On November 3, 2022, the Fall Economic Statement was provided by Deputy Prime Minister and Minister of Finance, The Honourable Chrystia Freeland, P.C., M.P. in the House of Commons.
In tandem with the release of the economic statement, Department of Finance released a statement that the Government of Canada is launching a series of consultations on measures to reduce costs for small businesses, ensure the stability of our economy in a digital world and improve the fairness of our tax system.
The tax measures included in the economic statement and the details of the Government of Canada’s consultations are summarized below.
Tax on share buybacks
The government intends to introduce a corporate‑level two per cent tax that would apply on the net value of all types of share buybacks by public corporations in Canada.
The details of this proposed new tax will be announced in Budget 2023 with a coming into force date of January 1, 2024.
International tax reform
Canada and 136 other members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting have developed a two‑pillar plan for international tax reform, which was agreed to in October 2021.
Pillar One proposes to reallocate taxing rights over multinational enterprises from their home countries to the markets where they have business activities and earn profits, regardless of whether firms there have a physical presence.
Significant progress has been made in establishing the technical rules of the new system, and the OECD has been conducting ongoing public consultations. The Inclusive Framework’s intention is to complete multilateral negotiations so the treaty to implement Pillar One can be signed in the first half of 2023, with a view to it entering into force in 2024.
In the event a multilateral agreement cannot be reached, Finance has introduced draft legislative proposals for the Digital Services Tax Act back in December 2021, which is currently proposed to come into force in 2024 in respect of revenues earned as of January 1, 2022.
Pillar Two is a global minimum tax regime that would ensure multinational corporations are subject to a minimum effective tax rate of 15 per cent on profits in every jurisdiction in which they operate. To function effectively, Pillar Two requires participation and extensive coordination from international partners around the world.
Canada is committed to the global minimum tax on large corporations and continues to work closely with our international partners to develop a coordinated implementation framework, to be put in place in a timely and coordinated manner.
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) has not been substantially reviewed since its introduction in 1986.
In Budget 2022, the government committed to examining a new minimum tax regime to ensure that wealthier individuals pay a higher average tax rate than others. The 2022 Fall Economic Statement reaffirms this intent, and a detailed proposal and path for implementation will be released in Budget 2023.
Residential Property Flipping Rule
Budget 2022 proposed the Residential Property Flipping Rule, a new deeming rule – starting January 1, 2023 – to ensure full taxation of profits arising from dispositions of residential property (including a rental property) that was owned for less than 12 months (subject to a list of exceptions).
The 2022 Fall Economic Statement proposes to extend this new deeming rule to profits arising from the disposition of the rights to purchase a residential property via an assignment sale.
Investment Tax Credit for Clean Technologies
The 2022 Fall Economic Statement proposes to introduce a refundable Clean Technology Investment Tax Credit equal to 30 per cent (20 per cent if specific labour conditions are not met) of the capital cost of eligible equipment. This credit will be available in respect of the capital cost of property that is acquired and becomes available for use on or after the day that the 2023 Budget is released. The credit will gradually be phased out as follows:
- 20 per cent for 2032
- 10 per cent for 2033
- 5 per cent for 2034
- 0 per cent for 2035 +
The following types of equipment would be eligible for the credit:
- Equipment to generate electricity from solar, wind and water energy that is described under subparagraphs (d)(ii), (iii.1), (v), (vi) and (xiv) of capital cost allowance Class 43.1;
- Stationary electricity storage equipment that is described under subparagraphs (d)(xviii) and (d)(xix) of Class 43.1, but that does not use any fossil fuels in operation, which includes, but is not limited to, batteries, flywheels, supercapacitors, magnetic energy storage, compressed air energy storage, pumped hydroelectric energy storage, gravity energy storage and thermal energy storage;
- Active solar heating equipment, air‑source heat pumps and ground‑source heat pumps that are described under subparagraph (d)(i) of Class 43.1;
- Equipment to generate heat or electricity from concentrated solar energy;
- Equipment to generate heat or electricity from small modular nuclear reactors; and
- Non‑road zero‑emission vehicles described in Class 56 (e.g. hydrogen or electric heavy duty equipment used in mining or construction) and charging or refuelling equipment described under subparagraph (d)(xxi) of Class 43.1 or subparagraph (b)(ii) of Class 43.2 that is used primarily for such vehicles.
Mandatory disclosure rules
In order to fully assess the feedback received as part of the public consultation launched August 9, 2022, the government intends to delay the coming‑into‑force date of the reporting requirements for reportable transactions and notifiable transactions until the date on which a bill implementing these changes receives Royal Assent. The coming‑into‑force date for uncertain tax treatments would remain the same: taxation years beginning after 2022, with penalties only applying after Royal Assent.
Excessive Interest and Financing Expenses Limitation (EIFEL)
Department of Finance today released further revisions to the draft legislation, which address stakeholder comments and other issues identified. This includes proposing the coming‑into‑force of this legislation for taxation years beginning on or after October 1, 2023 (previously January 1, 2023). Interested parties are invited to send comments to Consultation-Legislation@fin.gc.ca by January 6, 2023.
Reporting rules for digital platform operators
Originally announced in the 2022 federal budget, The Department of Finance today released, for public comment, draft legislative proposals regarding reporting rules for digital platform operators. Interested parties are invited to send comments to Consultation-Legislation@fin.gc.ca by January 6, 2023.
Digital assets and cryptocurrency
The Department of Finance is launching targeted consultations with stakeholders on digital currencies, including cryptocurrencies, stable coins and central bank digital currencies. Canadians can send their comments to email@example.com.
Credit card fees for small businesses
As announced in the 2022 Fall Economic Statement, the Department of Finance intends to enter into negotiations with the payment card industry and merchants to achieve an agreed solution. If the industry does not come to an agreed solution, the draft legislative proposals to the Payment Card Networks Act being released today will be introduced in the new year to ensure transaction fees for small businesses are reduced. Comments may be sent to firstname.lastname@example.org.
Previously announced draft legislation
The 2022 Fall Economic Statement 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 released on August 9, 2022, including with respect to the following measures:
- The Tax‑Free First Home Savings Account (FHSA)
- The First‑Time Home Buyers’ Tax Credit (HBTC)
- The Multigenerational Home Renovation Tax Credit
- The Residential Property Flipping Rule
- The Medical Expense Tax Credit for Surrogacy and Other Expenses
- Borrowing by Defined Benefit Pension Plans
- Annual Disbursement Quota for Registered Charities
- Reporting Requirements for Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs)
- Fixing Contribution Errors in Defined Contribution Pension Plans
- The Canada Recovery Dividend and the Additional Tax on Banks and Life Insurers
- he Investment Tax Credit for Carbon Capture, Utilization and Storage
- Clean Technology Tax Incentives – Air‑Source Heat Pumps
- The Critical Mineral Exploration Tax Credit
- Eliminating Flow‑Through Shares for Oil, Gas and Coal Activities
- The Small Business Deduction
- International Financial Reporting Standards (IFRS 17)
- Hedging and Short Selling by Canadian Financial Institutions
- The Application of the General Anti‑Avoidance Rule to Tax Attributes
- Substantive Canadian‑Controlled Private Corporations
- Interest Coupon Stripping
- Quarterly Remittances and Technical Amendments to the Cannabis Taxation Framework
- Enhanced Reporting Requirements for Trusts
- Mandatory Disclosure Rules
- The Avoidance of Tax Debts
- The Electronic Filing and Certification of Tax and Information Returns
- Modifications to the vaping taxation framework related to marking, customs storage and duty liability
- Draft regulations under the Underused Housing Tax Act and amendments to the Underused Housing Tax Act and related amendments to the Income Tax Act
- Other technical amendments to the Income Tax Act and Income Tax Regulations proposed in the August 9 release
- Legislative and regulatory proposals relating to the Goods and Services Tax/Harmonized Sales Tax, excise levies and other taxes and charges announced in the August 9th release
- Legislative proposals released on April 29, 2022 with respect to Hybrid Mismatch Arrangements
- Tax measures and consultations announced in Budget 2022 for which legislative proposals have not yet been released
- Legislative proposals released on February 4, 2022, including with respect to the following measures:
- Allocation to Redeemers Methodology for Mutual Fund Trusts
- Taxes Applicable to Registered Investments
- Audit Authorities
- Interest Deductibility Limits
- 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
- The transfer pricing consultation announced in Budget 2021
- The anti‑avoidance rules consultation announced on November 30, 2020 in the Fall Economic Statement and updated in a consultation paper released on August 9, 2022
- 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
Information is current to November 4, 2022. The information contained in this release is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.