There was much speculation on what would be coming in the 2023 Federal Budget. Many economists that we follow predicted that tax increases were not possible based on the current tax levels, but the capital gains inclusion rate was on the table as well as several benefits for lower-income Canadians.
So, how did it all pan out? Here is a quick summary of what the budget proposes. Let us know if you have any questions on how this impacts you.
Health and Dental Plan
- Currently available for those under age 12
- Proposed change: Expanded to those under 18 and seniors
- No Group dental coverage
- Family Income below $90k
The government has a minimum tax for Canadians, called the Alternative Minimum Tax (AMT). However, the government feels like high income Canadians are still paying too little in tax.
- The government wants to broaden what impacts the AMT and
- They want to increase the AMT percentage from the current 15% to 20.5%
Inflation Relief Program
To help lower-income Canadians with inflating costs, Canadians eligible for the GST rebate will see their rebate double as soon as the budget passes.
First semester withdrawal restriction will increase from the current $5,000 to $8,000.
Bill C-208 had a loophole which penalized generational family business transfers. Bill C-208 was initially meant to close a tax loophole where companies would convert dividends to capital gains, but it inadvertently affected family businesses genuinely wanting to transfer their business to their kids/grandkids/nieces/nephews.
This is proposed to be fixed for the 2024 tax year.
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.
Employee Ownership Trusts (EOT)
The government has proposed allowing Employee Ownership Trusts including proposed rules and guidelines. This will most likely morph before it becomes effective January 1, 2024, but here is a quick summary. The proposed Employee Ownership Trusts:
- Allows the business owner to sell shares to employees
- Allows for a 10-year capital gain reserve
- Is NOT subject to the 21-year deemed disposition rule
- Beneficiaries must be employees of the trust
- Must hold a controlling interested in a qualifying business
- Cannot allocate shares to individual beneficiaries
This will be an interesting tool for small/medium-sized businesses looking to transition the company to employees. Stay tuned!
What We Didn’t See
We didn’t see:
- A change to the capital gains inclusion rate. This has been expected for some time…and yet we still wait.
- Increase in personal taxes. This wasn’t expected as personal tax rates are already high.
There seems to be a real focus in the 2023 Federal Budget on helping lower income Canadians. It also includes benefits to post secondary students and small to medium businesses in transition. As the proposed changes are rolled out, we’ll see how these programs work out practically.
If you have questions about any of the budget items and how they may impact your financial plan, feel free to reach out to your advisor.