Deputy Prime Minister and Minister of Finance Chrystia Freeland tabled the federal budget on April 7, 2022. The budget contained many announcements of new spending initiatives. Here are a few of the measures.
Small business deduction
If you operate an incorporated business, you are likely aware of the attractive corporation income tax rate on the first $500,000 of active business income. The budget proposes a new range of $10 million to $50 million (previously $10 million to $15 million) over which the small business limit is reduced based on the combined taxable capital employed in Canada of a Canadian Controlled Private Corporation and its associated corporations. This measure increases the amount of qualifying active business income that can be eligible for the small business deduction. This measure applies to taxation years that begin on or after April 7, 2022.
Residential property flipping rule
The budget proposes to introduce a new deeming rule to ensure profits from the disposition of a residential property that was owned for less than 12 months would be deemed to be and taxed as business income.
The new deeming rule would not apply if the disposition of property is related to certain life events. The government indicated that details are forthcoming and there will be consultation on draft legislative proposals.
Tax-Free First Home Savings Account
The budget proposes to introduce a new registered account, the Tax-Free First Home Savings Account (FHSA). Contributions to an FHSA would be tax deductible and qualifying withdrawals to purchase a first home would be non-taxable. There is a lifetime limit on contributions of $40,000, with an annual $8,000 contribution limit to begin in 2023. Any unused annual contribution room cannot be carried forward.
The existing Home Buyers’ Plan (HBP) allows individuals to withdraw up to $35,000 tax-free from an RRSP to purchase a home but requires repayment over a maximum period of 15 years. Note that an individual cannot make both an FHSA withdrawal and a HBP withdrawal in respect of the same qualifying home purchase.
Home Buyers’ Tax Credit
The budget proposes to double the First-Time Home Buyers’ Tax Credit (HBTC) amount, which is a non-refundable tax credit available to first-time home buyers, from $5,000 to $10,000. This increased amount would provide up to $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
The budget proposes to introduce a new refundable tax credit, the Multigenerational Home Renovation Tax Credit (MHRTC) on eligible expenses. A qualifying renovation would be one that creates a secondary dwelling unit to allow an eligible person 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, which would provide up to $7,500 in tax relief.
Home Accessibility Tax Credit
The non-refundable Home Accessibility Tax Credit (HATC) provides a 15 per cent credit on eligible home renovation expenses up to $10,000. The budget proposes to double the annual expense limit to $20,000, which would provide up to $3,000 in tax relief. This measure would apply to expenses incurred in the 2022 and subsequent taxation years.
For more information about the recent federal budget, please contact your BDO tax professionals.
Tax Partner at BDO Canada LLP
\Scott Conner is an experienced tax practitioner and practical problem solver at BDO. As a partner specializing in Canadian income tax, Scott has particular specialties in private companies, planning for estates, trusts, and complex transactions. Scott works closely with his clients to understand their specific needs and adjust strategies accordingly. Scott and his team take a proactive, hands-on approach. They closely follow existing and proposed legislation to determine how it will affect individual financial goals, and provide ongoing guidance.
Recent Comments