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:
- $8,000 per year can be contributed into an FHSA plan to a maximum of $40,000.
- The amount cannot be carried forward. Use it or lose it.
- FHSA contributions are TAX DEDUCTIBLE when you put the money in and TAX FREE when you withdraw the funds to purchase a home.
- The funds must be used within 15 years or the account will be closed.
- Funds withdrawn from the FHSA for the purchase of a home is tax free and doesn’t have to be paid back.
- You cannot use both the FHSA and the HBP (Home Buyers Plan) for the same purchase.
- The FHSA can only be used once per person in their lifetime. Who is eligible: Those 18+ who have never owned a home before or in the last 4 years.
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:
- Substantive CCPCs (Canadian-Controlled Private Corporation)
- Foreign Resident Corporations
- Carbon Capture, Utilization and Storage
- Additional tax to banks and insurance companies
What Didn’t Change
Things we didn’t see that many thought we would see:
- Capital Gains inclusion rate increased – This remains unchanged.
- Tax on principal residence – Many economists have seen this as being a possibility. This remains unchanged.
- Charitable giving tax deduction modified – This remains unchanged.
- Reduction in small Business tax rates – This remains unchanged.
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.
