Highlights of the Federal Economic Statement on November 3, 2022 (Canada)
Updated: Nov 4, 2022
Chrystia Freeland the Minister of Finance for Canada today released the economic statement at 4pm. The highlights are as follows;
Deficit Forecast for 2022
In the budget, the forecasted deficit will be just over $36 billion for 2022. This includes additional spending of $7.3 billion-worth of increased spending on programs that already existed or were contained in the 2022 budget in the spring.
In Canada, headline inflation declined for the third month in a row to 6.9 per cent year-over-year in September, below the 8.1 per cent peak in June 2022. This is expected to come down to 3% in 12 months from now based on a chart provided in the budget.
Bank of Canada
The Bank of Canada has been clear that it remains committed to using its monetary policy tools with interest hikes in order to return to the 2 per cent target and keep inflation expectations well-anchored. I n late October 2022, the Bank of Canada reiterated that it expects inflation to decline to around 3 per cent, the upper bound of its inflation target, in late 2023, and return to 2 per cent by the end of 2024. The Bank of Canada interest rate to be close to 3.8 per cent in the first half of 2023.
The unemployment rate was expected to increase from the current rate of 5.2 per cent to 6.3 per cent by the end of 2023.
So with the macro back drop the Statement goes into tax increases on several items.
Corporate Tax on Buy Backs
The 2022 Fall Economic Statement announces the government’s intention to introduce a corporate-level 2 per cent tax that would apply on the net value of all types of share buybacks by public corporations in Canada, similar to a recent measure introduced in the United States. The details of this new tax will be announced in Budget 2023, and the tax would come into force on January 1, 2024.
Writer comment -This is more taxation and not good for the general business economy. Following the US lead on the democratic lead is not good.
Global Minimum Tax on Corporations 15%
A global minimum tax regime, would ensure that multinational corporations are subject to a minimum effective tax rate of 15 per cent on profits in every jurisdiction in which they operate.
Writer comment -This again is more taxation and generally not good for the general business economy for Canada. The tax policy neglects investment and the tax depreciation (CCA claims) which punishes companies that are investing in the future with equipment, software, and other hard assets that may be not profitable in the beginning but are subject to this arbitrary tax. Thus, why invest here when you can go elsewhere and avoid this issue. Thus, not understanding what you are promoting is not good for Canadians.
Personal Minimum Tax
In Budget 2022, the government committed to examining a new minimum tax regime to ensure that all wealthy Canadians pay their fair share of tax.
Again, not understanding the tax code that this already exists for many years is surprising.
Writer comment -The minimum tax rules will again punish those that make investments into Canada by denying the tax depreciation and CCA claims and not good for Canadians.
Residential Property Flipping Rule- Expanded Definitions
Residential Property Flipping Rule, a new deeming rule to ensure profits from flipping residential real estate are always subject to full taxation. Starting on January 1, 2023, profits arising from dispositions of residential property (including a rental property) that was owned for less than 12 months would be deemed to be business income, subject to the exceptions listed below;
-The death of the taxpayer or a person related to the taxpayer;
-One or more persons related to the taxpayer becoming a member of the taxpayer’s household or the taxpayer becoming a member of the household of a related person;
- The breakdown of the marriage or common-law partnership of the taxpayer if the taxpayer has been living separate and apart from their spouse or common-law partner for at least 90 days prior to the disposition;
-A threat to the personal safety of the taxpayer or a related person;
-The taxpayer or a related person suffering from a serious illness or disability;
-An eligible relocation of the taxpayer or the taxpayer’s spouse or common-law partner (i.e., generally a relocation that enables the taxpayer to carry on business, be employed or attend full-time post-secondary education);
-An involuntary termination of the employment of the taxpayer or the taxpayer’s spouse or common-law partner;
-The insolvency of the taxpayer; or
-The destruction or expropriation of the property.
The 12-month holding period for the Residential Property Flipping Rule will reset once the property is owned by the taxpayer who entered into a purchase and sale agreement. This will ensure the Residential Property Flipping Rule cannot be bypassed when selling a constructed property simply because a taxpayer held the rights to purchase the property before it was constructed. In other words, the 12-month holding period would reset once a taxpayer secures ownership of the property.
Where the new deeming rule does not apply because of a life event listed above or because the property was owned for 12 months or more, it would remain a question of fact whether profits from the disposition are taxed as business income.
The Residential Property Flipping Rule, including the extension for assignment sales, would apply in respect of transactions occurring on or after January 1, 2023.
Writer Comment - For most people, you need to live at least 12 months in your new home after closing.
2022 Fall Economic Statement Announced More Programs to Come
-Post Economic Statement
The new Tax-Free First Home Savings Account, which would give prospective first-time home buyers the ability to save up to $40,000, tax-free. Like an RRSP, contributions would be tax-deductible, and withdrawals to purchase a first home—including investment income—would be non-taxable, like a TFSA. Tax-free in; tax-free out. The government expects that Canadians will be able to open and begin contributing to an account in mid-2023.
Double the First-Time Home Buyers’ Tax Credit, which would provide up to $1,500 in direct support to home buyers, starting in 2022, to help offset increasing closing costs involved in buying a home.
Introduce a new, refundable Multigenerational Home Renovation Tax Credit, which would provide up to $7,500 in support for constructing a secondary suite for a family member who is a senior or an adult with a disability, starting January 1, 2023.
To amend the Canada Student Financial Assistance Act, the Canada Student Loans Act and the Apprentice Loans Act to make new loans and outstanding loan balances interest-free.
Investment Tax Credit for Clean Technologies
The 2022 Fall Economic Statement proposes to introduce a refundable Clean Technology Investment Tax Credit equal to 30 per cent of the capital cost of eligible equipment.
The following types of equipment would be eligible for the credit:
-equipment to generate electricity from solar, wind and water energy that is described under subparagraphs (d)(ii), (iii.1), (v), (vi), and (xiv) of capital cost allowance Class 43.1;
-stationary electricity storage equipment that is described under subparagraphs (d)(xviii) and (d)(xix) of Class 43.1, but that does not use any fossil fuels in operation, which includes, but is not limited to, batteries, flywheels, supercapacitors, magnetic energy storage, compressed air energy storage, pumped hydroelectric energy storage, gravity energy storage, and thermal energy storage;
-active solar heating equipment, air-source heat pumps, and ground-source heat pumps that are described under subparagraph (d)(i) of Class 43.1;
-equipment to generate heat or electricity from concentrated solar energy;
-equipment to generate heat or electricity from small modular nuclear reactors; and
-non-road zero-emission vehicles described in Class 56 (e.g. hydrogen or electric heavy duty equipment used in mining or construction) and charging or refuelling equipment described under subparagraph (d)(xxi) of Class 43.1 or subparagraph (b)(ii) of Class 43.2 that is used primarily for such vehicles.
Going forward, the government will continue to review eligibility for relevant technologies, including additional ones.
Application and Phase-Out
The Clean Technology Investment Tax Credit would be available in respect of the capital cost of property that is acquired and that becomes available for use on or after the day that the 2023 Budget is released, where it has not been used for any purpose before its acquisition.
Businesses would be able to benefit from the full amount of both the Clean Technology Investment Tax Credit and the Atlantic Investment Tax Credit.
The Clean Technology Investment Tax Credit would be gradually phased out starting with property that becomes available for use in 2032 and would no longer be in effect for property that becomes available for use after 2034. The credit would gradually phase out with a credit rate of 20 per cent in 2032, 10 per cent in 2033 and 5 per cent in 2034.
The tax credit rate available under the Clean Technology Investment Tax Credit would depend on whether the claimant meets certain labour conditions. The Clean Technology Investment Tax Credit rate for eligible investments would require that all labour conditions be fulfilled in order to obtain the 30-per-cent rate. A 20-per-cent rate would be available to claimants that do not meet the labour conditions.
The Department of Finance will consult with a broad group of stakeholders, but especially with unions, on how best to attach labour conditions to the proposed tax credit. Additional details on the labour conditions will be announced in Budget 2023.
Strategic Environmental Assessment Statement
The Clean Technology Investment Tax Credit is expected to have positive environmental impacts by encouraging the adoption of clean technologies, contributing to fewer emissions of greenhouse gases and air particulates. This would contribute towards Canada’s goal of reducing greenhouse gas emissions by 40 to 45 per cent below 2005 levels by 2030 and achieving net-zero greenhouse gas emissions by 2050.
The Clean Technology Investment Tax Credit would also contribute to achieving the Federal Sustainable Development Strategy target related to achieving 90 per cent of electricity generated from renewable and non-emitting sources by 2030.
Hope you enjoyed the summary!
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Date: November 3rd, 2022
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