Tax Flash Bulletin

2022 Federal Fall Economic Statement

On November 3, 2022, Deputy Prime Minister and Minister of Finance, Chrystia Freeland, presented the 2022 Fall Economic Statement. The statement projects a deficit of $36.4 billion for the baseline scenario and $49.1 billion for a downside scenario for the 2022-2023 fiscal year. This is an improvement compared to the $52.8 billion deficit originally estimated in Budget 2022. We have summarized highlights of the personal and small business tax measures.

INDIVIDUALS

The economic statement did not contain any proposed changes to individual income tax rates. It confirmed and summarized a number of measures that were previously introduced in the Affordability Plan and Budget 2022, such as the Tax-Free First First-Home Savings Account (FHSA). The statement included some new minor measures as follows.

Automatic Advance Payments of Canada Workers Benefit

The Canada Workers Benefit (CWB) tax credit was expanded in Budget 2021 to increase benefits to taxpayers with modest employment and business income by raising the net income phase-out thresholds. The statement proposes to automatically issue three advance quarterly payments of the CWB to those who qualified for the benefit in the previous year, starting in July 2023 for the 2023 taxation year.

Elimination of Student Loan Interest

The statement proposes to make all Canadian Student Loans and Canada Apprentice Loans permanently interest-free, including existing loans, beginning April 1, 2023.

Extension of the Residential Property Flipping Rule to Assignment Sales

Budget 2022 introduced a new tax rule to deem profits from the sale of selling residential real estate owned less than 12 months to be fully taxable income and not eligible for capital gains treatment. The statement proposes to extend this new deeming rule to profits arising from the disposition of residential property rights via an assignment sale where the taxpayer owned the rights for less than 12 months. The ownership holding period will also reset once property construction is complete to prevent immediate flipping. The residential property flipping rule, including assignment sales, applies to transactions occurring on or after January 1, 2023. Refer to our Budget 2022 Tax Flash for more details on this proposed legislation.

Intention to Amend Minimum Tax Regime

In Budget 2022, the government committed to examining a new minimum tax regime to ensure that all wealthy Canadians pay their fair share of tax. The government plans to release a detailed proposal and path for implementation in Budget 2023.

BUSINESSES

The economic statement did not propose any changes to federal corporate income tax rates or to the $500,000 small business limit. The statement included some new measures to focus on sustainability incentives and job creation.

Investment Tax Credit for Clean Technologies

The statement proposes a refundable tax credit equal to 30 per cent of the capital cost of investments in:

• Electricity Generation Systems,
• Stationary Electricity Storage Systems that do not use fossil fuels in their operation,
• Low-Carbon Heat Equipment, and
• Industrial zero-emission vehicles and related charging or refueling equipment.

The Department of Finance will consult on any additional eligible technologies (e.g. large-scale nuclear and large-scale hydroelectric).

Companies that adhere to certain labour conditions will be eligible for the full 30 per cent credit, while those that do not will only be eligible for a credit of 20 per cent. The credit would be available as of the day of Budget 2023 and phase-out starting in 2032, ending by 2035.

Investment Tax Credit for Clean Hydrogen

The statement confirms the government’s commitment to establish an investment tax credit to support investments in clean hydrogen production. The credit will be based on the lifecycle carbon intensity of hydrogen where the lowest intensity tier could receive an investment tax credit of at least 40 per cent. The Department of Finance will launch a consultation on implementation.

Action to Reduce Credit Card Transaction Fees for Small Businesses

The government published draft legislation to regulate credit card transaction fees. However, it intends to enter into negotiations with financial institutions and interested parties to lower credit card transaction fees for small businesses. If the industry does not come to an agreed solution, the government will introduce the new legislation to regulate the transaction fees.

Introduction of Tax on Share Buybacks

In order to encourage corporations to reinvest in their workers and businesses, the government announced its intention to introduce a corporate-level 2 per cent tax to apply on the net value of all types of share buybacks by public corporations in Canada. The United States introduced a similar measure in the Inflation Reduction Act, signed into law on August 16, 2022. The details of the new Canadian tax will be announced in Budget 2023 to be effective January 1, 2024.

Consultation on Genuine Intergenerational Share Transfers

Notably, the government did not comment on or introduce new legislation to address the perceived gap in Bill C-208 that may unintentionally permit surplus stripping of private company shares without requiring that a genuine intergenerational business transfer takes place. The consultation period ended June 17, 2022. It remains to be seen if new legislation will be introduced in the future.

Refer to the official 2022 Fall Economic Statement for further details on the above tax announcements. (French link)

This has been prepared by the Professional Wealth Advisory Group of Raymond James Ltd., (RJL). Statistics and factual data and other information are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. This is intended for distribution only in those jurisdictions where RJL and the author are registered. Securities-related products and services are offered through Raymond James Ltd., Member - Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a Member - Canadian Investor Protection Fund.