Jamie Golombek: What tax changes are coming to the federal budget?

Posted on by Duane Roberts

Taxes Personal Finances

You may now want to do something about at least one of these possible changes

Treasury Secretary Chrystia Freeland has a copy of last year's federal budget before submitting it in April 2021. This year's budget will be cut on April 7. Treasury Secretary Chrystia Freeland has a copy of last year’s federal budget before submitting it in April 2021. This year’s budget comes down on April 7. Photo by David Kawai/Bloomberg

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Treasury Secretary Chrystia Freeland will present the federal government’s budget plan on April 7, which could include a variety of tax measures that affect individuals, businesses and charities. Here’s a quick list of potential tax changes, along with a forecast of whether we’re likely to see them next week.

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TAX RATES

Can we see an increase in the top tax rate for the highest incomes? Possibly.

The top federal tax rate of 33 percent starts at income above $221,708 for 2022. The NDP’s pre-election platform increased this by two percentage points to 35 percent. That would bring the highest combined marginal tax rate, including both the federal and provincial components, to about 55.5 percent in British Columbia, Ontario and Quebec, while that of Nova Scotia would be 56 percent.

In light of the liberal-NDP’s non-coalition coalition, and given that it was the liberals who raised the top rate for high-income earners from 29 percent in 2016 to 33 percent, this could be on the table.

Boutique Tax Rebates

The Liberals’ pre-election platform promised to double the tax credit for first-time homebuyers, introduce a home renovation tax credit to help families add a secondary unit to their home for an immediate or extended family member, and create new credit for repair of household appliances.

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Given the government’s track record of introducing other targeted credits, including the recently improved education school eligible tax credit and the digital news subscription tax credit, we could formally introduce it next week for the 2022 tax year.

First savings account at home

The budget may include details of the new tax-exempt First Home Savings Account, which will allow Canadians under 40 to save up to $40,000 for their first home. Like a registered contribution to the retirement savings plan (RRSP), the funds contributed to the account would generate a tax deduction, effectively allowing an eligible person to contribute up to $40,000 of their pre-tax income to the new plan.

The money can then be compounded and become tax-free within the plan until you can withdraw up to a maximum of $40,000 tax-free. There would be no obligation to repay it, unlike amounts withdrawn from the current RRSP-based Home Buyers’ Plan. If the funds in the proposed new account are not used toward a home purchase by age 40, they will be reverted to normal RRSP savings.

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It’s likely we’ll see the details of the new plan in the budget, with an expected launch date in 2023.

Anti-flipping load

The government has already announced its intention to introduce an anti-flipping housing tax designed to “reduce speculative demand in the market and help cool excessive price growth”, and to provide it for the Canada Revenue Agency (CRA). ) to make it easier to reassess alleged primary residence exemption (PRE) abusers.

Promised as part of the party’s pre-election platform, the plan would remove the PRE from individuals who sell their primary residence within 12 months of purchase (or transfer of ownership), and treat the profits from the sale as taxable capital gains beginning in the 2022 tax year. (There are some notable exceptions).

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Capital Gains Inclusion Rate

No discussion of personal tax changes would be complete without the annual warning about a potential increase in the capital gains withdrawal rate. It was not on the Liberal election platform, but since the NDP’s playbook had an increase in the capital gains inclusion rate to 75 percent, some were concerned that the NDP might exert some influence over the Liberals in setting tax policy for the coming year. budget.

If an amendment were announced, it would likely come into effect from budget day. As a result, investors fearing an imminent increase in the drawdown rate may consider rebalancing their portfolio by taking profits at this point, capturing a 50 percent drawdown rate. There are also more advanced tax strategies that can save you some time if you’re not sure what might happen to the withdrawal rate.

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Measures by private companies

The government may decide, through new amendments to the law, to abolish several corporate tax planning schemes that some sophisticated taxpayers have adopted to reduce taxes that would otherwise have to be paid through their private companies. Currently, the CRA is executing plans it dislikes through the legal system, but a legislative solution could make that easier. In particular, the government may focus on stripping surpluses and non-Canadian-controlled private companies for legislative reform.

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A home for sale and sold sign in Winston Heights was photographed on Tuesday, May 4, 2021. Calgary has sold a record number of homes in recent months. Gavin Young/Postmedia

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Charitable donations

The Standing Committee on Finance’s pre-budget report released last week contained 222 recommendations for tax changes and spending. One was the revival of an old measure to abolish the capital gains tax on donations of shares in private companies or real estate to charities. Currently, the capital gains exemption only applies to donations of publicly traded securities, mutual funds, eligible environmentally sensitive land, or Canadian cultural property.

This measure was introduced by former Treasury Secretary Joe Oliver in the 2015 federal budget and was supposed to come into effect for donations from January 1, 2017, but was canceled in 2016 by the Liberal government without any warning or explanation, so it’s unlikely we’ll will see this being reintroduced next week.

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Charitable Payout Quota

Registered charities must spend a minimum amount each year on their own charitable programs or on donations to other charities. This required expenditure, also known as the payout quota (DQ), is based on the fair market value (averaged over a 24-month period) of a charitable organization’s property, such as real estate or investments, that is not used for charitable activities or administration. Currently, the DQ for Canadian charities is set at 3.5 percent.

In last year’s federal budget, the government announced its intention to potentially increase the DQ by 2022, which “could increase support for the charitable sector, benefiting those who depend on its services.” Public consultations were held and ended on September 30, 2021. The government can choose to increase the DQ to a higher percentage in the upcoming budget.

Jamie Golombek, CPA, CA, CFP, CLU, TEP is the General Manager, Tax & Estate Planning at CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com

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