The Hon. Chrystia Freeland, Deputy Prime Minister and Finance Minister, released her latest federal budget earlier this week. Referring to it as the government’s “Made-in-Canada Plan”, the budget has three main targets in mind, all of which are in the subtitle of the released report. That is, “strong middle class, affordable economy, healthy future.”
There’s a lot to absorb in the 250-page budget document. And as with every federal budget, there are many factors to consider when looking through all the details. This update points to a few areas we think might be of particular interest to you. More details on these and other measures can be read in greater detail in the full summary here.
Deficit, debt and taxes
The 2023 budget projects a deficit of $40.1 billion in fiscal year 2023/2024, an increase from the $30.6 billion from last fall. The federal debt-to-GDP ratio shows a modest increase due to global economic slowdown. Both figures are projected to decline slightly as of 2024/2025.
As for taxes, the latest budget makes no proposed changes to personal or corporate income tax rates or brackets, capital gain inclusion rates or the principal residence exemption. But there are a number of tax-oriented proposals that we’re looking at very closely.
Personal tax measures
Alternative Minimum Tax
To better target the Alternative Minimum Tax (AMT) to high-income individuals, budget 2023 proposes to broaden the base by further limiting tax preferences (i.e., exemptions, deductions, and credits). As well, it proposes to increase the AMT rate from 15% to 20.5%. These proposed changes are expected to apply for taxation years after 2023.
Good news and bad news here, depending on your personal circumstances. If you’re a higher income earner, you may end up paying more. If you’re a lower income than the beginning of the 4th tax bracket, you may no longer be subject to AMT.
Changes to Registered Education Savings Plans (RESP)
Budget 2023 proposes to increase limits on certain RESP withdrawals from $5,000 to $8,000 for full-time students, and from $2,500 to $4,000 for part-time students. It also proposes to allow divorced or separated parents to open a joint RESP for their children, which will make it easier and more affordable for parents to save for their children's education.
Enhance Student Financial Assistance
The federal government plans to provide $813.6 million in 2023-24 to enhance student financial assistance for the school year starting August 1, 2023. The budget outlined many changes here, such as increasing the Canada Student Grants by 40 per cent, thus providing up to $4,200 for full-time students.
Registered Disability Savings Plans (RDSP)
This measure allows a qualifying family member who is a parent, spouse or common-law partner to open an RDSP, and to be the plan holder for an adult whose capacity to enter into an RDSP contract is in doubt, and who does not have a legal representative.
The budget also proposes to broaden the definition of a qualifying family member (QFM) to include a brother or sister of the beneficiary who is 18 years of age or older.
Business tax measures
Intergenerational Business Transfers
Budget 2023 proposes to amend rules introduced by Bill C-208 to ensure they only apply to genuine intergenerational business transfers. A genuine intergenerational share transfer would be a transfer of shares of a corporation by an individual to another corporation where several conditions are satisfied. These changes will be of particular interest to business owners considering a sale and/or transfer in the near to longer term.
Tax on Repurchase of Equity
Budget 2023 announces that the proposed 2% share buy back tax would become effective January 1, 2024, applicable to the annual net value of repurchases of equity by public corporations, certain publicly traded trusts and partnerships in Canada. A business would not be subject to this tax if its gross equity repurchases are less than $1 million.
Other measures of interest
Clean Energy Investments
To boost clean tech in Canada—both as an economic sector and as an investment—the federal budget proposes to provide $500 million over ten years to the Strategic Innovation Fund to support the development and application of clean technologies in Canada.
The Strategic Innovation Fund will also direct up to $1.5 billion of its existing resources towards projects in sectors including clean technologies, critical minerals, and industrial transformation.
First Home Savings Account (FHSA)
Financial institutions can start offering the tax-free First Home Savings Account (FHSA) to Canadians as of April 1, 2023. Contributions will be tax-deductible, and withdrawals to purchase a first home—including from investment income—will be non-taxable, like a Tax-Free Savings Account (TFSA). As the budget report said, “tax-free in; tax-free out.”
Grocery Rebate
The new “Grocery Rebate” will provide $2.5 billion to low and modest-income Canadians to help offset the rising costs of food, although the money received can be spent on anything.
File My Return
Starting next year, the CRA will pilot a new automatic filing service, called File My Return, to help vulnerable Canadians who currently do not file their taxes receive the benefits to which they are entitled.
If you have any questions about the federal budget and your investments, please don’t hesitate to contact your advisor.
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