2022 Federal Budget Highlights

FRIDAY, APRIL 8 2022

The 2022 federal budget focuses on new spending in a wide variety of areas including housing, health care, job measures, and environmental programs. Corporate income tax increases were restricted to the banking and life insurance industries. There are no immediate increases in personal taxes, including no changes to the capital gains rates. However, the budget does mention potential future additional personal tax measures and possible changes in minimum taxes that could impact high income individuals currently paying low tax. The budget also introduced many new personal tax credits targeting assistance for affordable housing and specific medical expenses. For additional information about the below or any other 2022 federal budget measures please reach out to your RMT team member. 


Corporate Measures

Larger Corporations Qualify for the Small Business Deduction

  • Prior to the release of the 2022 budget, small and medium size businesses in Canada had access to the small business deduction (9% tax rate on the first $500,000 of taxable income) if they had capital employed in Canada of less than $10 million. There was a grind on this limit reducing it to zero when capital reached $15 million. The budget proposes an increase in the taxable capital employed in Canada limit from $15 million to $50 million which will allow larger corporations to qualify at least in part, for the 12.2% combined Federal and Ontario corporate tax rate as opposed to the 26.5% combined Federal and Ontario corporate tax rate.

Stricter provisions surrounding corporation tax measures on investment income 

  • There are some Canadian controlled private corporations (“CCPC”) that changed their corporate tax status to non-Canadian controlled in order to reduce their corporate tax rate on investment income. The budget proposes targeted amendments to the Income Tax Act that ensure that investment income earned and distributed by private corporations, that are in substance CCPCs, is subject to the same taxation as investment income earned and distributed by CCPCs. The targeted amendments have not yet been released.

Audits of Larger Entities

  • The government is continuing to invest in CRA, increasing funding starting in 2022-23 and the proceeding 5 years with an allocation of $1.2 billion. The stated goal of the funding is to provide additional resources for auditing larger entities or non-resident corporations engaged in aggressive tax planning.

Charitable Sector Amendments

There were 2 targeted measures for charitable organizations including a major change to distribution requirements:

  1. Each year charities are required to spend a minimum amount based on the value of its investment assets, this is known as the disbursement quota. Currently the investment quota is 3.5%. This will increase to 5% for investment assets exceeding $1 million. This is effective for a charity’s fiscal period beginning on or after January 1, 2023 and will be reviewed after 5 years.

  2. The Budget provides additional support for the charitable sector by amending the Income Tax Act to allow a charity to provide its resources to organizations that are not qualified donors provided that the charity meets certain requirements designed to ensure accountability.

Personal Tax Measures

Alternative Minimum Taxes (“AMT”)

  • The budget proposes to examine a new AMT and will release details of this tax later this year. Currently AMT ensures that if an individual earns preferential types of income (for example capital gains) and no other types of high rate income, the individual pays a minimum amount of tax.

Stricter Rules Surrounding Principal Residence Exemption

  • Fully taxable business income will result if a residential property is sold within 12 months of purchase and the sale occurs other than as a result of a specified exemption. This is a very significant change as historically many individuals have claimed either a principal residence exemption application or capital gain treatment.

Personal tax measures targeting affordable housing

Multigenerational Home Renovation Tax Credit

  • Starting in 2023, up to $50,000 in costs for an eligible renovation of constructing a secondary suite on a home, can be claimed to provide a $7,500 tax savings.

First-Time Home Buyer’s Tax Credit

  • The budget is doubling the First Time Home Buyer's Tax Credit which is applicable for home purchases after January 1, 2022. A first-time home buyer may claim the credit to save $1,500 in tax, up from the current $750 of savings.

Tax-Free First Home Savings Account

  • This is a new account whereby contributions to this new account will be tax-deductible, while any withdrawals (and income generated) are non-taxable. The account will assist in saving up to $40,000 with an annual cap of $8,000 per year.

Personal tax measures targeting new medical expense credits 

Expansion of Medical Expenses

  • The budget proposes the expansion of medical expense claims to include expenses incurred by Canadians who want to become parents.

Increase in Home Accessibility Tax Credit

  • The qualifying expenditure limit increasing from $10,000 to $20,000 which results in a tax credit of up to $3,000 for expenses such as purchasing and installing wheelchair ramps, widening doors, etc. for seniors and those with disabilities.

Other Measures

Proposed Changes to the General Anti-Avoidance Rule (GAAR) rules are being reviewed with new legislation proposed for the end of this year. GAAR is a general provision that allows Canada Revenue Agency to deny tax benefits that are viewed as abusive. 

GST/HST on newly constructed or substantially renovated residential housing

  • Budget 2022 proposes that all assignment sales of the above noted residential properties will be subject to GST/HST effective May 7, 2022.

Clean Technology Tax Credit

  • The budget announces that a tax credit of up to 30% of investments made in net-zero technologies, battery storage solutions, and clean hydrogens. Further details will be made available in the 2022 Fall Economic and Fiscal Update.