The 2022 Federal Budget was tabled on Thursday, April 7th by deputy prime minister and minister of finance Chrystia Freeland. It’s based on the pillars of making life more affordable while helping grow our economy. This budget sees a follow through on several items that were conceived by the Liberal Government during their 2021 federal election campaign. With the recent agreement reached between federal parties, we see some NDP priorities added to the budget as well. Below are some of the key points of what has been tabled with the entirety of the budget available to the public at the following website link: Budget 2022
With the large run-up in housing prices experienced across the nation over the past year, the federal government is moving forward with several initiatives that is expected to collectively total $10 billion in new funding over the next five years. Some of these initiatives include:
- First Home Savings Account: Included in the housing package is a new tax-free first home savings account for Canadians to assist in helping first-time home buyers get into the market. Starting in 2023, for those 18 and older that haven’t been on title of a residence in the last four years, this account will allow contributions of up to $8,000 per year and $40,000 overall. Contributions can be held in this account for up to 15 years, would be tax-deductible, and any growth on contributions and eventual redemption to purchase your first home would be entirely tax-free.
- Foreign ownership Ban: To assist in stabilizing the housing market, the government will introduce a two-year ban that will disqualify foreign persons from purchasing residential property in Canada. The foreign buyers ban will apply to condos, apartments, and single residential units. Permanent residents, foreign workers, and students will be excluded from this new measure. Foreigners who are purchasing their primary residence here in Canada will also be exempt.
- Tax Credits: A new Multigenerational Home Renovation tax credit would allow families to recover 15 percent of eligible expenses up to $50,000 for the creation of a secondary dwelling unit for a senior relative or one with a disability, starting in 2023. The federal government is also proposing to increase the ceiling on eligible expenses for the non-refundable Home Accessibility tax credit from $10,000 to $20,000, starting this year. This would allow recipients to reduce their tax owing by up to $3,000 for undertaking accessibility renovations to the home of someone 65 and older or living with a disability.
While the various initiatives listed are aimed to help with housing affordability, in our opinion the single largest driver of a cool-off in relation to home prices will be the rapidly increasing interest rate environment we find ourselves in, as central banks attempt to cool elevated inflation levels. The new First Home Savings account (FHSA) will create some interesting planning opportunities for young Canadians, but we are disappointed to find that if you make use of this program you are disqualified from also using the current Home Buyer’s Program (HBP) that is currently available to Canadians through their RRSP’s.
- Dental Care: Budget 2022 proposes funding of $5.3 billion over five years to Health Canada to provide dental care for low-income Canadians. Allocating additional funding to enhance access to dental care for underserved Canadians echoes the long-standing recommendations of the Canadian Dental Association (CDA). Starting in 2022, children under the age of 12 would be covered, which extends to teens, seniors, and people with disabilities by 2023. By 2025, all households under $70,000 in income would be fully covered under the new Canadian national dental plan. Additionally, households with incomes under $90,000 would receive partial coverage through co-pay.
- Increased Loan forgiveness for Doctors and Nurses in Rural Communities: Starting in 2023-2024, forgivable student loans for doctors and nurses working in remote and rural communities will be increased by 50% with student loans of up to $30,000 forgivable for nurses and $60,000 for doctors. Additionally, the federal government has committed to reviewing the current list of eligible professionals under the program, along with the definition of rural community, to ensure communities in need are not left without.
The proposal for federal dental care coverage represents a monumental shift in how dental fees are collected and the business of dentistry. More information will be necessary to evaluate the full impacts of what is being proposed.
With respect to an increased loan forgiveness amount, this will further incentivize rural locations for those in residency, and those who have recently entered practice. Nothing has been detailed regarding a change to minimum hours in order to be eligible, so this appears to be a great opportunity to accelerate debt payments after some of the negative rules introduced in past years (TOSI 2018).
Tax on Excess profits of Banks and Insurers
The federal budget includes two forms of tax changes specific to the country’s big financial institutions. First, a one-time, 15-per-cent charge on taxable income above $1 billion for the 2021 tax year. Second, the budget also announced plans to permanently increase the corporate income tax rate for banking and life insurance groups by 1.5 percentage points for taxable income above $100 million. The increase would bring the tax rate on income above that threshold to 16.5 percent from 15 percent.
The specific “Canada Recovery Dividend” (CRD) tax on banks and insurers was scaled back from some expectations and we don’t see it as a long-term issue, nor does it change our opinion on this sector. The heads of the banks are showing their frustration with a poorly structured and targeted additional tax that labels Canada as a more difficult area to operate long-term successful businesses. Operationally the banks will initially absorb the costs of these taxes and likely eventually pass them down to the consumer.
There were no changes to personal tax rates or tax brackets as they pertain to Federal tax.
With no mention of any changes to the capital gains inclusion rate, it appears priorities have shifted federally to address cost-of-living increases for Canadians. No specific measures were announced to immediately limit “surplus stripping” either.
If you have any specific questions or concerns about the 2022 Federal Budget and would like more information, please do not hesitate to contact your TPC Financial Group coordinator. Our office will be releasing ongoing updates as more is known about the specific changes and will provide additional details in the coming weeks.