On November 3, 2022, Deputy Prime Minister and Minister of Finance, Chrystia Freeland, released the 2022 Fall Economic Statement. The economic update reports an expected deficit for 2022-2023 of $36.4 billion with an expected surplus of $4.5 billion in 2027-2028. The update discusses the challenging economic landscape that Canada and the world are facing, and economic growth is expected to slow. The severity of the slowdown will depend on how inflation moderates. The government expects inflation to decline to around 3% in late 2023 and return to 2% by the end of 2024. The update addresses the Bank of Canada’s commitment to return to the 2% inflation target.
The update also confirmed many support programs previously announced and summarized in our publication Finance Announces New Support for Individuals. No major tax changes were announced however, the update confirms the governments intention to proceed with previously announced measures that were discussed in our 2022 Federal Budget Commentary. There were no comments in the economic statement whether there would be modifications to any of the previously announced measures. Although Finance has confirmed that the implementation of the mandatory disclosure rules regarding reportable and notifiable transactions will be delayed until Royal Assent to allow Finance to fully assess the feedback received from public consultation. Finance announced the launch of various consultations in conjunction with the economic statement. This update will focus on new measures not addressed in the earlier publications.
Personal Measures
Extension of the Residential Property Flipping Rules
As previously discussed in our Residential Property Flipping Rule publication, Finance proposed to introduce a new rule that will tax gains arising from the disposition of a “flipped property” as ordinary income. The 2022 Fall Economic Statement proposes to extend this to profits arising from the sale of the rights to purchase a residential property via an assignment sale. Profits arising from an assignment sale would be deemed to be business income if the rights to purchase a property were assigned after having been owned for less than 12 months.
Note the 12 month holding period resets once the property is owned by the taxpayer who entered into the purchase and sale agreement. This ensures the rule cannot be bypassed simply because a taxpayer held the rights to purchase the property before it was constructed.
This rule would apply to transactions occurring on or after January 1, 2023.
Canada Workers Benefit – Automatic Advance
The Canada Workers Benefit (CWB) is a refundable tax credit that supplements the earnings of low- and modest-income workers. An individual claims the CWB when completing their tax return. To get this credit in the hands of eligible individuals sooner, the update proposes to automatically provide individuals an entitlement for the current taxation year through quarterly advance payments.
Advance payments would be issued automatically starting in July 2023 for the 2023 taxation year. Half of an individual’s estimated CWB entitlement for a year, determined on the basis of their prior-year tax return (and where applicable, that of their spouse), would be delivered through advance payments in July, October and January. Any residual entitlement would be calculated and paid through the individual’s tax return for the year.
Eliminating Interest on Federal Student and Apprentice Loans
The 2022 Fall Economic Statement proposes to make all Canada Student Loans and Canada Apprentice Loans permanently interest-free, including those currently being repaid, beginning on April 1, 2023.
Business Measures
Taxation of Public Corporation Share Buybacks
The government intends to introduce a corporate-level 2% tax that would apply on the net value of all types of share buybacks by public corporations in Canada. The details of this new tax will be announced in Budget 2023, and the tax would come into force on January 1, 2024. A share buyback occurs when a corporation buys its own stock back from existing shareholders.
Investment Tax Credit for Clean Technologies
The economic update proposes to introduce a refundable Clean Technology Investment Tax Credit equal to 30% of the capital cost of eligible equipment acquired and that becomes available for use on or after the 2023 Budget Day. The credit would gradually phase out with a credit rate of 20% in 2032, 10% in 2033 and 5% in 2034.
Lowering Credit Card Transaction Fees for Small Businesses
The government intends to enter into negotiations with payment card networks and businesses to lower credit card transaction fees for small businesses in a manner that does not adversely affect other businesses and protects existing reward points for consumers. The government is publishing draft legislative amendments to the Payment Card Networks Act should the industry not come to an agreed solution.
Resources
ITC for Clean Technologies – List of eligible equipment
List of Previously Announced Measures
