Federal Budget 2023: Part two – Environmental initiatives and modernizing the GAAR

Pre-budget insights and analysis

Video overview

With Federal Budget 2023 expected in the coming weeks, Tara Benham, our National Tax Leader discusses key measures that the government may include and how they’ll affect Canadian individuals and businesses in a two-part video series. 

In this second video, Tara shares insights on the potential for new environmental incentives to support the focus the governments has on meeting emissions targets and modernizing the general anti avoidance rule (GAAR) to address aggressive tax planning. 

Video transcript

Click to read the transcript

Hi, I'm Tara Benham, National Tax Leader for Grant Thornton.  

Welcome to the second part of our two-part series on what to expect in Federal Budget 2023. 

In this video, I'm going to focus on two additional measures: 

  • environmental initiatives to support the government in meeting its emission targets 
  • the possible modernization of the general anti-avoidance rule, which is meant to combat aggressive tax avoidance 

Environmental initiatives 

Environmental initiatives have been an ongoing focus for the Liberal government since they first took power in 2015, and we expect this to continue in Budget 2023. We will look for additional measures in line with several sustainability initiatives enacted in recent years. 

Why does it matter? 

From flooding, wildfires, and drought, Canadian communities are feeling the effects of climate change each year, and the calls to do more are getting louder. The environment has long been a focus for the Liberal Party. Their climate plans outlined 38 separate commitments related to environmental initiatives. To live up to their election platform, sustainability needs to play a central role. 

Additionally, Canada has made global commitments that need to be met. In order to reduce emissions by 30% in 2030, and to achieve zero emissions by 2050, the government needs to stimulate businesses and individuals to work on meeting these targets. 

What’s expected in Federal Budget 2023? 

For some ideas on what's important to Canadians, The Green Budget Coalition submitted a list of recommendations which may align with the Government's plans on sustainability. 

These could include:  

  • an investment tax credit to support clean electricity, including renewables, energy storage technologies, and zero-carbon hydrogen 
  • partnering with the provinces to upgrade the efficiency of residential buildings, low-income households, and Indigenous communities 
  • increasing the funding for skills development for the retrofit economy 

GAAR reform 

Second, calls for improvements to the General Anti-Avoidance Rule of the Income Tax Act, also known as GAAR, have been growing in recent years. Alongside the potential wealth tax mentioned in our previous video, this budget may include commitments to strengthen the GAAR. 

Why does it matter? 

Since the release of the Panama, Pandora, and Paradise Papers, there is greater public perception of possible loopholes and the desire to ensure that all Canadians pay their fair share of tax. 

Updating the GAAR could address aggressive tax planning and avoidance by individuals and businesses and create a fairer tax system.  

What’s expected in Federal Budget 2023? 

  • Some of the potential changes to the GAAR include:  
  • addressing mixed purpose transactions to prevent abusive avoidance 
  • clarifying how to determine the object, spirit, and purpose of the income tax provisions to help the courts prove the existence of abusive transactions 
  • adding an explicit economic substance rule to ensure that the courts consider the purpose of the transactions 

For more details on what to expect in Federal Budget 2023, check out the first in our two-part series. 

Watch the first video of the two-part series on other potential key measures and read our full summary on what to expect in Budget 2023. You can also find more on our Federal Budget 2023 hub page. 


Subscribe for more.

Get the latest information in your inbox.

Subscribe to get relevant and timely information and event invitations.