deduction for a dividend compensation payment it makes under a securities lending arrangement entered into in connection with the above hedging transactions.
The proposed amendments would apply to dividends and related dividend compensation payments that are paid, or become payable, on or after Budget Day, unless the relevant hedging transactions or related securities lending arrangement were in place before Budget Day, in which case the amendment would apply to dividends and related dividend compensation payments that are paid after September 2022.
Application of the General Anti-Avoidance Rule to Tax Attributes
Budget 2022 proposes that the Income Tax Act be amended to provide that the GAAR can apply to transactions that affect tax attributes that have not yet become relevant to the computation of tax. For greater certainty, determinations made before Budget Day, where the rights of objection and appeal in respect of the determination were exhausted before Budget Day, would remain binding on taxpayers and the CRA.
This measure would apply to notices of determination issued on or after Budget Day.
Genuine Intergenerational Share Transfers
Budget 2022 announces a consultation process for Canadians to share views as to how the existing rules could be modified to protect the integrity of the tax system while continuing to facilitate genuine intergenerational business transfers. The government is committed to bringing forward legislation to address these issues, which would be included in a bill to be tabled in the fall after the conclusion of the consultation process.
Deferring Tax Using Foreign Entities
Budget 2022 proposes targeted amendments to the Income Tax Act to align the taxation of investment income earned and distributed by “substantive CCPCs” with the rules that currently apply to CCPCs. Substantive CCPCs would be private corporations resident in Canada (other than CCPCs) that are ultimately controlled (in law or in fact) by Canadian-resident individuals. Similar to the CCPC definition, the test would contain an extended definition of control that would aggregate the shares owned, directly or indirectly, by Canadian resident individuals, and would therefore deem a corporation to be controlled by a Canadian resident individual where Canadian individuals own, in aggregate, sufficient shares to control the corporation. This measure would address tax planning that manipulates CCPC status without affecting genuine non-CCPCs (e.g., private corporations that are ultimately controlled by non-resident persons and subsidiaries of public corporations). It would also cause a corporation to be a substantive CCPC in circumstances where the corporation would have been a CCPC but for the fact that a non-resident or public corporation has a right to acquire its shares.
In addition, these new rules would be supported by:
- a targeted anti-avoidance rule to address particular arrangements or transactions where it is reasonable to consider that the particular arrangement, transaction, or series of transactions was undertaken to avoid the anti-deferral rules applicable to investment income; and
- targeted amendments to facilitate administration of the rules applicable to investment income earned and distributed by substantive CCPCs, including a one year extension of the normal reassessment period for any consequential assessment of Part IV tax that arises from a corporation being assessed or reassessed a dividend refund.
This measure would apply to taxation years that end on or after Budget Day.
To provide certainty for genuine commercial transactions entered into before Budget Day, an exception would be provided where the taxation year of the corporation ends because of an acquisition of control caused by the sale of all or substantially all of the shares of a corporation to an arm’s length purchaser. The purchase and sale agreement pursuant to which the acquisition of control occurs must have been entered into before Budget Day and the share sale must occur before the end of 2022.
Deferring Tax Using Foreign Resident Corporations
Budget 2022 proposes targeted amendments to the Income Tax Act to eliminate the tax-deferral advantage available to CCPCs and their shareholders earning investment income through controlled foreign affiliates. The deferral advantage would be addressed by applying the same relevant tax factor to individuals, CCPCs and substantive CCPCs (i.e., the relevant tax factor currently applicable to individuals). This relevant tax factor is calibrated based on the highest combined federal and provincial or territorial personal income tax rate and would thus eliminate any tax incentive for CCPCs and their shareholders to earn investment income in a controlled foreign affiliate.
More specifically, Budget 2022 proposes to:
- remove from the general rate income pool of a CCPC an amount equal to the deductions claimed in respect of repatriations of a foreign affiliate’s hybrid surplus (representing certain capital gains) and taxable surplus (generally representing FAPI and active business income earned in a country with which Canada does not have a tax treaty or tax information exchange agreement), and in respect of the payment of withholding tax to a foreign government on inter-corporate dividends received from a foreign affiliate prescribed to be paid out of taxable surplus; and
- include in the capital dividend account of a CCPC (and a substantive CCPC) upon repatriation:
- the amount of an inter-corporate dividend deduction claimed with respect to a dividend paid out of hybrid surplus less the amount of withholding tax paid with respect to the dividend (representing the non-taxable half of hybrid surplus plus the after-tax portion of the taxable half of hybrid surplus that was subject to sufficient foreign tax, as determined based on the new relevant tax factor less any withholding tax paid in respect of the dividend prescribed to have been paid out of hybrid surplus);
- the amount of an inter-corporate dividend deduction claimed with respect to a dividend paid out of taxable surplus (representing the after-tax amount of the foreign accrual tax-sheltered FAPI (i.e., the amount of foreign accrual tax-sheltered FAPI less foreign accrual tax) repatriated to Canada as well as other non-FAPI amounts included in taxable surplus that were subject to sufficient foreign tax, as determined based on the new relevant tax factor); and
- the amount of a withholding tax deduction claimed less the withholding tax paid in respect of repatriations of taxable surplus (representing the after-tax amount of withholding tax sheltered amounts, i.e., the amount of the deduction for withholding tax paid on dividends prescribed to have been paid out of taxable surplus less the withholding tax paid).
These measures would apply to taxation years that begin on or after Budget Day.
Borrowing by Defined Benefit Pension Plans
Budget 2022 proposes to provide more borrowing flexibility to administrators of defined benefit registered pension plans (other than individual pension plans) by maintaining the borrowing rule for real property acquisitions and replacing the 90-day term limit with a limit on the total amount of additional borrowed money (for purposes other than acquiring real property), equal to the lesser of:
- 20 per cent of the value of the plan’s assets (net of unpaid borrowed amounts); and
- the amount, if any, by which 125 per cent of the plan’s actuarial liabilities exceeds the value of the plan’s assets (net of unpaid borrowed amounts).
This measure would apply to amounts borrowed by defined benefit registered pension plans (other than individual pension plans) on or after Budget Day.
Reporting Requirements for RRSPs and RRIFs
Budget 2022 proposes to require financial institutions to annually report to the Canada Revenue Agency the total fair market value, determined at the end of the calendar year, of property held in each RRSP and RRIF that they administer. This information would assist the Canada Revenue Agency in its risk-assessment activities regarding qualified investments held by RRSPs and RRIFs.
This measure would apply to the 2023 and subsequent taxation years.
Charitable Sector Tax Measures
Annual Disbursement Quota (DQ) for Registered Charities
Budget 2022 proposes to make a number of changes to increase expenditures by larger charities, and to improve the enforcement and operation of the DQ rules.
Budget 2022 proposes to increase the DQ rate from 3.5 per cent to 5 per cent for the portion of property not used in charitable activities or administration that exceeds $1 million. This would increase expenditures by charities overall, while accommodating smaller grant-making charities that may not be able to realize the same investment returns as larger charities.
In addition, Budget 2022 proposes to amend the Income Tax Act to clarify that expenditures for administration and management are not considered qualifying expenditures for the purpose of satisfying a charity’s DQ.
Budget 2022 proposes to amend the existing rule such that the CRA will have the discretion to grant a reduction in a charity’s DQ obligation for any particular tax year. Budget 2022 proposes to allow the CRA to publicly disclose information relating to such a decision.
Budget 2022 proposes to remove the accumulation of property rule.
These measures would apply to charities in respect of their fiscal periods beginning on or after January 1, 2023. The amendment removing the accumulation of property rule would not apply to approved property accumulations resulting from applications submitted by a charity prior to January 1, 2023.
Under the Income Tax Act, registered charities are limited to devoting their resources to charitable activities they carry on themselves or providing gifts to qualified donees. Where charities conduct activities through an intermediary organization (other than a qualified donee), they must maintain sufficient control and direction over the activity such that it can be considered their own.
Budget 2022 proposes a number of changes to improve the operation of these rules, allowing charities to make qualified disbursements to organizations that are not qualified donees, provided that they meet certain accountability requirements under the Income Tax Act. Additional measures designed to ensure compliance by charities with these new rules are forthcoming.
Budget 2022 proposes to allow charities to make qualifying disbursements to organizations that are not qualified donees, provided that these disbursements are in furtherance of the charity’s charitable purposes and the charity ensures that the funds are applied to charitable activities by the grantee.
Budget 2022 proposes to require charities to, upon request by the CRA, take all reasonable steps to obtain receipts, invoices, or other documentary evidence from grantees to demonstrate amounts were spent appropriately.
Budget 2022 proposes to extend an existing provision in the Income Tax Act, which currently applies to registered Canadian amateur athletic associations and registered journalism organizations, to registered charities. This rule would prohibit registered charities from accepting gifts, the granting of which was expressly or implicitly conditional on making a gift to a person other than a qualified donee.
These changes would apply as of royal assent of the enacting legislation.
International Tax Measures
Exchange of Tax Information on Digital Economy Platform Sellers
The Organisation for Economic Co-operation and Development (OECD) has developed model rules for reporting by digital platform operators with respect to platform sellers.
Budget 2022 proposes to implement the model rules in Canada. The measure would require reporting platform operators that provide support to reportable sellers for relevant activities to determine the jurisdiction of residence of their reportable sellers and report certain information on them.
Reporting platform operators would be entities that are engaged in the following activities:
- contracting directly or indirectly with sellers to make the software that runs a platform available for the sellers to be connected to other users; or
- collecting compensation for the relevant activities facilitated through the platform.
The measure would generally apply to platform operators that are resident for tax purposes in Canada. The measure would also apply to platform operators that are not resident in Canada or a partner jurisdiction and that facilitate relevant activities by sellers resident in Canada or with respect to rental of immovable property located in Canada. A partner jurisdiction would be a jurisdiction that has implemented similar reporting requirements on platform operators and that has agreed to exchange information with the CRA on reportable platform sellers.
Reporting platform operators would be required to report to the CRA specified information on reportable sellers by January 31 of the year following the calendar year for which a seller is identified as a reportable seller. Reporting platform operators would also be required to provide the information relating to each reportable seller to that seller by the same date.
This measure would apply to calendar years beginning after 2023. This would allow the first reporting and exchange of information to take place in early 2025 with respect to the 2024 calendar year.
Interest Coupon Stripping
Budget 2022 proposes an amendment to the interest withholding tax rules to ensure that the total interest withholding tax paid under an interest coupon stripping arrangement is the same as if the arrangement had not been undertaken and instead the interest had been paid to the non-resident lender.
In general terms, an interest coupon stripping arrangement would be considered to exist where the following conditions are met:
- a Canadian-resident borrower pays or credits a particular amount to a person or partnership (interest coupon holder) as interest on a debt (other than a publicly offered debt obligation) owed to a non-resident person with whom the Canadian-resident borrower is not dealing at arm’s length (non-resident lender); and
- the tax that would be payable under Part XIII in respect of the particular amount, if the particular amount were paid or credited to the non-resident lender, is greater than the tax payable under Part XIII on the particular amount paid or credited to the interest coupon holder.
Where an interest coupon stripping arrangement exists, the Canadian-resident borrower would be deemed, for the purposes of the interest withholding tax rules, to pay an amount of interest to the non-resident lender such that the Part XIII tax on the deemed interest payment equals the Part XIII tax otherwise avoided as a result of the interest coupon stripping arrangement.
This measure would apply to interest paid or payable by a Canadian-resident borrower to an interest coupon holder to the extent that such interest accrued on or after Budget Day, unless the interest payment meets the following conditions:
- it is in respect of a debt or other obligation incurred by the Canadian-resident borrower before Budget Day; and
- it is made to an interest coupon holder that deals at arm’s length with the non-resident lender and that acquired the interest coupon as a consequence of an agreement or other arrangement entered into by the interest coupon holder, and evidenced in writing, before Budget Day.
Sales and Excise Tax Measures
GST/Health Care Rebates
Budget 2022 proposes to amend the GST/HST eligibility rules for the expanded hospital rebate to recognize the increasing role of nurse practitioners in delivering health care services, including in non-remote areas. It is proposed that to be eligible for the expanded hospital rebate, a charity or non-profit organization must deliver the health care service with the active involvement of, or on the recommendation of, either a physician or a nurse practitioner, irrespective of their geographical location. In other words, the expanded hospital rebate would no longer distinguish between health care services rendered by physicians and nurse practitioners.
This measure would generally apply to rebate claim periods ending after Budget Day in respect of tax paid or payable after that date.
GST/HST on Assignment Sales by Individuals
Budget 2022 proposes to amend the Excise Tax Act to make all assignment sales in respect of newly constructed or substantially renovated residential housing taxable for GST/HST purposes. As a result, the GST/HST would apply to the total amount paid for a new home by its first occupant and there would be greater certainty regarding the GST/HST treatment of assignment sales.
Budget 2022 proposes that the amount attributable to the deposit be excluded from the consideration for a taxable assignment sale.
This measure would apply in respect of any assignment agreement entered into on or after the day that is one month after Budget Day.
Taxation of Vaping Product
A federal excise duty rate of $1 per 2 ml, or fraction thereof, is proposed for the first 10 ml of vaping substance, and $1 per 10 ml, or fraction thereof, for volumes beyond that. The excise duty would be based on the volume of vaping substance in each vaping product (e.g., a pod, a bottle, or a disposable vape pen).
If a province or territory were to choose to participate in a coordinated vaping taxation regime administered by the federal government as discussed below, an additional duty rate would be imposed in respect of dutiable vaping products intended for sale in that participating jurisdiction.
- The additional duty rate in respect of that participating province or territory would be equal to the proposed federal excise duty rate, so that the proposed combined rate would be $2 per 2 ml, or fraction thereof, for the first 10 ml of vaping substance, and $2 per 10 ml, or fraction thereof, for volumes beyond that.
Budget 2022 proposes to allow duty-free importations by travellers returning to Canada of unstamped vaping products for personal use, as outlined below.
For an absence of less than 48 hours – No duty-free importation of vaping products for personal use. For an absence of 48 hours or more – Duty-free importation for personal use of up to twelve vaping products of less than 10 ml each (for a total of 120 ml); or, any combination of vaping products of 10 ml or more, so long as the total volume imported is below 120 ml.
The proposed federal excise duty framework for vaping products would come into force on October 1, 2022.
It is also proposed that retailers may continue to sell until January 1, 2023 unstamped products that are in inventory as of October 1, 2022.
Implementation of a Publicly Accessible Beneficial Ownership Registry
The government is accelerating by two years its commitment to amend the Canada Business Corporations Act to implement a public and searchable beneficial ownership registry, which will now be accessible before the end of 2023. The registry will cover corporations governed under the aforementioned Act and will be scalable to allow access to the beneficial ownership data held by provinces and territories that agree to participate in a national registry. Legislative proposals will be forthcoming as part of the Budget Implementation Act.
Status of Outstanding Tax Measures
Budget 2022 confirms the government’s intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their release:
- Legislative proposals relating to the Select Luxury Items Tax Act released on March 11, 2022.
- Legislative proposals released on February 4, 2022 in respect of the following measures:
- electronic filing and certification of tax and information returns;
- immediate expensing;
- the Disability Tax Credit;
- a technical fix related to the GST Credit top-up;
- the rate reduction for zero-emission technology manufacturers;
- film or video production tax credits;
- postdoctoral fellowship income;
- fixing contribution errors in registered pension plans;
- a technical fix related to the revocation tax applicable to charities;
- capital cost allowance for clean energy equipment;
- enhanced reporting requirements for certain trusts;
- allocation to redeemers methodology for mutual fund trusts;
- mandatory disclosure rules;
- avoidance of tax debts;
- taxes applicable to registered investments;
- audit authorities;
- interest deductibility limits; and
- crypto asset mining.
- Legislative proposals tabled in a Notice of Ways and Means Motion on December 14, 2021 to introduce the Digital Services Tax Act.
- Legislative proposals released on December 3, 2021 with respect to Climate Action Incentive payments.
- The income tax measure announced in Budget 2021 with respect to Hybrid Mismatch Arrangements.
- The transfer pricing consultation announced in Budget 2021.
- The anti-avoidance rules consultation announced on November 30, 2020 in the Fall Economic Statement.
- The income tax measure announced on December 20, 2019 to extend the maturation period of amateur athletes trusts maturing in 2019 by one year, from eight years to nine years.
- Measures confirmed in Budget 2016 relating to the Goods and Services Tax/ Harmonized Sales Tax joint venture election.
Budget 2022 also reaffirms the government’s commitment to move forward as required with technical amendments to improve the certainty and integrity of the tax system.
The information contained herein is for information purposes only and is not intended to be complete in all respects. It is a summary of budget materials released by the Department of Finance Canada. It is not certain if all or parts of these materials will become law. We recommend that you consult with a Baker Tilly tax professional before acting on the basis of material contained herein.