MNP’s Gavin Miranda highlights key details professionals in Canada should consider following the tabling of the 2022 Federal Budget in early April.
The new Federal Budget, announced on April 7, 2022, included a number of initiatives that will directly impact professionals across Canada.
Perhaps the biggest news is what was not in the budget: no increased corporate or personal income tax rates. In addition, the 50-percent capital gains inclusion rate has not been changed, still providing people with the opportunity to review their situation and their remuneration strategies.
Budget 2022 proposed a dental care program that will be rolled out over a three-year period beginning in 2022 with specific details to follow. The program is estimated to provide $5.3 billion over five years and will be restricted to families with an income of less than $90,000 annually, with no co-pays for those under $70,000 in income annually.
Phasing out of certain tax credits
The Federal Budget also proposes to phase out access to the small business income tax rate on a more gradual basis by extending the taxable capital range over which the small business limit is reduced. While this may have an impact for some professional corporations that, for example, hold real estate assets or a large portfolio, the current “aggregate investment income” thresholds of between $50,000 and $150,000 will continue to apply to reduce the small business deduction of those and other professional corporations.
Certain professionals and / or professional groups have made use of flow-through shares (FTS) as part of their overall investment strategy. The Government is proposing to eliminate the FTS regime as it applies to fossil fuel sector activities for any agreements entered into after March 31, 2023. However, the Government proposes to introduce a new 30-percent Critical Mineral Exploration Tax Credit for specific mineral exploration agreements entered into after April 7, 2022, and on or before March 31, 2027.
New tax-free home savings account
Housing affordability is a very mainstream topic these days and perhaps the most significant announcement in this regard was the introduction of the Tax-Free First Home Savings Account (FHSA). Key highlights of the program:
- Annual contribution of $8,000 (with no carry forward) to a lifetime maximum of $40,000
- A deduction for the contribution when made
- No taxation of the investment income earned
- No taxation upon withdrawal (including any investment income withdrawn) provided the funds are used for a qualifying first home purchase
- Available for persons who are aged 18 to 40 commencing in 2023
- A qualifying person will only be able to use either the Home Buyers Plan or FHSA for withdrawals towards a home purchase
The new program may provide professionals earlier in their career with increased ability to save for their first home but will foster additional considerations when deciding how to allocate their investment dollars amongst the options of a Registered Retirement Savings Plan, Tax Free Savings Account, FHSA and debt repayments.
Budget 2022 did not make any direct changes to the principal residence exemption (PRE) but it did announce that tax will apply to any residential property profits (including rental property) where the property was owned for less than 12 months – essentially denying the PRE on that disposition. However, exemptions will be available where certain life circumstances triggered the sale of the property.
Loan forgiveness, mental health, fertility treatments
Some of the other items to note in Budget 2022 include:
- A review of the minimum tax regime with details to be released in the fall 2022 economic and fiscal update which could increase the tax burden of those in higher tax brackets
- Increasing the loan forgiveness for doctors and nurses in rural and remote communities to $60,000 and $30,000 respectively, as well as reviewing the qualification for “remote community”
- Providing $140 million over two years to the Wellness Together Canada portal supporting mental health
- Helping to address the opioid crisis by providing $100 million over three years to Health Canada for Substance Use and Addictions Programs
- Providing $25 million over two years to establish a Menstrual Equity Fund thereby providing access to menstrual products to those in need
- Increasing the eligibility for the Medical Expense Tax Credit in 2022 and subsequent years for:
- Medical expenses related to a surrogate mother, a sperm, ova or embryo donor incurred in Canada
- Fees paid to fertility clinics and donor banks in Canada
This report is provided by MNP. It is for informational and educational purposes only as of the date of writing. This information should not be considered investment, tax or legal professional advice. For specific advice about your situation, please consult a tax, accounting, legal or financial professional. The information contained in this report has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. CDSPI, CDSPI Advisory Services Inc., MNP and our affiliates are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.