Last week, the government tabled Bill C-32 to implement proposals from the fall economic statement as well as several outstanding tax and estate-planning proposals from the 2022 federal budget. Here’s another look at the status of major tax proposals:
Enhanced reporting for trusts
Proposal: Any non-resident trust that files a T3 tax return and virtually all express trusts resident in this country will have to turn over beneficial ownership information to the Canada Revenue Agency (CRA) for taxation years ending on or after Dec. 31, 2021.
Status: Bill C-32 delayed the implementation of enhanced reporting requirements for trusts that were first proposed in the 2018 federal budget. The effective date has been pushed to taxation years that end after Dec. 30, 2023. This is the second time the date has been changed since the proposal was introduced.
Tax experts welcomed the delay because draft legislation from August confirmed that bare trusts are covered by the requirements, even though tax practitioners have expressed concern that clients may have bare trusts without realizing it.
Proposal: Introduce a tax-free First Home Savings Account to enable Canadians younger than 40 to save up to $40,000 toward their first home, with no taxes on contributions or withdrawals.
Status: The Liberals introduced the FHSA in the 2022 federal budget. Initial details of the FHSA were included in the August draft legislation. Bill C-32 stated that the FHSA will come into force on April 1, 2023, and that a homebuyer can use both the FHSA and the Home Buyers’ Plan for the same home purchase.
Proposal: Introduce an “anti-flipping tax” on residential homes, requiring property to be held for at least 12 months, as promised in the 2021 federal election.
Status: The August draft legislation provided more details on the tax, which was first proposed in Budget 2022 and is now called the “residential property flipping rule.” The fall economic statement extended the rule to include assignment sales. The rule is in Bill C-32 and will be effective as of Jan. 1, 2023.
Proposals: Double the Home Buyers’ Amount to $10,000 from $5,000. Introduce a 15% Multigenerational Home Renovation Tax Credit for families adding a secondary unit to their home for a family member to live with them.
Surtax on banks and insurers
Proposal: Raise the corporate income tax rate for banks and insurers on all earnings above $1 billion, another 2021 election pledge. These financial services institutions also would have to contribute to a Canada Recovery Dividend (CRD).
Status: Budget 2022 proposed that a bank and insurer surtax be set at 1.5% for taxable income over $100 million for taxation years that end after April 7. Draft legislation in August confirmed that banks and insurers would have to pay a one-time 15% tax on the average of 2021 and 2020 taxable income above $1 billion. Both proposals appear in Bill C-32.
Taxation of ETFs and mutual funds
Proposal: Change taxation affecting ETFs and mutual funds (e.g., allocation to redeemers) from the 2019 federal budget.
Status: Passed into law June 29, 2021, as part of the Budget Implementation Act, 2021. Mutual fund changes are retroactive to March 19, 2019. For ETFs, changes don’t apply to tax years that begin before Dec. 16, 2021, but do apply to tax years beginning after that day. The act broadened that deferral to include mutual fund trust ETFs created after budget day 2019.
Specific rules for ETFs were released in February’s draft legislation and appear in Bill C-32. The revised allocation to redeemers formula requires only that the ETF know its net asset values as of the end of the current and preceding tax year; the amount that was redeemed by unitholders; and the capital gain for the entire ETF. The changes continue to take effect for tax years that begin after Dec. 15, 2021 — i.e., the 2022 tax year for most ETFs.
RRSP and RRIF reporting
Proposal: Require financial institutions to report the total fair market value of each RRSP and RRIF annually to the CRA, as proposed in the 2022 budget.
Status: Addressed in the August draft legislation. As of the 2023 tax year, issuers of RRSPs and RRIFs will be required to annually report the fair market value of all property held by the plans at the end of the calendar year. The fall economic statement confirmed the government intends to proceed with this measure.
Small business tax
Proposal: Increase the level of taxable capital at which a business can still access the small business tax rate (a federal rate of 9% on the first $500,000 of taxable income, versus the general federal corporate rate of 15%), as proposed in the 2022 budget.
Status: This proposal is in Bill C-32.
Proposal: Make investment income earned and distributed by private corporations that are “substantive Canadian-controlled private corporations” subject to the same taxation as investment income earned and distributed by CCPCs.
Status: Draft legislation released in August proposes to make planning that results in non-CCPC status a reportable transaction so the CRA can assess whether or not the corporation is a “substantive CCPC.” The fall economic statement confirmed the government intends to proceed with this measure.
Minimum tax for high earners
Proposal: Develop a minimum tax rule to ensure that top earners (those earning more than $216,511 in 2021) pay at least 15% per year, as pledged in the last election campaign.
Status: In Budget 2022, the government proposed reviewing the existing alternative minimum tax regime to ensure top earners pay at least 15% per year. The fall economic statement affirmed the government’s intention to proceed with a new regime, and stated that details would appear in the 2023 federal budget.
Proposal: Enact a new Canadian disability benefit modelled on the guaranteed income supplement.
Status: On June 2, the Liberals introduced Bill C-22, the Canada Disability Benefit Act, to create a Canada Disability Benefit. The bill is being considered in committee.
Charity disbursement quota
Proposal: Examine raising charities’ disbursement quota, which currently is 3.5% (first proposed in the 2021 budget).
Status: In the 2022 federal budget, the Liberals proposed increasing the disbursement quota to 5% from 3.5% for the portion of property registered charities do not use in charitable activities or administration that exceeds $1 million. This proposal is in Bill C-32.
Proposal: 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. The government said in the 2022 budget that it would like 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.”
Status: A Finance official told Advisor.ca in a Nov. 17 email that the government stands by its commitment and “information on next steps will be made available at an early opportunity.”
Aging at home
Proposal: Create an expert panel to study the idea of an Aging at Home Benefit.
Status: On Oct. 6, Minister Khera announced that the National Seniors Council would serve as this panel.
Other promises with no updates
Proposal: Raise CPP (and QPP) survivor’s benefit by 25%, as promised during the 2019 federal election.
Status: Finance Minister Chrystia Freeland was directed to implement this in her 2021 mandate letter. No update since our last check-in.
Proposals: Increase the Canada Child Benefit by 15% for kids younger than one year old; make EI maternity and parental benefits tax-exempt; double the child disability benefit, all promised during the 2019 election.
Status: No progress.
Proposal: Revamp the EI system, as proposed in the 2020 speech from the throne.
Status: Employment Minister Carla Qualtrough’s mandate letter asked her to “bring forward and begin implementing a plan to modernize the EI system for the 21st century” by summer 2022. Phase 1 of consultations on modernizing the EI system closed in February; Phase 2 closed July 29. No update since our last check-in.
Proposal: Permit free, automatic tax returns for simple situations, as noted in the 2020 throne speech.
Status: No progress.
Proposals: Make the Canada Caregiver Credit refundable; implement a Career Extension Tax Credit for working seniors.
Status: Included in Freeland’s mandate letter, but not mentioned in Budget 2022.
Proposal: Increase the guaranteed income supplement by $500 for single seniors and by $750 for couples, beginning at age 65.
Status: Included in the mandate letter for Kamal Khera, the Minister of Seniors, but not included in Budget 2022.