On April 7th, Finance Minister, Chrystia Freeland announced the new proposed changed to the Federal Budget 2022. It contains many initiatives that will impact all Canadians to some degree on financial, tax & estate planning issues. The main theme in this budget was making housing more affordable. It includes over $31 Billion net spending over the next 5 years and includes several measures impacting individuals, families, seniors & business owners.
First, I would like to mention what will not change:
There will be no changes to the personal income tax rates or brackets;
Capital Gains inclusion rate will remain at 50%; and
Our Principal Residence Exemption (PRE) will not change and remain tax exempt
Here are my 8 top highlights from Budget 2022: 1. Tax-Free First Home Savings Account (FHSA)
The Budget proposed to introduce a new registered plan called the Tax-Free First Home Savings Account (FHSA) that will help individuals save for their first home. Features include:
Contributions will be tax deductible
Income earned in the FHSA will be tax free
Qualifying withdrawals to purchase a first home will be non-taxable while withdrawals for other purposes will be taxable
Lifetime limit = $40K, subject to annual contributions limit of $8K
No carry forward of unused contribution room
Tax deferred transfers to RRSPs/RRIFs available, without reducing RRSP contribution room
Tax-free transfers from RRSP to FHSA available, subject to lifetime and annual FHSA limits
15 year window to purchase a qualifying first home, otherwise plan must be closed or transferred to an RRSP or RIF.
There are some restrictions and qualifications required. They are:
Cannot make a Home Buyers Plan withdrawal and FHSA withdrawal in respect of the same qualifying home purchase
Eligibility:
Must be a resident of Canada
Must be 18 years or age or older
Must not have lived in a home owned either at any time in the year the account is opened, or during the previous four calendar years
Limited to making non-taxable withdrawals for one single property in a lifetime
FHSAs must be closed with one year after the first non-taxable withdrawal
Effective date: sometime in 2023
2. First-Time Home Buyers Tax Credit
Budget 2022 proposes to double the First-Time Home Buyers Tax credit amount from $5K to $10K
Enhanced credit = $1500 in direct savings
First-Time Home Buyer defined:
Neither the individual nor he individual’s spouse/CLP owned or lived in another home in the calendar year of the home purchase or in an of the four preceding calendar years.
Effective for home purchased on or after January 1,2022
3. Multigenerational Home Renovation Tax Credit
Budget 2022 proposes the Multigenerational Home Renovation Tax Credit, a refundable tax credit providing up to $7,500 in support for constructing a secondary suite for a senior or an adult with a disability.
Claims cannot exceed $50,000 of qualifying renovations, irrespective of the number of claimants.
Eligible persons:
Seniors aged 65 and older
Adults aged 18 and over and eligible for a Disability Tax Credit
Qualifying Relations include Parent, Grandparent, Child, Grandchild, Brother, Sister, Aunt, Uncle, Niece, Nephew
Who can claim the Credit?
Qualifying Renovation must be of:
An enduring nature and integral to the dwelling, and
Result in the creation of a secondary unit within the dwelling
Eligible Expenses Include:
Cost of labour
Building materials
Fixtures
Equipment rentals
Professional services
Permits
Ineligible expenses Include:
Items that retain their value (construction equipment and tools)
Annual, recurring or routine repair or maintenance
Cost of household appliances
Cost of financing a renovation
Goods or services provided by a person not dealing at arm’s length with the MHRTC claimant, unless the provider is registered for HST/GST
Effective January 1, 2023
4. Doubling the Home Accessibility Tax Credit
Budget 2022 proposes to double the limit from $10K to $20K
Tax relief of up to $3K
Examples of eligible expenses include:
Purchase and installation of wheelchair ramps, walk-in bathtubs, wheel-in showers
Widening doorways and hallways to allow for the passage of a wheelchair or walker
Building a bedroom or bathroom to permit first floor occupancy and
Installing non-slip flooring to help avoid falls
Effective 2022 and subsequent years
5. Residential Property Flipping
Budget 2022 proposes to introduce a new deeming rule that taxes profits from dispositions of residential real estate (including a rental property) that was owned for less that 12 months as business income
No capital gains treatment, or eligibility for the Principal Residence Exemption (PRE)
Several exceptions to the deeming rule will apply
Where exceptions apply or where property is held for more than 12 months, question of fact whether profits are taxed as business income or capital gains
Measure applies to residential properties sold on or after January 1, 2023
6. Ban on Foreign Purchases
To make sure that housing is owned by Canadians instead of foreign investors, the budget announced the government’s intention to propose restrictions that would prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada for a period of two years. There will be exceptions for refugees fleeing international crises, international students on the path to permanent residency and others.
Non-resident, non-Canadians who own homes that are being underused or left vacant would be subject to the Underused Housing Tax once it comes into effect.
7. Tax on Real Estate Assignment Sales
Assignment sales involve the resale of a home before it is constructed or lived in; GST/HST may or may not be applicable when there is an assignment sale. For example, GST/HST does not apply if the intention is for the buyer to live in the home. This creates an opportunity for speculators to be dishonest about their original intentions, and uncertainty for everyone involved in an assignment sale as to whether GST/HST applies.
To address these issues, the budget proposes to make all assignment sales of newly constructed or substantially renovated residential housing taxable for GST/HST purposes, effective May 7, 2022.
8. Medical support for Canadians wanting to become parents
In Canada, it is illegal to pay consideration to surrogate mothers or donors, although surrogate mothers and donors may receive reimbursement from intended parents, which previously were not claimable as eligible medical expenses. The budget proposes to allow these reimbursements paid by a taxpayer to a surrogate mother or donor that are incurred in Canada for 2022 and subsequent taxation years to be claimed. This would also include costs that have been reimbursed to a surrogate for in vitro fertilization expenses. In addition, the budget proposes to allow fees paid to fertility clinics and donor banks in Canada in order to obtain donor sperm and ova to be eligible as a Medical Expense Tax Credit for 2022 and subsequent taxation years.