The 2022 Federal Budget is coming soon. The government concluded its pre-budget consultations on February 25, though pre-budget consultations are still being conducted by the House of Commons Standing Committee on Finance. The Budget’s date has not been set.
As usual, the Budget 2022 is expected to contain many new tax changes. Interestingly, this year we have an early glimpse of what those changes could be. Prime Minister Justin Trudeau sent Deputy Prime Minister and Minister of Finance Chrystia Freeland a new mandate letter on December 16, 2021. Among other policies, the letter asks Freeland to set out plans for the implementation of many new tax measures. The letter outlines many tax priorities in very broad terms, which hints at what the government may announce in Budget 2022.
With regard to increasing tax revenues, the letter calls on Freeland to implement the following:
- the introduction of legislation to raise the corporate income tax payable by banks and insurance companies that earn more than $1 billion and to require them to pay a temporary Canada Recovery Dividend;
- the creation of a minimum 15 per cent tax rule for top-bracket earners;
- the introduction of a tax on luxury cars, boats, and planes;
- increased investment in the CRA, to close the tax gap and combat aggressive tax planning and avoidance; and
- modernization of the general anti-avoidance rule regime to focus on economic substance and to restrict the ability of federally regulated entities, including financial institutions such as banks and insurance companies, to use tiered structures as a form of corporate tax planning to flow Canadian-derived profit through entities in low-tax jurisdictions in order to reduce taxes back in Canada.
To improve the supply of affordable housing, the letter calls on Freeland to:
- introduce amendments to the Income Tax Act to require landlords to disclose in their tax filings the rent they receive pre- and post-renovation and to pay a proportional surtax if the increase in rent is excessive;
- establish an anti-flipping tax on residential properties, requiring properties to be held for at least 12 months;
- implement a tax on non-resident, non-Canadian owners of vacant, underused housing, and subsequently include foreign-owned vacant land within large urban areas (this is proposed by Bill C-8); and
- review and consider possible reforms to the tax treatment of Real Estate Investment Trusts, reviewing the down-payment requirements for investment properties, and developing policies to curb excessive profits while protecting small independent landlords.
The letter also calls for the following measures:
- The introduction of a tax credit for small businesses to invest in improvements to ventilation, to combat the spread of COVID-19 (this is proposed by Bill C-8);
- Increasing the Eligible Educator School Supply Tax Credit to 25 per cent, expanding eligibility to include tech devices, and ensuring that teaching supplies purchased for employment duties are eligible no matter where those duties are performed (this is also proposed by Bill C-8);
- To address labour shortages and help businesses grow, introducing a Labour Mobility Tax Credit of up to $600 per year for workers in the building and construction trades in eligible travel and temporary relocation expenses, and a Career Extension Tax Credit of up to $1,650 per year for seniors who want to stay in the workforce;
- Introducing an investment tax credit for capital invested in carbon capture, utilization, and storage (“CCUS”) projects;
- Supporting clean energy and clean technologies by introducing additional investment tax credits for renewable energy and battery storage solutions;
- Doubling the Mineral Exploration Tax Credit for minerals essential to the manufacture of vital clean technologies;
- Establishing an investment tax credit of up to 30 per cent for a broad range of clean technologies, both market-ready and emerging, to be identified in ongoing consultation with experts;
- To extend the life of home appliances, introducing a 15 per cent tax credit of up to $500 to cover the cost of repairs performed by technicians;
- Supporting first-time home buyers with the introduction of legislation to double the First-Time Home Buyers' Tax Credit;
- Working with financial institutions to create a tax-free First Home Savings Account;
- Supporting homeowners by introducing legislation to double the Home Accessibility Tax Credit and to establish a new Multigenerational Home Renovation tax credit;
- Introducing a one-time income tax deduction for health care professionals who are just starting out in their careers to help with the costs of setting up their practice in a rural community;
- Advancing the priority of Indigenous communities to reclaim full jurisdiction over tax matters;
- Implementing a national tax on vaping products;
- Introducing amendments to the Income Tax Act to make anti-abortion organizations that provide dishonest counselling to pregnant women about their rights and options ineligible for charitable status;
- Expanding the Medical Expense Tax Credit to include costs reimbursed to surrogate mothers for IVF expenses;
- Converting the Canada Caregiver Credit into a refundable tax-free benefit, allowing caregivers to receive up to $1,250 a year; and
- Working with the Minister of Innovation, Science and Industry, and with the support of the Minister of National Revenue, to implement a beneficial ownership registry.
Trudeau also said, to boost business investment and productivity, amendments to the Income Tax Act should be introduced to allow privately owned, Canadian-controlled businesses to expense up to $1.5 million of growth-enhancing investments, such as software, patents, and machinery—this is currently proposed by draft legislation introduced on February 4. He also asked to reform the Scientific Research and Experimental Development Program to reduce red tape, align eligible expenses with today’s innovation and R&D, and make the program more generous for companies that take the biggest risks.
There you have it. Those are only the changes that we know about—there could be some surprises too.