Canada: Tax provisions in federal budget for 2022

The federal budget for 2022 was presented 7 April 2022.

Although the budget does not propose changes to the federal corporate or individual (personal) tax rates, it introduces:

• A one-time 15% tax on bank and life insurer groups
• An additional 1.5% tax on the taxable income for members of bank and life insurer groups
• Measures to allow more medium-sized Canadian-controlled private corporations (CCPCs) to benefit from the small business deduction
• Special rules to prevent taxpayers from realizing tax deductions through the use of hedging and short selling arrangements
• Support for the use of the new international accounting standard for insurance contracts (IFRS 17) for income tax purposes, with the exception of the contract service margin (CSM), subject to certain relieving modifications
• A new borrowing limit to be imposed on registered pension plans based on the total amount of additional borrowed money for purposes other than acquiring real property, to replace the previous 90-day term limit borrowing rule
• New annual requirements for financial institutions to report registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs)—read an April 2022 report [PDF 271 KB] that focuses on provisions relating to the financial services industry
• A review of the federal scientific research and experimental development (SR&ED) program that provides tax incentives to encourage Canadian businesses to conduct research and development (R&D)
• Interest coupon stripping rules so that the total Canadian interest withholding tax paid under an interest coupon stripping arrangement is the same as if the arrangement was not undertaken
• A national, publicly searchable beneficial ownership registry by 2023 (accelerated from 2025)

Other measures in the budget focus on affordable housing and transitioning to the “green economy.”

• In particular, the budget announces tax changes intended to help individuals purchase their first home—including a new tax-free first home savings account (FHSA) and an increase to the home buyers’ tax credit—and also introduces a new “anti-flipping” tax.
• The budget includes several climate change measures—such as a long-awaited refundable investment tax credit for carbon capture, utilization, and storage (CCUS) and a 30% critical mineral exploration tax credit (CMETC).

The budget also announces several consultations on potential changes—such as modernizing the general anti-avoidance rule (GAAR), modifying the existing intergenerational business transfer rules, and implementing OECD’s Pillar Two international tax reform, among others. The budget reiterates the government’s commitment to the Organisation for Economic Cooperation and Development (OECD) Inclusive Framework on base erosion and profit shifting (the Inclusive Framework), and specifically Pillars One and Two.

With regard to indirect taxes, the budget includes the following proposals that would:

• Require digital platform operators to collect and report relevant information about sellers that use their platform to tax authorities
• Expand the goods and services tax / harmonized sales tax (GST/HST) hospital rebate for charities or non-profit organizations to include certain health care services delivered by nurse practitioners
• Provide that all assignment sales by individuals for newly constructed or substantially renovated residential housing would be taxable for GST/HST purposes
• Change the proposed new excise duty system on vaping products originally announced in the 2021 federal budget and amend the cannabis excise duty framework
• Repeal the 100% Canadian wine excise duty exemption (effective 30 June 2022) and eliminate the excise duty for beer containing no more than 0.5% alcohol by volume (ABV) effective 1 July 2022

Read an April 2022 report [PDF 329 KB] prepared by the KPMG member firm in Canada

Read an overview [PDF 1.7 MB] about indirect tax in Canada.