On November 4, 2022 the Minister of Finance introduced Bill C-32 which includes highly anticipated measures from Budget 2022 aimed to help with housing affordability, specific non-tax measures from Fall Economic Statement 2022, and previously proposed legislation.
The Department of Finance also released the following on November 3, 2022 related to measures that were not included in Bill C-32:
- Significant updates to draft legislation for the proposed excessive interest and financing expenses limitation (EIFEL) rules.
- An announcement that the proposed mandatory disclosure rules will be effective on the date Royal Assent is achieved (rather than January 1, 2023) for reportable and notifiable transactions in order to fully assess feedback received during the consultation period. The new reporting rules for uncertain tax treatments are still proposed to apply for taxation years beginning after 2022 (but penalties wouldn’t apply to taxation years that begin before the date Royal Assent is achieved).
- Newly introduced draft legislation for digital platform operators proposing to impose reporting and due diligence standards effective January 1, 2024, which follow the model developed by the Organization for Economic Co-operation and Development.
What are the key measures in Bill C-32?
New trust reporting rules are delayed another year
Most notably, the proposed new trust reporting rules are included in Bill C-32. If enacted, however, they would not be effective until December 31, 2023 and later tax years (under prior draft legislation, this date was December 31, 2022). Under these rules, express trusts and certain non-resident trusts must report additional beneficial ownership information in a new schedule in the trust return.
The proposals apply to Bare trusts, meaning Bare Trusts will need to start filing trust returns for December 31, 2023 and later taxation years or face significant penalties.
Expansion of the small business deduction (SBD)
The SBD provides Canadian controlled private corporations (CCPCs) with the benefit of a 9% tax rate applied to its first $500,000 of qualifying active business income—subject to the sharing of this small business limit with associated CCPCs.
Currently the SBD is reduced when a CCPC’s aggregate taxable capital (including taxable capital of associated companies) for the prior taxation year exceeds $10 million and is fully eliminated once the prior year’s aggregate taxable capital reaches $15 million.
Bill C-32 includes draft legislation that increases the upper limit from $15 million to $50 million for tax years beginning on or after April 7, 2022. This welcome change would result in more CCPCs gaining access to the SBD, thereby lowering their taxes.
Housing affordability proposals
Bill C-32 includes draft legislation for the following proposals aimed at increasing housing affordability:
- introduction of Tax-Free First Home Savings Accounts effective April 1, 2023
- doubling of the First-Time Homeowners Tax Credit starting in 2022
- the Multigenerational Home Renovation Tax Credit for 2023 and onwards
- the proposed new residential property flipping rule that deem gains on certain sales of residential property to be business income if held under 12 months, for dispositions on or after January 1, 2023 ( Fall Economic Statement 2022 proposes to further extend these rules to gains on assignment sales where the rights to purchase the residential property was owned less than 12 months.)
To promote clean energy, Bill C-32 includes draft legislation for the following:
- phase-out of flow-through shares for oil, gas, and coal activities
- new 30% Critical Mineral Exploration Tax Credit for certain mineral exploration expenses incurred in Canada and renounced to flow-through share investors
- expanding classes 43.1 and 43.2 to include air-source heat pumps
Other notable measures in Bill C-32 include:
- elimination of interest on student and apprenticeship loans beginning April 1, 2023—previously interest had been temporarily waived for two years, ending on March 31, 2023
- expanding the Medical Expense Tax Credit to include certain medical expenses incurred in Canada relating to surrogate mothers and donors, fertility clinics and donor banks starting in 2022
- new graduated disbursement quota for charities for tax years beginning on or after January 1, 2023
- new rules and penalties targeting certain planning aimed at avoiding tax debts
- extension of the general anti-avoidance rules (GAAR) to transactions that affect tax attributes that have not yet been used to reduce taxes
- targeting certain interest coupon stripping arrangements
- measures impacting certain financial institutions and life insurers, including an additional 1.5% tax (subject to a $100 million taxable income exemption shared by a relate group) and the Canada Recovery Dividend which imposes a one-time 15% tax (subject to a $1 billion exemption shared by a related group) to be paid over five years
- changes to the federal excise duty frameworks for cannabis and vaping products
- administrative changes to the Underused Housing Tax Act and introduction of Regulations, including an exemption for certain vacation properties
If you need help navigating these tax measures or have any questions, our advisors are here to help you—reach out to us here.
The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal, or tax advice, or an opinion provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.