Federal Budget Highlights 2022
Personal Income Tax Measures:
Tax-Free First Home Savings Account (FHSA), a new registered account. FHSA contributions would be tax deductible and income earned in an FHSA would not be taxable while in the plan, nor taxable when withdrawn to buy a first home. To open an FHSA, you must be at least 18 years of age and a resident of Canada. In addition, you can’t have lived in a home that you owned either in the year you open the account or during the prior four calendar years. Individuals can only participate once in their lifetime and, once the funds are withdrawn to purchase a home, the FHSA must be closed within one year from the first withdrawal.
There’s a lifetime contribution limit of $40,000, and an annual contribution limit of $8,000, beginning in 2023. Unlike registered retirement savings plan (RRSP) or tax-free savings account (TFSA) contributions, unused annual contribution room cannot be carried forward, meaning an individual contributing less than $8,000 in a given year would still face an annual limit of $8,000 in subsequent years.
To provide greater flexibility, you’ll be able to transfer funds from an FHSA to an RRSP or registered retirement income fund (RRIF) on a tax-deferred basis. Transfers to an RRSP or RRIF won’t be taxable at the time of transfer, but amounts will be taxed when withdrawn from the RRSP or RRIF in the usual manner. Transfers will not affect RRSP contribution room in any way.
Flipping houses: The government continues to be concerned with individuals who purchase residential real estate with the intention of “flipping” it by selling it in a short period of time to realize a profit. Under our tax law, profits from flipping properties are fully taxable as business income. In other words, they’re not eligible for the 50-per-cent capital gains inclusion rate nor the principal residence exemption. The budget, therefore, proposed to introduce a new deeming rule, effective Jan. 1, 2023, to ensure that profits from flipping residential real estate are always subject to full tax. Specifically, profits from the sale of residential real estate, including a rental property, that was owned for less than 12 months would be deemed business income.
The new deeming rule won’t apply, however, if the sale of the disposition is related to a life event, including death, a household addition, separation, personal safety, disability or illness, employment change, insolvency or an involuntary disposition such as an expropriation.
First-Time Home Buyers’ Tax Credit: The government also proposes to double this credit to $10,000, worth $1,500 in non-refundable credits, double the Home Accessibility Tax Credit for eligible home renovations up to $20,000 (up from $10,000) for alteration expenses made by seniors or those entitled to the Disability Tax Credit to make their homes more accessible.
It also plans to introduce a new Multigenerational Home Renovation Tax Credit, which would provide a 15-per-cent refundable credit for eligible expenses (up to $50,000) incurred for a qualifying renovation that creates a secondary dwelling unit to permit an eligible person (a senior or a person with a disability) to live with a relative.
Medical Expenses: The budget is expanding the list of medical expenses qualifying for the Medical Expense Tax Credit to include a variety of expenses individuals may incur to become parents in the areas of surrogacy, sperm, ova or embryo donations.
Corporate Income Tax Measures:
Small Business Deduction: The budget introduces changes to allow more medium-sized CCPCs to benefit from the small business deduction. Specifically, the budget extends the range over which the small business deduction limit is reduced, based on a CCPC’s combined taxable capital employed in Canada, to $10 million to $50 million. This measure increases the amount of qualifying active business income that can be eligible for the small business deduction. This measure applies to taxation years that begin on or after April 7, 2022.
Assignment sales: According to the federal government, the current rules for the payment of GST/HST on the resale of housing that hasn’t yet been constructed or occupied gives an opportunity to speculators to avoid it (the tax doesn’t apply, for example, if the buyer had intended to live in the home). So now they’re proposing that GST/HST applies to all assignment sales of new or substantially renovated housing, starting May 7.