As we approach the release of the 2023 federal budget, here’s another look at the status of major government proposals related to tax and estate planning:
Going through Parliament
Bill C-22, which would create the Canada Disability Benefit, is at second reading in the Senate. The bill does not, however, address many of the benefit’s details, which are to be established through regulation. The benefit will come into force no later than a year after the bill receives royal assent.
Made law in the 2022 fall economic statement bill
The fall economic statement bill received royal assent on Dec. 15, 2022, which means the following proposals are now law:
Enhanced reporting for trusts
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 that end after Dec. 30, 2023. Originally, the effective date for the legislation had been one year earlier.
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.
- The tax-free First Home Savings Account will come into force on April 1, and a homebuyer can use both the FHSA and the Home Buyers’ Plan for the same home purchase.
- The “residential property flipping rule,” which requires property to be held for at least 12 months, became effective on Jan. 1, 2023.
- The Home Buyers’ Amount has been doubled to $10,000 from $5,000, effective as of the 2022 tax year.
- The 15% Multigenerational Home Renovation Tax Credit for families adding a secondary unit to their home for a family member who is a senior or an adult with a disability to live with them is effective for expenditures paid after Dec. 31, 2022.
Surtax on banks and insurers
The bank and insurer surtax is set at 1.5% for taxable income over $100 million for taxation years that end after April 7, 2022.
Further, banks and insurers also have to pay a one-time 15% tax on the average of 2021 and 2020 taxable income above $1 billion, payable over five years beginning in the 2022 tax year. This is known as the Canada Recovery Dividend.
Taxation of ETFs and mutual funds
The revised allocation to redeemers formula requires that an 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 revised formula is in effect for tax years that began after Dec. 15, 2021 — i.e., the 2022 tax year for most ETFs.
Small business tax
The level of taxable capital below 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%) has been raised to $50 million from $15 million. This change is effective for tax years beginning on or after April 7, 2022.
Charity disbursement quota
As of Jan. 1, the disbursement quota rose to 5% from 3.5% for the portion of property registered charities do not use in charitable activities or administration that exceeds $1 million. The quota remains 3.5% for property below $1 million.
Outstanding proposals with progress
Canadian-controlled private corporations (CCPCs)
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
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.
Intergenerational wealth transfer
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.”
A Finance official told Advisor.ca in a November 2022 email that the government stands by its commitment and “information on next steps will be made available at an early opportunity.”
Reporting the fair market value of RRSPs
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, but it is not yet law.
Proposals with no major updates since our last check-in
- On Oct. 6, 2022, Minister Khera announced that the National Seniors Council would serve as an expert panel to study the idea of an Aging at Home Benefit.
- Phase 2 of a consultation on modernizing the EI system, as proposed in the 2020 speech from the throne, closed in July 2022. The consultation’s report was released in September.
- These promises from the 2019 election platform were mentioned in Finance Minister Chrystia Freeland’s 2021 mandate letter, but no progress has been announced since:
- raise the CPP (and QPP) survivor’s benefit by 25%
- make the Canada Caregiver Credit refundable
- implement a Career Extension Tax Credit for working seniors
- Increasing the guaranteed income supplement by $500 for single seniors and by $750 for couples, beginning at age 65, was included in the mandate letter for Kamal Khera, the Minister of Seniors, but no progress has been announced since.
- No progress has been announced on permitting free, automatic tax returns for simple situations, as promised in the 2020 throne speech.
- Nothing has been announced with regards to these 2019 election promises:
- increasing the Canada Child Benefit by 15% for kids younger than one year old;
- making EI maternity and parental benefits tax-exempt
- doubling the child disability benefit