The federal budget released April 2022 is an interesting budget. Many things happened we didn’t see coming and some expected things didn’t. This update will focus only on the main points I think will be of most interest to our clients.
First Home Savings Accounts (FHSA)
The biggest news is the introduction of the FHSA – First Home Savings Account. The goal – to provide a more tax efficient savings vehicle for first time home buyers.
How it works:
First Time Home Buyer’s Tax Credit
The budget proposes to increase this tax credit to $1,500 from the current $750.
Residential Property Flipping Rule
A residential property sold within 12 months of purchase (whether a principal residence or a rental property) will be fully taxable as business income. There are some exclusions to this rule. They are: death, separation, household addition – relative, employment change, insolvency, involuntary disposition, disability, employment change, threat to personal safety.
Ban on Foreign Ownership
In addition to the residential flipping rule, the government also proposed a ban for 2 years on foreign ownership of residential real estate in Canada. The purpose of this is to increase the housing supply for Canadians.
Multigenerational Home Renovation Tax Credit
If you plan to purchase a home with an ageing parent or are looking to purchase a home with your kids, there may be some tax incentives which apply to these situations. Reach out to your advisor to see if the rules apply to you.
Other Items of Note
There were several other items of note that I will not expand on here but some of them are:
What Didn’t Change
Things we didn’t see that many thought we would see:
There was much more in the budget than what we’ve listed here but these are the highlights we felt impacted our clients the most. Feel free to reach out to your Financial Advisor at Connect Wealth if you have any questions on how the new federal budget may impact your specific situation.
De-Bunking Your Budgeting Barriers. If you don’t have a million dollars in your account right now, it is likely that you hate budgeting. It’s even more likely that you’re annoyed, even enraged, the moment the topic arises. It’s an interesting phenomenon, we all want to be financially successful, yet this first step is often the […]
The income sprinkling rules outlined in July 2017 held strong and the rules pertaining to passive investment income weren’t as harsh as predicted. Specifically, Budget 2018 has implemented two simple measures as it pertains to passive investment income:
Budget 2018 proposed to provide for an alternative reduction to the small business tax rate where a Canadian Controlled Private Corporation (CCPC) and its associated corporations have investment income in the year exceeding $50,000. The amount of the reduction is $5 for every $1 of investment income exceeding $50,000. In effect, the small business tax rate reduction disappears if passive income in a related business exceeds $150,000 in a fiscal year.
Currently, private corporations are entitled to claim a tax refund equal to $38.33 for every $100 of taxable dividend Where the corporation has a combination of regular business income (taxed at the regular business rate which does not include a refundable tax element) and investment income (taxed at the corporate investment rate which includes a refundable tax component), planning was commonly implemented to have the business income distributed by way of eligible dividend (taxed at a lower rate) while still being able to claim the tax refund.Budget 2018 proposes to modify the refundable tax regime to eliminate this planning and ensure that, in general, the private corporation is entitled to a dividend refund only when non-eligible dividends are paid.
There are ways to reduce the impact the business tax changes outlined within Budget 2018 through other financial strategies. These strategies may include Individual Pension Plans, Cash Value Insurance, as well as the strategic use of prescribed loans. We highly recommend contacting your financial advisor to determine which of these strategies will best suit your financial situation.
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If you have any questions on this taxes, or the different kind of impact it could have on you, please, do not hesitate to contact us!
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