With the release of a new Federal Budget, we wanted to drop a highlight reel of the important changes and new mandates as they relate to business owners (with a few interesting additions).
Let’s dive right into the 2022 Federal Budget Breakdown:
Increased Threshold for Small Business Capital
The taxable capital threshold for small business tax rate will be increased for those small businesses whose taxation years began on or after April 7, 2022. This budget item has been introduced to limit the disincentives for small businesses to make more than $10 million in capital, as the previous tax rate phase out sat between $10 million and $15 million. With the 2022 budget, the tax rate phase out will now be between $10 million and $50 million.
No Tax Rate Increase
Cue sigh of relief. There will not be any direct personal tax rate increases with the new budget. Along with that, there will not be any general corporate tax rate increases either. That also means that there will be no increase of the capital gains inclusion rate (it currently stands at 50%).
Despite the swirling rumour mill, there will not be an introduction of a new wealth tax in the 2022 budget.
New Minimum Tax for High Earners
We knew that last item sounded too good to be true. While no hard details have been released, the government has stated that it will propose a new minimum tax for “high earners” this fall. This will certainly be something to keep an eye on for the future.
Tax-Free Savings Accounts for First-Time Homebuyers
Housing prices are through the roof right now (the average home price in Edmonton is $500k), so the budget is now promising the introduction of a TFSA to give first-time homebuyers an opportunity to save up to $40,000. Contributions to the new TFSA will be tax-deductible, and if the money is pulled out to purchase a home, that withdrawal will not be taxed. The budget estimates that this will provide up to $725 million in support in the next five years.
The budget includes a $2.6 billion commitment to finance a tax incentive for businesses that invest in carbon capture, utilization, and storage. There is also a plan to expand incentives for the purchase of electric vehicles (EVs). The EV incentive program will cost $1.7 billion over the next five years. The government will be imposing a sales mandate that will make sure that at least 20% of new light-duty vehicles sold in Canada must be zero-emission vehicles.
But wait! There’s more. The government plans to spend $3.8 billion on a strategy to develop the exploitation of critical materials used in electronics.
No More Deferring Tax Using Foreign Entities
Ah, white sand beaches, Caribbean sun, and low tax rates: paradise on earth. Well no longer. The new budget contains stipulations to limit Canadian-owned entities from avoiding taxes by operating in foreign countries. To do that, the budget creates a new type of corporation, called Substantive Canadian Controlled Private Corporations (or Substantive CCPCs). According to the new rule, any private corporation that is de facto owned/controlled by Canadian residents will be subject to the same tax regime as standard CCPCs.
If you have any questions about how the budget might affect you or your business, don’t hesitate to reach out to your HGA CPA Advisor!