The Liberals released their federal budget for 2022 on April 7th, 2021. The following are important highlights:
Tax-Free First Home Savings Account
When these become available, we will advise any qualified clients to create an account and factor the contributions into their cash flow strategy.
- Budget 2022 proposes to create the Tax-Free First Home Savings Account (FHSA), a newly registered account to help individuals save for their first home.
- Contributions to an FHSA would be deductible and income earned in an FHSA would not be subject to tax. Qualifying withdrawals from an FHSA made to purchase a first home would be non-taxable.
- The lifetime limit on contributions would be $40,000, subject to an annual contribution limit of $8,000. The full annual contribution limit would be available starting in 2023.
- An individual would be permitted to hold more than one FHSA, but the total amount that an individual contributes to all of their FHSAs could not exceed their annual and lifetime FHSA contribution limits.
- An unused annual contribution room could not be carried forward, meaning an individual contributing less than $8,000 in a given year would still face an annual limit of $8,000 in subsequent years.
Home Buyers Tax Credit
- Budget 2022 proposes to double the HBTC amount to $10,000, which would provide up to $1,500 in tax relief to eligible homebuyers. Spouses or common-law partners would continue to be able to split the value of the credit as long as the combined total does not exceed $1,500 in tax relief.
- This measure would apply to acquisitions of a qualifying home made on or after January 1, 2022.
Residential Property Flipping Rule
- The Government is concerned that certain individuals engaged in flipping residential real estate are not properly reporting their profits as business income. Instead, these individuals may be improperly reporting their profits as capital gains and, in some cases, claiming the Principal Residence Exemption.
- Budget 2022 proposes to introduce a new deeming rule to ensure profits from flipping residential real estate are always subject to full taxation. Specifically, profits arising from dispositions of residential property (including rental property) that was owned for less than 12 months would be deemed to be business income.
- Where the new deeming rule applies, the Principal Residence Exemption would not be available.
- Where the new deeming rule does not apply because of a life event (there is a list of specific exemptions) or because the property was owned for 12 months or more, it would remain a question of fact whether profits from the disposition are taxed as business income.
- The measure would apply in respect of residential properties sold on or after January 1, 2023.
Multigenerational Home Renovation Tax Credit
- Budget 2022 proposes to introduce a new Multigenerational Home Renovation Tax Credit. The proposed refundable credit would provide recognition of eligible expenses for a qualifying renovation. A qualifying renovation would be one that creates a secondary dwelling unit to permit an eligible person (a senior or a person with a disability) to live with a qualifying relation. The value of the credit would be 15 percent of the lesser eligible expenses and $50,000.
There were no substantial tax-related announcements in this matter that would have an impact on our clients.
Flow-Through Shares for Oil, Gas and Coal Activities
- Budget 2022 proposes to eliminate the flow-through share regime for oil, gas, and coal activities by no longer allowing oil, gas and coal exploration or development expenditures to be renounced to a flow-through share investor.
Attached is a PDF copy of the full budget and the specific tax measures that will come from the budget, which you can both find here.
If you have any questions on the Federal Budget update and how it might affect you, contact our team here.
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