The personal tax changes presented in the 2022 federal budget focus heavily on housing issues. There are many current worries about housing affordability and the government is focused on making home-buying more accessible with a particular focus on first-time buyers and making property flippers pay their fair share.
Other changes include the expansion of medical expenses for assisted reproductive technologies and a new tax deduction for construction workers who temporarily relocate for work.
Tax-Free First Home Savings Account
The budget proposes to introduce a new registered account, the Tax-Free First Home Savings Account (FHSA). Contributions to an FHSA would be tax deductible and qualifying withdrawals to purchase a first home would be non-taxable. There is a lifetime limit on contributions of $40,000, with an annual $8,000 contribution limit to begin in 2023. Any unused annual contribution room cannot be carried forward.
To be eligible, individuals must be Canadian residents, at least 18 years of age, and must not have lived in a home that they owned either at any time in the year the account is opened, or during the preceding four calendar years.
For flexibility with respect to funds in other registered plans, there would be the ability to transfer funds from a registered retirement savings plan (RRSP) to an FHSA on a tax-free basis, subject to the annual $8,000 and lifetime $40,000 limits. If amounts contributed to a FHSA are not used to purchase a first home, these funds can be transferred from an FHSA to an RRSP or registered retirement income fund (RRIF) on a tax-free basis. However, amounts transferred to an RRSP or RRIF would be subject to tax on withdrawal.
The existing Home Buyers' Plan (HBP) allows individuals to withdraw up to $35,000 tax-free from an RRSP to purchase a home but requires repayment over a maximum period of 15 years. Note that an individual cannot make both an FHSA withdrawal and a HBP withdrawal in respect of the same qualifying home purchase.
Home Buyers' Tax Credit
The budget proposes to double the First-Time Home Buyers' Tax Credit (HBTC) amount, which is a non-refundable tax credit available to first-time home buyers, from $5,000 to $10,000. This increased amount would provide up to $1,500 in tax relief. This measure would apply to acquisitions of a qualifying home made on or after January 1, 2022.
Multigenerational Home Renovation Tax Credit
The Budget proposes to introduce a new refundable tax credit, the Multigenerational Home Renovation Tax Credit (MHRTC) on eligible expenses. A qualifying renovation would be one that creates a secondary dwelling unit to allow an eligible person to live with a qualifying relation. The value of the credit would be 15% of the lesser of eligible expenses and $50,000, which would provide up to $7,500 in tax relief.
A qualifying relation means an adult who is a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece, or nephew of the eligible person which includes the spouse or common-law partner of one of these individuals.
An eligible dwelling is a housing unit that is owned by the eligible person or their spouse or common-law partner or a qualifying relation, and where the eligible person and qualifying relation ordinarily reside, or intend to ordinarily reside, within 12 months after the end of the renovation period.
The MHRTC may be claimed by the eligible person, their spouse or common-law partner, or a qualifying relation. Where one or more eligible claimants make a claim, the total amount claimed cannot exceed $50,000. Only one qualifying renovation would be allowed to be claimed in respect of an eligible person over their lifetime.
This measure would apply for the 2023 and subsequent taxation years, in respect of work performed and paid for and/or goods acquired on or after January 1, 2023.
Home Accessibility Tax Credit
The non-refundable Home Accessibility Tax Credit (HATC) provides a 15% credit on eligible home renovation expenses up to $10,000. The budget proposes to double the annual expense limit to $20,000, which would provide up to $3,000 in tax relief. This measure would apply to expenses incurred in the 2022 and subsequent taxation years.
Residential property flipping rule
The budget proposes to introduce a new deeming rule to ensure profits from the disposition of a residential property that was owned for less than 12 months would be deemed to be and taxed as business income. The resulting disposition would not be eligible for the 50% capital gains inclusion rate or the principal residence exemption.
The new deeming rule would not apply if the disposition of property is related to certain life events, such as death, separation, household addition, illness, employment change, insolvency, personal safety, and involuntary disposition.
The government indicated that details are forthcoming and there will be consultation on draft legislative proposals. This measure would apply in respect of residential properties sold on or after January 1, 2023.
Labour mobility deduction for tradespeople
The budget proposes to allow the deduction of up to $4,000 per year for reasonable lodging expenses for construction workers who temporarily relocate for work. The deduction would apply to construction tradespeople and apprentices who maintain an ordinary place of residence and maintain temporary lodging near to a temporary work location. Both locations must be in Canada.
The temporary lodging must be at least 150 kilometers closer than the ordinary residence to the temporary work location and the temporary relocation must be for a minimum duration of 36 hours.
Eligible expenses in respect of such a temporary relocation would include:
- reasonable amounts incurred for temporary lodging for the individual near the temporary work location;
- transportation for the individual for one round trip from the individual's ordinary residence to the temporary lodging; and
- meals for the individual in the course of travel while making one round trip to and from the temporary lodging.
An individual cannot claim expenses in which they received financial assistance from an employer that is not included in income.
The maximum amount of expenses that could be claimed in respect of a particular eligible temporary relocation would be capped at 50% of the worker's employment income from construction activities at the temporary work location in the year. Expenses could be claimed in a tax year before or after the year they were incurred provided they were not deductible in a prior year. Amounts claimed under this deduction would not be deductible under any other provision of the Income Tax Act, including as a moving expense. This measure would apply starting in 2022.
Medical Expense Tax Credit for surrogacy and other expenses
The Medical Expense Tax Credit (METC) is a 15% non-refundable tax credit that allows the deduction of qualifying medical expenses that exceed the lesser of a specified amount and 3% of the individual's net income.
This budget proposes to expand the definition of patient to allow medical expenses for assisted reproductive technologies to be claimed by the intended parent where a surrogate or sperm, ova, or embryo donation is involved.
Medical expenses paid by the taxpayer, or the taxpayer's spouse or common-law partner, with respect to a surrogate mother or donor could be eligible for the METC. For example, expenses paid by the intended parent to a fertility clinic for an in vitro fertilization procedure with respect to a surrogate mother or for hormone medication for an ova donor would be eligible for the METC.
In addition, reimbursement of medical expenses incurred by a surrogate mother or a sperm, ova, or embryo donor by the intended parent could be eligible for the METC, provided that the reimbursement is made in respect of an expense that would generally qualify under the credit.
This budget also proposes to allow fees paid to fertility clinics and donor banks to obtain donor sperm or ova to be eligible under the METC where the sperm or ova are acquired for use by an individual to become a parent. All expenses claimed under the METC would be required to be in accordance with the Assisted Human Reproduction Act and associated regulations.
These additional deductions would apply to expenses incurred in the 2022 and subsequent taxation years.
Tax measures for kinship care providers and foster parents of Indigenous children
To ensure consistent treatment between kinship care providers and foster parents receiving financial assistance from an Indigenous governing body and those receiving such assistance from a provincial/territorial government, this budget proposes to amend the Income Tax Act to:
- clarify that a kinship care provider may be considered to be the parent of a child in their care for the purposes of the Canada Workers Benefit amount for families and the Canada Child Benefit, regardless of whether they receive financial assistance from an Indigenous governing body, provided they meet all other eligibility requirements; and
- ensure that financial assistance payments for the care of a child received by kinship care providers or foster parents from an Indigenous governing body are neither taxable, nor included in income for the purposes of determining entitlement to income-tested benefits and credits.
These changes would be effective starting with the 2020 taxation year.
Borrowing by defined benefit pension plans
This Budget proposes to provide more borrowing flexibility to administrators of defined benefit registered pension plans. The change is with respect to borrowing for a purpose other than income-producing real property. The budget proposes to replace the current 90-day term limit on other borrowing with a limit on the total amount of additional borrowed money (for purposes other than acquiring real property), to be equal to the lesser of:
- 20% of the value of the plan's net assets; and
- the amount, if any, by which 125% of the plan's actuarial liabilities exceeds the value of the plan's assets net of unpaid borrowed amounts.
The new borrowing limit would be redetermined on the first day of each fiscal year of the plan, based on the value of assets and unpaid borrowed amounts on that day and the actuarial liabilities on the effective date of the plan's most recent actuarial valuation report.
Plan administrators must continue to comply with the provisions of federal or provincial pension benefit standards legislation. It is proposed that this change would apply to amounts borrowed by defined benefit registered pension plans on or after April 7, 2022.
Reporting requirements for RRSPs and RRIFs
This budget proposes to require financial institutions to annually report the total fair market value of property held in each RRSP and RRIF plan that they administer to the Canada Revenue Agency. The value would be determined at the end of the calendar year, starting with the 2023 tax year.
This information is already required to be reported by administrators of tax-free savings accounts.
Minimum tax for high earners
Even though the existing alternative minimum tax imposes a minimum 15% tax on high-income individuals and trusts that may otherwise pay little or no tax, the government is concerned that there are many wealthy Canadians who still pay little to no personal income tax each year. The budget announced that details on a new minimum tax regime will be released in the 2022 fall economic and fiscal update.