2022 Federal Budget: Key Measures

Real estate measures

Home Buyers’ Tax Credit

• Currently, taxpayers who buy a first eligible home can obtain tax relief of up to $750 by claiming the non-refundable tax credit for the purchase of a first home.
• This tax relief is the amount of the credit ($5,000) multiplied by the lowest personal tax rate, 15% in 2022, which equals an amount of up to $750.
• The budget proposes to double the amount of the credit to $10,000, which would provide eligible homebuyers with tax relief of up to $1,500.
• This measure would apply to the purchase of an eligible home made on or after January 1, 2022.

Tax-free First Home Savings Account (FHSA)

This is a new registered account for individuals to save for the purchase of their first home.

• Effective date: 2023

Eligibility conditions:

• Be a resident of Canada and at least 18 years of age.
• The individual must not have lived in a home that they owned either:
  • at any time in the year the account is opened, or
  • during the preceding four calendar years.

Contributions

• Contributions to an FHSA would be deductible and income earned in an FHSA would not be subject to tax.
• The lifetime limit on contributions would be $40,000, subject to an annual contribution limit of $8,000 (available starting in 2023).
• Annual contribution room would not be cumulative (unused annual contribution room could not be carried forward).

Withdrawals and transfers

• Amounts withdrawn to make a qualifying first home purchase would not be subject to tax. Amounts that are withdrawn for other purposes would be taxable.
• Individuals would be limited to making non-taxable withdrawals in respect of a single property in their lifetime.
• Once an individual has made a non-taxable withdrawal to purchase a home, they would be required to close their FHSAs within a year from the first withdrawal and would not be eligible to open another FHSA.
• An individual could transfer funds from an FHSA to an RRSP or RRIF on a tax-free basis.

• Transfers would not reduce an individual’s available RRSP room.
• If an individual has not used the funds in their FHSA for a qualifying first home purchase within 15 years of first opening an FHSA, their FHSA would have to be closed.
  • Any unused savings could be transferred into an RRSP or RRIF, or would otherwise have to be withdrawn on a taxable basis.
• Individuals would also be allowed to transfer funds from an RRSP to an FHSA on a tax-free basis.

Interaction with the HBP

• An individual would not be permitted to make both an FHSA withdrawal and an HBP withdrawal in respect of the same qualifying home purchase.

Multigenerational Home Renovation Tax Credit

• To help families that wish to convert their residence in order to house another family member there (person 65 years of age or older or person with a disability), the Canadian government proposes to introduce a maximum tax credit of $7,500.
  • The value of the credit would be 15% of the lesser of eligible expenses and $50,000.
• An individual could claim only one multigenerational home renovation tax credit during their lifetime.

Making those who engage in property flipping pay their fair share

• Profits from buying a residential property and reselling it for a higher price would be automatically taxable if the sale is made less than 12 months after the purchase.
• The owner would then be deemed to have flipped the property and would be subject to full taxation of their profits, which would be deemed to be business income.
• Business income is taxed at 100%, compared to a capital gain which is taxable at 50%. In the case of a principal residence exemption, there is no tax.
• Exceptions to the rule would be allowed for logical reasons such as death, disability, birth of a child, a new job or a divorce.

Health measure

Dental care for all Canadians

• The 2022 federal budget proposes to provide funding of $5.3 billion over five years, starting in 2022-2023, to provide dental care for Canadians.
• The plan would cover children under the age of 12 in 2022.
• In 2023, the coverage would expand to under 18-year-olds, seniors, and persons living with a disability.
• This new program would be limited, based on family income.

Family measure

Help for Canadians who wish to become parents

• Many of the costs related to the use of a surrogate mother, ova donors or sperm donors are already recognized as eligible medical expenses, such as in vitro fertilization expenses. However, the tax credit for medical expenses can only be claimed by the person who underwent the treatments.
• It is therefore proposed to broaden the measures to allow future parents to claim the tax credit for the expenses they paid for the surrogate mother, for example.
• The same would apply to other medical expenses incurred by the surrogate mother that the future parents must reimburse her.

For more details on these measures, please go to https://budget.canada.ca/2022/report-rapport/toc-tdm-en.html.

If you wish to discuss the impact of certain measures on your plan, don’t hesitate to contact your wealth management advisor.

Anik Bougie, LL.M. Fisc., F. Pl., TEP Practice Leader, Financial Planning and Taxation

The information contained herein has been obtained from sources deemed reliable, but we do not guarantee the accuracy of this information, and it may be incomplete. The opinions expressed are based upon our analysis and interpretation of this information and are not to be construed as a recommendation. If you have any questions, please contact your Wealth Management advisor or an accountant, or a legal or tax specialist.