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Jamie Golombek. I’m the managing director of tax and estate planning with CIBC Private Wealth.
Today’s budget contained a variety of tax measures for both individuals and corporations, and even something in there that will affect charities. So, let’s start on the individual side.
So no big changes in terms of tax rates. Tax rates are staying the same. However, they did note that some high-income Canadians are still paying relatively little in personal income tax as a share of their income. For example, 28% of filers that had a gross income above 400,000 — that’s the top 0.5% — paid an average federal tax rate of 15% or less by using a variety of deductions. Things like 50% taxable gains and the dividend tax credit.
So although we already do have an AMT, an alternative minimum tax, that’s been around since 1986, it hasn’t been updated in years. So the government is now going to update and explore a new minimum tax, and they’re going to unveil the details of that in the fall 2022 economic update.
But institutions will now have to start reporting the fair market value of RRSPs and RRIFs, at the end of the year. That will allow the CRA to focus its risk assessment activities on these large RRSPs and RRIFS that they might be worried about. They already get that information for TFSAs; so they’re just catching up now for RRSPs and RRIFS.
For homeowners, lots of stuff there. The big one, of course, is the introduction of the new tax-free First Home Savings Account (FHSA): a new registered account to help people save for a first home. Anyone over the age of 18 and who is a resident of Canada can participate if they haven’t owned a home in the current year or the previous four calendar years. You can put in $40,000 a lifetime, for an annual contribution limit of $8,000. That starts next year, at some point in 2023, once the financial institutions set it up. Now, what you can do is you get to deduct the amount that you put into the FHSA. And when you take the money out to buy a home, the amount comes out tax-free as well as all the income and the growth in the plan.
So, the nice thing is that you’ll be able to either use existing funds that you have or existing RRSPs. You can transfer funds, specifically from an RRSP to an FHSA, subject to the 8,000 annual and 40,000 lifetime limits. If you don’t buy a home within 15 years, you’ve got to close the account. And then you can actually transfer what’s left into an RRSP or RRIF, or pay tax on it if you choose.
So this will really be substantial to help people get that down payment for a home instead of relying solely on either the Home Buyers’ Plan, which will still exist, but you can’t do both. In other words, you can’t do the Home Buyers’ Plan and the new First Home Savings Account for the same home. So, expect it to launch sometime in 2023.
In addition, on the home front, they’ve also introduced the anti-flipping tax, which was expected. If you sell your home or rental property within one year, within 12 months, the deemed sale is deemed to be business income, not even 50% capital gains — and certainly not principal residence exemption on your home. So this is starting next year, January 2023. Of course, there’s exceptions for things like death, separation, disability, illness, employment change, and solvency.
They’ve doubled the home buyers’ amount credit. That’s gone up. Usually, it was worth $750. Now, it’s going to be worth $1,500 for a first-time home. They’ve now also bumped up the Home Accessibility Tax Credit for individuals over 65 or entitled to disability tax credit. That’s going from $10,000 to $20,000. And they’re introducing that multi-generational home renovation credit, with up to $50,000 of renovations being eligible for credit to allow a relative to live with you. So that’s certainly starting in 2023.
On the medical expense front; you know you get a medical expense credit on 15% of eligible medical expenses. They’re expanding the definition of expenses to include a variety of expenses that individuals can incur when they’re trying to become parents, like in the areas of surrogacy or sperm or embryo donations. So that’ll be very helpful for many people.
On the corporate front, for small business owners, good news. There’s currently a small business rate of 9% on the first $500,000 of small business rate income, up to $500,000 per year. That is, however, reduced on a straight-line basis if the capital of the corporation’s over $10 million, and it’s reduced completely once it’s $15 million. They’re going to bump up that range; so now your capital will reduce at a much slower rate from $10 million to $50 million. And that starts for any tax years that begin after today. So good news.
On Bill C-208, that’s the intergenerational share transfer rule that, really, the Income Tax Act tries to block surplus stripping, or stripping out retained earnings and capital gains rates — with an exception for a legitimate intergenerational business transfer. There is some concern that it might unintentionally permit some surplus stripping, and therefore the budget is asking for submissions and consultations on how to fix the law so that Bill C-208 continues in spirit, but doesn’t allow people to get away with inappropriate surplus-strip planning.
And then finally, on the corporate side, they are now officially doing away with this non-CCPC planning where certain taxpayers have, quote on quote, manipulated the CCPC status of the corporations to avoid paying refundable tax by continuing that corporation in a low-tax jurisdiction offshore, even though central money management is in Canada. That’s gone as of April 7th; as of today.
And then finally, on the charity side, they’re bumping up the disbursement quota 3.5% up to 5% of a required, what a charity must distribute in a particular year based on a fair market value with an exception for the first million dollars. For smaller charities, that’s going to 5%, and that is effective in 2023.