The Department of Finance has a full plate as it works to advance proposals from Budget 2022, as well as previously announced initiatives, that weren’t included in the budget implementation act that received royal assent last week.
Here are the developments to watch for between now and the end of the year:
Review of housing as an asset class
In Budget 2022, the government proposed “a review of housing as an asset class to better understand the role of large corporate players in the market,” citing the concern that “concentration of ownership in residential housing” was leading to higher rents and house prices. In their 2021 election campaign platform, the Liberals expressly targeted REITs as contributing to housing affordability problems. Details of the government’s review will be released later this year, with potential early actions to be announced before the end of 2022, the government said in the budget.
First home savings account
In Budget 2022, the government proposed a tax-free first home savings account (FHSA) that would enable Canadians to save for a down payment for a first home. The account would have a lifetime contribution limit of $40,000 and an annual contribution limit of $8,000, with no age limit. The FHSA is slated to start in 2023.
At an Investment Funds Institute of Canada event in June, a panelist said that “the industry expects Finance to release draft legislation to implement the FHSA by the end of July, followed by a 60-day comment period. More draft legislation would likely follow in October, with final legislation expected to pass in mid-December.”
In Budget 2022, the government proposed an anti-flipping rule to tax gains earned on residential real estate held for fewer than 12 months as business income, subject to certain exemptions. Draft legislation to implement this proposal is pending.
Bill C-208 was a private member’s bill meant to facilitate “genuine” intergenerational transfers of small businesses, farms and fishing corporations. It was enacted on June 29, 2021, even though it did not have the support of the government, which was concerned that the bill created opportunities for tax avoidance.
In Budget 2022, the government announced a consultation process to determine “how the existing rules could be modified to protect the integrity of the tax system while continuing to facilitate genuine intergenerational business transfers.” That consultation process ended June 17. In the budget, the government said it would table legislation to address issues related to the passage of Bill C-208 this fall.
Minimum tax on top earners
In Budget 2022, the government proposed reviewing the existing alternative minimum tax regime to ensure top earners pay at least 15% per year, and said details about the new regime would appear in the fall fiscal and economic update.
Trust reporting rules
The government first proposed expanding the reporting requirements for certain trusts in Budget 2018. The changes were set to be effective this year, but legislation was never passed. In February, the government released draft legislation to implement the expanded trust rules and announced it was deferring implementation of the expanded rules by one year. The consultation period on the draft legislation closed April 5. In Budget 2022, the government confirmed that it intends to proceed with the enhanced reporting requirements.
In Budget 2022, the government proposed releasing a consultation paper “in the near future” on modernizing the general anti-avoidance rule (GAAR), with legislation expected to be tabled by the end of 2022.
Allocation to redeemers changes
The government’s proposed changes to taxation affecting ETFs and mutual funds (e.g., allocation to redeemers) was passed into law last year. Specific rules for ETFs were released in February’s draft legislation, and were out for comment until April 5.