On April 7, 2022 Finance Minister Chrystia Freeland tabled her second budget as Finance Minister – “A Plan to Grow the Economy and Make Life More Affordable” that included new spending initiatives focusing on housing affordability, national childcare, innovation, defence, and climate change. The minister projects a deficit to finish the 2021-2022 fiscal year of $113.8 billion and is projecting the deficit to be reduced to $52.8 billion for 2022-2023 and to $8.4 billion by 2026-2027.
The budget also included a number of personal and business related income tax measures that also focus on the initiatives identified as priority by the government.
Key highlights of the new tax measures include:
Business Income Tax Measures
GENUINE INTERGENERATIONAL SHARE TRANSFERS
The Income Tax Act contains a rule to prevent people from converting dividends into lower-taxed capital gains using certain self-dealing transactions—a practice referred to as “surplus stripping.” Private Member’s Bill C-208, which received Royal Assent on June 29, 2021, introduced an exception to this rule in order to facilitate intergenerational business transfers. However, the exception may unintentionally permit surplus stripping without requiring that a genuine intergenerational business transfer takes place.
Budget 2022 announces a consultation process for Canadians to share views as to how the existing rules could be modified to protect the integrity of the tax system while continuing to facilitate genuine intergenerational business transfers. The government is committed to bringing forward legislation to address these issues, which would be included in a bill to be tabled in the fall after the conclusion of the consultation process.
The Department of Finance is interested to hear from all stakeholders, and will engage directly with key affected sectors, in particular the agriculture industry.
SMALL BUSINESS DEDUCTION
Small businesses may benefit from a reduced corporate income tax rate of 9 per cent – a preference relative to the general corporate income tax rate of 15 per cent. This rate reduction is provided through the “small business deduction” and applies on up to $500,000 per year of qualifying active business income (i.e., the “business limit”) of a Canadian-controlled private corporation (CCPC). There is a requirement to allocate the business limit among associated CCPCs. In order to target the preferential tax rate to small businesses, the business limit is reduced on a straight-line basis when:
- the combined taxable capital employed in Canada of the CCPC and its associated corporations is between $10 million and $15 million; or
- the combined “adjusted aggregate investment income” of the CCPC and its associated corporations is between $50,000 and $150,000.
The business limit is the lesser of the two amounts determined by these business limit reductions.
The reduction in the business limit can significantly increase a CCPC’s marginal tax rate as the combined taxable capital of the CCPC and its associated corporations increases from $10 million to $15 million.
In order to facilitate small business growth, Budget 2022 proposes to extend the range over which the business limit is reduced based on the combined taxable capital employed in Canada of the CCPC and its associated corporations. The new range would be $10 million to $50 million. This change would allow more medium-sized CCPCs to benefit from the small business deduction. Furthermore, it would increase the amount of qualifying active business income that can be eligible for the small business deduction. For example, under the new rules:
- a CCPC with $30 million in taxable capital would have up to $250,000 of active business income eligible for the small business deduction, compared to $0 under current rules; and
- a CCPC with $12 million in taxable capital would have up to $475,000 of active business income eligible for the small business deduction, compared to up to $300,000 under current rules.
This measure would apply to taxation years that begin on or after Budget Day 2022.
CANADA RECOVERY DIVIDEND AND ADDITIONAL TAX ON BANKS AND LIFE INSURERS
Budget 2022 proposes to introduce the one-time Canada Recovery Dividend (CRD) and an additional tax on banks and life insurers.
CANADA RECOVERY DIVIDEND
Budget 2022 proposes to introduce the CRD in the form of a one-time 15-per-cent tax on bank and life insurer groups. A group would include a bank or life insurer and any other financial institution (for the purposes of Part VI of the Income Tax Act) that is related to the bank or life insurer.
The CRD would be determined based on a corporation’s taxable income for taxation years ending in 2021. A proration rule would be provided for short taxation years. Bank and life insurer groups subject to the CRD would be permitted to allocate a $1 billion taxable income exemption by agreement amongst group members.
The CRD liability would be imposed for the 2022 taxation year and would be payable in equal amounts over five years.
ADDITIONAL TAX ON BANKS AND LIFE INSURERS
Budget 2022 proposes to introduce an additional tax of 1.5 per cent of the taxable income for members of bank and life insurer groups (determined in the same manner as the CRD). Bank and life insurer groups subject to the additional tax would be permitted to allocate a $100 million taxable income exemption by agreement amongst group members.
The proposed additional tax would apply to taxation years that end after Budget Day.
For a taxation year that includes Budget Day, the additional tax would be prorated based on the number of days in the taxation year after Budget Day.
INVESTMENT TAX CREDIT FOR CARBON CAPTURE, UTILIZATION, AND STORAGE
Carbon capture, utilization, and storage (CCUS) is a suite of technologies that capture carbon dioxide (CO2) emissions from fuel combustion, industrial processes or directly from the air, to either store the CO2 (typically deep underground) or use the CO2 in industry.
Budget 2022 proposes to introduce an investment tax credit for CCUS (the CCUS Tax Credit). The CCUS Tax Credit would be refundable and available to businesses that incur eligible expenses starting on January 1, 2022.
CAPITAL COST ALLOWANCE FOR CLEAN ENERGY EQUIPMENT
Budget 2022 proposes to expand eligibility under Classes 43.1 and 43.2 to include air-source heat pumps primarily used for space or water heating. Eligible property would include equipment that is part of an air-source heat pump system that transfers heat from the outside air, including refrigerant piping, energy conversion equipment, thermal energy storage equipment, control equipment and equipment designed to enable the system to interface with other heating and cooling equipment. Eligible property would not include:
- buildings or parts of buildings;
- energy equipment that backs up an air-source heat pump system; or
- equipment that distributes heated or cooled air or water within a building.
This expansion of Classes 43.1 and 43.2 would apply in respect of property that is acquired and that becomes available for use on or after Budget Day, where it has not been used or acquired for use for any purpose before Budget Day.
CRITICAL MINERAL EXPLORATION TAX CREDIT
Flow-through share agreements allow corporations to renounce or “flow through” specified expenses to investors, who can deduct the expenses in calculating their taxable income.
The Mineral Exploration Tax Credit (METC) provides an additional income tax benefit for individuals who invest in mining flow-through shares, which augments the tax benefits associated with the deductions that are flowed through. The METC is equal to 15 per cent of specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors. The METC facilitates the raising of equity to fund exploration by enabling companies to issue shares at a premium.
Budget 2022 proposes to introduce a new 30-per-cent Critical Mineral Exploration Tax Credit (CMETC) for specified minerals. The specified minerals that would be eligible for the CMETC are: copper, nickel, lithium, cobalt, graphite, rare earth elements, scandium, titanium, gallium, vanadium, tellurium, magnesium, zinc, platinum group metals and uranium. These minerals are used in the production of batteries and permanent magnets, both of which are used in zero-emission vehicles, or are necessary in the production and processing of advanced materials, clean technology, or semi-conductors.
FLOW-THROUGH SHARES FOR OIL, GAS, AND COAL ACTIVITIES
Flow-through share agreements allow corporations to renounce or “flow through” both Canadian exploration expenses and Canadian development expenses to investors, who can deduct the expenses in calculating their taxable income (at a 100-per-cent or 30-per-cent rate on a declining-balance basis, respectively). This facilitates the raising of equity to fund eligible exploration and development by enabling companies to issue shares at a premium.
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.
This change would apply to expenditures renounced under flow-through share agreements entered into after March 31, 2023.
APPLICATION OF THE GENERAL ANTI-AVOIDANCE RULE TO TAX ATTRIBUTES
The general anti-avoidance rule (GAAR) is intended to prevent abusive tax avoidance transactions while not interfering with legitimate commercial and family transactions. If abusive tax avoidance is established, the GAAR applies to deny the tax benefit created by the abusive transaction. The GAAR is generally applied by the Canada Revenue Agency (CRA) on an assessment of tax.
Where the GAAR applies to a transaction, the Income Tax Act contains a set of rules that are intended to allow the CRA to determine the amount of a tax attribute, such as the adjusted cost base of a property and the paid-up capital of a share, relevant for the purpose of computing tax. This is done through a notice of determination which, like a notice of assessment, is subject to rights of objection and appeal. The objective of these rules is that when these determined amounts become relevant to the future computation of tax, such determinations are to be binding on the taxpayer and the CRA.
A 2018 Federal Court of Appeal decision held that the GAAR did not apply to a transaction that resulted in an increase in a tax attribute that had not yet been utilized to reduce taxes. The reasoning behind this decision has been applied in subsequent cases. The limitation of the GAAR to circumstances where a tax attribute has been utilized runs counter to the policy underlying the GAAR and the determination rules. This limitation also reduces certainty for both taxpayers and the CRA, as they could have to wait several additional years to confirm the tax consequences of a transaction.
To address these concerns, Budget 2022 proposes that the Income Tax Act be amended to provide that the GAAR can apply to transactions that affect tax attributes that have not yet become relevant to the computation of tax. For greater certainty, determinations made before Budget Day, where the rights of objection and appeal in respect of the determination were exhausted before Budget Day, would remain binding on taxpayers and the CRA.
This measure would apply to notices of determination issued on or after Budget Day.
The Canadian income tax system aims to achieve neutrality by ensuring that income earned directly by a Canadian-resident individual is taxed at roughly the same rate as income that is earned through a corporation.
The active business income of a private corporation is integrated only once dividends are paid out to shareholders. In contrast, additional refundable taxes apply to investment income earned by private corporations in the year in which it is earned.
These taxes generally aim to remove any advantage for Canadian individuals of earning investment income in a private corporation (where the investment income would otherwise be subject to a lower tax rate compared to earning such income personally).
These refundable taxes form part of an integrated system of measures that link the taxation of income earned by private corporations and their individual shareholders. More specifically:
- portfolio dividends earned by all private corporations are subject to a special refundable tax under Part IV of the Income Tax Act; and
- other passive income (e.g., capital gains, interest, rent, royalties and amounts in respect of foreign accrual property income (FAPI)), referred to below as “investment income”, earned by Canadian-controlled private corporations (CCPCs) is subject to a special refundable tax mechanism under Part I of the Income Tax Act.
These taxes under Parts I and IV of the Income Tax Act are fully or partially refundable to corporations to the extent that they pay taxable dividends.
DEFERRING TAX USING FOREIGN ENTITIES
Some taxpayers are manipulating the status of their corporations in an attempt to avoid qualifying as a CCPC to achieve a tax-deferral advantage on investment income earned in their corporations. The approach taken may involve effecting a change in status of the corporation in anticipation of capital gains on a sale of assets. Some planning may seek to avoid “Canadian corporation” status by, for example, continuing a corporation under foreign corporate law (while maintaining Canadian residency by maintaining central management and control in Canada). Other planning may seek to avoid “Canadian-controlled” status by interposing a non-resident corporation in the corporate structure or by issuing options to a non-resident. If effective, avoiding either status would mean that the corporation would no longer qualify as a CCPC and thus would not be subject to the refundable tax mechanisms under Part I of the Income Tax Act.
Although the manipulation of CCPC status can be challenged by the Government based on existing rules in the Income Tax Act, these challenges can be both time-consuming and costly. As a result, the Government is proposing a specific legislative measure.
Budget 2022 proposes targeted amendments to the Income Tax Act to align the taxation of investment income earned and distributed by “substantive CCPCs” with the rules that currently apply to CCPCs. Substantive CCPCs would be private corporations resident in Canada (other than CCPCs) that are ultimately controlled (in law or in fact) by Canadian-resident individuals. Similar to the CCPC definition, the test would contain an extended definition of control that would aggregate the shares owned, directly or indirectly, by Canadian resident individuals, and would therefore deem a corporation to be controlled by a Canadian resident individual where Canadian individuals own, in aggregate, sufficient shares to control the corporation. This measure would address tax planning that manipulates CCPC status without affecting genuine non-CCPCs (e.g., private corporations that are ultimately controlled by non-resident persons and subsidiaries of public corporations). It would also cause a corporation to be a substantive CCPC in circumstances where the corporation would have been a CCPC but for the fact that a non-resident or public corporation has a right to acquire its shares.
Substantive CCPCs earning and distributing investment income would be subject to the same anti-deferral and integration mechanisms as CCPCs, with respect to such income. Specifically, investment income would be subject to a federal tax rate of 38 ⅔ per cent, of which 30 ⅔ per cent would be refundable upon distribution. Furthermore, the investment income earned by substantive CCPCs would be added to their “low rate income pool” such that distributions of such income would not entitle the shareholders to the enhanced dividend tax credit. Substantive CCPCs would continue to be treated as non-CCPCs for all other purposes of the Income Tax Act.
In other words, investment income earned and distributed by corporations that are, in substance, CCPCs would be taxed in the same manner as CCPCs. This would ensure that private corporations cannot effectively opt out of CCPC status and inappropriately circumvent the existing anti-deferral rules applicable to CCPCs.
In addition, these new rules would be supported by:
- a targeted anti-avoidance rule to address particular arrangements or transactions where it is reasonable to consider that the particular arrangement, transaction, or series of transactions was undertaken to avoid the anti-deferral rules applicable to investment income; and
- targeted amendments to facilitate administration of the rules applicable to investment income earned and distributed by substantive CCPCs, including a one year extension of the normal reassessment period for any consequential assessment of Part IV tax that arises from a corporation being assessed or reassessed a dividend refund.
This measure would apply to taxation years that end on or after Budget Day. To provide certainty for genuine commercial transactions entered into before Budget Day, an exception would be provided where the taxation year of the corporation ends because of an acquisition of control caused by the sale of all or substantially all of the shares of a corporation to an arm’s length purchaser. The purchase and sale agreement pursuant to which the acquisition of control occurs must have been entered into before Budget Day and the share sale must occur before the end of 2022.
Personal Income Tax Measures
TAX-FREE FIRST HOME SAVINGS ACCOUNT
Budget 2022 proposes to create the Tax-Free First Home Savings Account (FHSA), a new 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.
Some key design features of the FHSA are described below. The government will release its proposals for other design elements in the coming months.
To open an FHSA, an individual must be a resident of Canada and at least 18 years of age. In addition, 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.
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.
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.
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.
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.
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.
To provide flexibility, an individual could transfer funds from an FHSA to a registered retirement savings plan (RRSP) (at any time before the year they turn 71) or registered retirement income fund (RRIF). Transfers to an RRSP or RRIF would not be taxable at the time of transfer, but amounts would be taxed when withdrawn from the RRSP or RRIF in the usual manner. Transfers would not reduce, or be limited by, the individual’s available RRSP room. Withdrawals and transfers would not replenish FHSA contribution limits.
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, subject to the $40,000 lifetime and $8,000 annual contribution limits. These transfers would not restore an individual’s RRSP contribution room.
Home Buyers’ Plan
The home buyers’ plan (HBP) allows individuals to withdraw up to $35,000 from an RRSP to purchase or build a home without having to pay tax on the withdrawal. Amounts withdrawn under the HBP must be repaid to an RRSP over a period not exceeding 15 years, starting the second year following the year in which the withdrawal was made.
The HBP will continue to be available as under existing rules. However, an individual will not be permitted to make both an FHSA withdrawal and an HBP withdrawal in respect of the same qualifying home purchase.
The government would work with financial institutions to have the infrastructure in place for individuals to be able to open an FHSA and start contributing at some point in 2023.
HOME BUYERS TAX CREDIT
First-time home buyers who acquire a qualifying home can obtain up to $750 in tax relief by claiming the First-Time Home Buyers’ Tax Credit (HBTC). The value of this non-refundable credit is calculated by multiplying the credit amount of $5,000 by the lowest personal income tax rate (15 per cent in 2022). Any unused portion of the HBTC may be claimed by an individual’s spouse or common-law partner as long as the combined total does not exceed $750 in tax relief.
An individual is a first-time home buyer if neither the individual nor the individual’s spouse or common-law partner owned and lived in another home in the calendar year of the home purchase or in any of the four preceding calendar years. This credit is also available for certain acquisitions of a home by or for the benefit of an individual who is eligible for the Disability Tax Credit, even if the first-time home buyer condition is not met.
A qualifying home is one that the individual or individual’s spouse or common-law partner intends to occupy as their principal residence no later than one year after its acquisition.
Budget 2022 proposes to double the HBTC amount to $10,000, which would provide up to $1,500 in tax relief to eligible home buyers. 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.
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 per cent of the lesser of eligible expenses and $50,000.
Seniors and adults with disabilities would be considered eligible persons for the purpose of the Multigenerational Home Renovation Tax Credit.
- Seniors are individuals who are 65 years of age or older at the end of the taxation year that includes the end of the renovation period.
- Adults with disabilities are individuals who are 18 years of age or older at the end of the taxation year that includes the end of the renovation period, and who are eligible for the Disability Tax Credit at any time in that year.
For the purposes of this credit, a qualifying relation, in respect of an eligible person, would be an individual who is 18 years of age or older at the end of the taxation year that includes the end of the renovation period and is a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece, or nephew of the eligible person (which includes the spouse or common-law partner of one of those individuals).
The Multigenerational Home Renovation Tax Credit may be claimed by:
- an individual who ordinarily resides, or intends to ordinarily reside, in the eligible dwelling within twelve months after the end of the renovation period and who is:
- an eligible person;
- the spouse or common-law partner of the eligible person;
- a qualifying relation, in respect of an eligible person; or
- a qualifying relation, in respect of an eligible person, who owns the eligible dwelling.
Where one or more eligible claimants make a claim in respect of an eligible renovation, the total of all amounts claimed in respect of the qualifying renovation must not exceed $50,000. If the claimants cannot agree as to what portion of the amounts each can claim, the Minister of National Revenue would be allowed to fix the portions.
For the purposes of this credit, an eligible dwelling would be defined as a housing unit that is:
- owned (either jointly or otherwise) by the eligible person, the spouse or common-law partner of the eligible person or a qualifying relation in respect of the eligible person; and
- where the eligible person and a qualifying relation in respect of the eligible person ordinarily reside, or intend to ordinarily reside, within twelve months after the end of the renovation period.
An eligible dwelling would include the land subjacent to the housing unit and the immediately contiguous land, but would not include the portion of that land that exceeds the greater of ½ hectare and the portion of that land that the individual establishes is necessary for the use and enjoyment of the housing unit as a residence.
For the purposes of this credit, a qualifying renovation would be defined as a renovation or alteration of, or addition to, an eligible dwelling that is:
- of an enduring nature and integral to the eligible dwelling; and
- undertaken to enable an eligible person to reside in the dwelling with a qualifying relation, by establishing a secondary unit within the dwelling for occupancy by the eligible person or the qualifying relation.
A secondary unit would be defined as a self-contained dwelling unit with a private entrance, kitchen, bathroom facilities and sleeping area. The secondary unit could be newly constructed or created from an existing living space that did not already meet the requirements to be a secondary unit. To be eligible, relevant building permits for establishing a secondary unit must be obtained and renovations must be completed in accordance with the laws of the jurisdiction in which an eligible dwelling is located.
One qualifying renovation would be permitted to be claimed in respect of an eligible person over their lifetime.
For the purposes of this credit, the renovation period means a period that:
- begins at the time that an application for a building permit for a qualifying renovation is submitted; and
- ends at the time when the qualifying renovation passes a final inspection, or proof of completion of the project according to all legal requirements of the jurisdiction in which the renovation was undertaken is otherwise obtained.
The credit would be available to be claimed for the taxation year that includes the end of the renovation period.
Expenses would be eligible for the Multigenerational Home Renovation Tax Credit if they are made or incurred during the renovation period, for the purpose of a qualifying renovation, and are reasonable in the context of that purpose (i.e., enabling an eligible person to reside in the dwelling with a qualifying relation).
Eligible expenses would include the cost of labour and professional services, building materials, fixtures, equipment rentals and permits. Items such as furniture, as well as items that retain a value independent of the renovation (such as construction equipment and tools), would not be integral to the dwelling and expenses for such items would therefore not qualify for the credit.
The following are examples of other expenses that would not be eligible for the Multigenerational Home Renovation Tax Credit:
- the cost of annual, recurring or routine repair or maintenance;
- expenses for household appliances and devices, such as audio-visual electronics;
- payments for services such as outdoor maintenance and gardening, housekeeping or security;
- the costs of financing a renovation (e.g., mortgage interest costs);
- goods or services provided by a person not dealing at arm’s length with the claimant, unless that person is registered for Goods and Services Tax/Harmonized Sales Tax purposes under the Excise Tax Act; and
- any expenses not supported by receipts.
Expenses that may be included in a claim must be reduced by any reimbursement or any other form of assistance that an individual is or was entitled to receive, including any related rebates, such as those for Goods and Services Tax/Harmonized Sales Tax.
Expenses would not be eligible for the Multigenerational Home Renovation Tax Credit if they are claimed under the Medical Expense Tax Credit and/or Home Accessibility Tax Credit.
Coming into Force
This measure would apply for the 2023 and subsequent taxation years, in respect of work performed and paid for and/or goods acquired on or after January 1, 2023.
HOME ACCESSIBILITY TAX CREDIT
The Home Accessibility Tax Credit is a non-refundable tax credit that provides recognition of eligible home renovation or alteration expenses in respect of an eligible dwelling of a qualifying individual. A qualifying individual is an individual who is eligible to claim the Disability Tax Credit at any time in a tax year, or an individual who is 65 years of age or older at the end of a tax year. The value of the credit is calculated by applying the lowest personal income tax rate (15 per cent in 2022) to an amount that is the lesser of eligible expenses and $10,000.
To better support independent living, Budget 2022 proposes to increase the annual expense limit of the Home Accessibility Tax Credit to $20,000. This enhancement would provide additional tax support for more significant renovations undertaken to improve accessibility, such as building a bedroom and/or a bathroom to permit first-floor occupancy for a qualifying person who has difficulty accessing living spaces on other floors.
This measure would apply to expenses incurred in the 2022 and subsequent taxation years.
RESIDENTIAL PROPERTY FLIPPING RULE
Property flipping involves purchasing real estate with the intention of reselling the property in a short period of time to realize a profit. Profits from flipping properties are fully taxable as business income, meaning they are not eligible for the 50-per-cent capital gains inclusion rate or the Principal Residence Exemption.
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 a rental property) that was owned for less than 12 months would be deemed to be business income.
The new deeming rule would not apply if the disposition of property is in relation to at least one of the life events listed below:
- Death: a disposition due to, or in anticipation of, the death of the taxpayer or a related person.
- Household addition: a disposition due to, or in anticipation of, a related person joining the taxpayer’s household or the taxpayer joining a related person’s household (e.g., birth of a child, adoption, care of an elderly parent).
- Separation: a disposition due to the breakdown of a marriage or common-law partnership, where the taxpayer has been living separate and apart from their spouse or common-law partner because of a breakdown in the relationship for a period of at least 90 days.
- Personal safety: a disposition due to a threat to the personal safety of the taxpayer or a related person, such as the threat of domestic violence.
- Disability or illness: a disposition due to a taxpayer or a related person suffering from a serious disability or illness.
- Employment change: a disposition for the taxpayer or their spouse or common-law partner to work at a new location or due to an involuntary termination of employment. In the case of work at a new location, the taxpayer’s new home must be at least 40 kilometres closer to the new work location.
- Insolvency: a disposition due to insolvency or to avoid insolvency (i.e., due to an accumulation of debts).
- Involuntary disposition: a disposition against someone’s will, for example, due to, expropriation or the destruction or condemnation of the taxpayer’s residence due to a natural or man-made disaster.
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 listed above 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.
LABOUR MOBILITY DEDUCTION FOR TRADESPEOPLE
Temporary relocations to obtain employment may not qualify for existing tax recognition for moving or travel expenses, particularly if they do not involve a change in an individual’s ordinary residence and the employer does not provide relocation assistance.
Budget 2022 proposes to introduce a Labour Mobility Deduction for Tradespeople to recognize certain travel and relocation expenses of workers in the construction industry, for whom such relocations are relatively common. This measure would allow eligible workers to deduct up to $4,000 in eligible expenses per year.
For the purposes of this deduction, an eligible individual would be a tradesperson or an apprentice who:
- makes a temporary relocation that enables them to obtain or maintain employment under which the duties performed by the taxpayer are of a temporary nature in a construction activity at a particular work location; and
- ordinarily resided prior to the relocation at a residence in Canada, and during the period of the relocation, at temporary lodging in Canada near that work location.
Eligible Temporary Relocation
To qualify as an eligible temporary relocation:
- the temporary lodging must be at least 150 kilometres closer than the ordinary residence to the particular work location;
- the particular work location must be located in Canada; and
- the temporary relocation must be for a minimum duration of 36 hours.
To ensure the measure does not subsidize long-distance commuting or expenses of those who choose to live far from where they typically work, it would further be required that the particular work location not be in the locality in which the eligible individual principally works (i.e., carries on employment or business activity).
Eligible expenses in respect of an eligible temporary relocation would be reasonable amounts associated with expenses incurred for:
- temporary lodging for the eligible individual near the particular work location;
- transportation for the individual for one round trip from the location where the individual ordinarily resides to the temporary lodging; and
- meals for the individual in the course of travel while making one round trip to and from the temporary lodging.
An individual would not be permitted to claim lodging expenses for a period of time under this measure unless they maintain an ordinary residence elsewhere that remains available for their or their immediate family’s use during that time period.
An individual would not be allowed to claim expenses in respect of which they received financial assistance from an employer that is not included in income. The maximum amount of expenses that could be claimed in respect of a particular eligible temporary relocation would be capped at 50 per cent of the worker’s employment income from construction activities at the particular work location in the year. Flexibility would be provided by allowing expenses to be claimed in a tax year before or after the year they were incurred provided they were not deductible in a prior year. This would enable workers to claim expenses in the tax year they earned the associated employment income and address cases where expenses related to a relocation span two tax years.
Amounts claimed under the Labour Mobility Deduction for Tradespeople would not be deductible under the existing Moving Expense Deduction. Similarly, amounts that are otherwise deducted could not be claimed under the Labour Mobility Deduction for
This measure would apply to the 2022 and subsequent taxation years.