Last updated: Apr. 10, 2023
Federal Budget 2023 Highlights
On March 28, 2023, the 2023 Federal Budget was released by Deputy Prime Minister and Federal Finance Minister, Chrystia Freeland.
The Budget is anticipated to result in a deficit of $43 billion for 2022 – 2023, and deficits of $40.1 billion for the 2023 – 2024 budget year.
Here we provide a summary of tax measures and other announcements of interest proposed in Budget 2023.
Corporate Tax Measures
Budget 2023 did not include changes to corporate tax rates. Federal corporate tax rates are as follows:
|Corporate Income||Federal Rate|
*tax rate on the first $500,000 of active business income, shared amongst an associated group.
Proposed Amendments to the General Anti-Avoidance Rule
Proposed amendments to General Anti-Avoidance Rule (GAAR) include:
- Introducing a preamble to help address interpretive issues and make sure the GAAR applies as intended.
- A clarification of what the threshold of an avoidance transaction is, specifically, to reduce it from a “primary purpose” test to “one of the main purpose tests”. Essentially, it would apply to transactions that have a significant tax avoidance purpose, but not to transactions where tax is only a consideration.
- Introducing an “economic substance rule” which would provide indicators for determining whether a transaction is lacking in economic substance. Economic substance would be considered at the ‘misuse or abuse’ stage of the GAAR analysis, and a lack of economic substance could indicate abusive tax avoidance.
- The introduction of a penalty for transactions subject to GAAR, equal to 25% of the tax benefit.
- A three-year extension to the reassessment period unless the transaction had been disclosed to the CRA.
- The proposed amendments are under consultation until May 31, 2023. After the consultation period, the government will publish revised proposals and announce when the changes take effect.
Environment Focused Measures
Clean Technology Investment Tax Credit Expanded to Include Geothermal Energy
Budget 2023 proposes to expand the previously introduced refundable Clean Technology Investment Tax Credit to include geothermal energy systems (classified as a Class 43.1 or Class 43.2 capital cost allowance).
This existing credit, announced in 2022, provides a 30% tax credit on eligible clean energy investments.
The program was originally set to phase out in 2032 and was extended to 2034. The credit will be phased out by 50% for property that becomes available for use by 2034 and will be unavailable after that year.
Clean Hydrogen Investment Tax Credit Details Released
The Clean Hydrogen Investment Tax Credit, announced in the 2022 Fall Economic Statement, will provide credits ranging from 15% – 40%, depending on the specifics of the eligible property.
The credit would be available on the cost of both purchasing and installing eligible equipment which would be used on projects which produce hydrogen.
The credit will be phased out by 50% for property that becomes available for use by 2034 and will be unavailable after that year.
Investment Tax Credit For Carbon Capture, Utilization, and Storage
The Investment Tax Credit for Carbon Capture, Utilization, and Storage (CCUS) has the following amendments proposed which will be confirmed in the coming months:
- Additional types of equipment may be eligible for the credit, specifically certain dual use items that produce heat and/or power or uses water used for CCUC in addition to another process.
- Additional regions may be eligible for the credit when there is dedicated geological storage (British Columbia), relating to expenses incurred on or before January 1, 2023
- Revisions to the process of validating concrete storage requirements
- Adjustments to the credit structure, to avoid duplication with other federal tax credits.
- Complex measures relating to eligible refurbishment costs (i.e., Refurbishment ITCs) were introduced.
Reduced Tax Rates for Zero-Emission Technology Manufacturers
A reduction in tax rate may be applicable to income from nuclear manufacturing and processing activities for certain zero-emission technology manufacturers. These include:
- Manufacturing of nuclear energy equipment
- Recycling or processing of nuclear fuels and heavy water
- Manufacturing of nuclear rods
The reduced rate for these zero-emission technology manufacturers was extended by three years, and the planned phase-out will now start on taxation years that begin in 2032.
It will fully phase out for taxation years that begin after 2034.
Measures Impacting Canadian Farms and Businesses
Providing Interest Relief for Agricultural Producers
Budget 2023 includes a proposal to provide Agriculture and Agri-Food Canada $13 million in 2023-24 to increase the interest-free limit for loans under the Advance Payment Program from $250,000 to $300,000 for the 2023 program year.
Establishing the Dairy Innovation and Investment Fund
Budget 2023 proposes to establish a Dairy Innovation and Investment Fund to support research and development of new products based on solids non-fat (SNF). This ten-year, $333 million fund for Agriculture and Agri-Food Canada will also include research for market development and processing capacity for SNF-based products (starting in 2023-24).
Supporting Farmers for Diversifying Away from Russian Fertilizers
Starting in 2023-24, the government proposes to provide $34.1 million over three years to Agriculture and Agri-Food Canada’s On-Farm Climate Action Fund so that Eastern Canadian farmers can adopt nitrogen management practices that will optimize fertilizer use and reduce fertilizer consumption.
Foot-and-Mouth Disease Vaccine Bank and Response Plan
To develop Foot-and-Mouth Disease (FMD) response plans for Canada, and to establish a vaccine bank for FMD, Budget 2023 proposes providing $57.5 million to the Canadian Food Inspection Agency over five years, starting in 2023-24.
It also includes a $5.6 million ongoing fund and a proposal to seek a cost-sharing arrangement with provinces and territories.
Scientific Research and Experimental Development Program Review
As previously announced in Budget 2022, there will be a review of the Scientific Research and Experimental Development (SR&ED) program, including the assessment of intellectual property (development, retention, commercialization, etc.), as well as ensuring the program is providing adequate support.
Intergenerational Business Transfer Adjustment (Bill C-208)
Budget 2023 provided clarification to the existing section 84.1 exemption introduced in Bill C-208 which will only apply the exemption when:
- An immediate business transfer (including a 3-year test, based on arm’s length sale terms), or
- A gradual intergenerational transfer (including a 5–10-year test, based on established estate freeze attributes).
As well, the following amendments have been proposed:
- Relieving provisions available in certain situations with a subsequent arm’s length share transfers or death or disability of a child.
- Expansion of the definition of “child” for the purposes of this provision to include nieces, nephews, grandnieces, and grandnephews, in addition to children, stepchildren and children-in-law.
Lowering Credit Card Transaction Fees for Small Businesses
In Budget 2023, the government announced commitments from Visa and Mastercard to lower small business fees and protect reward points offered by Canada’s large banks to consumers.
There will be a reduction in interchange fees of up to 27 percent for more than 90 percent of businesses that accept credit cards.
Further details are expected to be released in the coming weeks.
Personal Tax Measures
Budget 2023 does not include changes to personal tax rates which are as follows:
|Tax Brackets||Federal Rate|
|Up to $53,359||15%|
|$53,360 to $106,717||20.5%|
|$106,718 to $165,430||26%|
|$165,430 to $235,675||29%|
The “Grocery Rebate” is a proposed one-time additional payment, in addition to the GST credit amount for January. This payment would be phased in and out at the same income levels as the existing GST credit, resulting in a maximum payment of:
- $153 per adult
- $81 per child
- $81 per supplement
Payment of this new rebate would be made through the existing system once legislation has been passed.
Registered Education Savings Plans Withdrawal Limit Increases
Effective Budget Day, 2023 a proposed increase of the current limits on Education Assistance Payment withdrawals from Registered Education Savings Plans (RESPs) as follows:
- For full-time students, an increase from $5,000 to $8,000
- For part-time students, an increase from $2,500 to $4,000
Budget 2023 will also allow for joint RESP accounts to be opened by divorced or separated parents or to move an existing joint RESP to another promoter.
Registered Disability Savings Plans – Qualifying Family Member Program Extension
Proposed 3-year extension to the temporary measures allowing certain qualifying family members to open Registered Disability Savings Plans (RDSPs) for an adult, in situations where that adult cannot do so in their own capacity and does not have a legal representative.
- Qualifying family members include parent, spouse, or common-law partner, with the potential expansion of the definition to include siblings.
- These measures will expire December 31, 2026.
Increased Deduction for Tradespeople’s Tool Expenses
A proposal in Budget 2023 would double the maximum deduction for tradespeople’s tools from $500 to $1,000, effective in 2023 and subsequent tax years.
Proposed Reforms to Alternative Minimum Tax for High-Income Individuals
By eliminating certain deductions or other tax incentives, the Alternative Minimum Tax (AMT) ensures that high-income earners cannot unduly reduce their tax liability. The Budget is proposing reforms to the AMT, beginning in 2024, as follows:
- Proposed broadened AMT base, which would be achieved through:
- Increasing AMT capital gains inclusion rate from 80% to 100%
- Including 100% of the benefit associated with employee stock options
- Including 30% of capital gains eligible for the lifetime capital gains exemption (*continuation of existing measure)
- Including 30% of capital gains on donations of publicly listed securities, and
- Disallowing 50% of certain deductions
- Limiting non-refundable tax credits available to reduce AMT to 50%, and the related exemption amount would be increased to $173,000 (indexed annually to inflation)
- Proposed increase of the AMT rate from 15% to 20.5%
- Current carry-forward limit will remain at 7 years
Trusts that are currently exempt, will continue to be so.
Introduction of New Employee Ownership Trust
Introduction of new rules, as of January 1, 2024, which would allow for the use of an Employee Ownership Trust (EOT) to acquire and hold shares of a business.
- EOTs are used to assist employees of a business to purchase the shares the purchase of a business by its employees without requiring them to pay the business owner directly to acquire the shares.
- Proposed extension of the current 5-year capital gains reserve to a 10-year reserve for qualifying business transfers to an EOT.
- Proposed new exception to the current rule that shareholder loans must be included in income when received (unless repaid in a year), to 15 years in the amounts relate to funds borrowed by the EOT from a qualifying business, to purchase shares in a qualifying business transfer.
- Proposed exemption to the current 21-year rule for certain trusts (where capital assets are deemed to be disposed to prevent extended deferral of capital gains through trusts) for EOT. This would allow the trust, while it remained a qualifying trust, to hold the shares for the employees indefinitely.
The New Canadian Dental Care Benefit
The proposed expansion of the Canadian Dental Care Benefit will provide dental coverage for uninsured Canadians with annual family income of less than $90,000, with no co-pays for those with family incomes under $70,000.
It will be administered by Health Canada with the support of a third-party benefits administrator and begin providing coverage by the end of 2023.
Further details will be released later this year.
Launching the New Tax-Free First Home Savings Account
As of April 1, 2023, financial institutions will be able to offer Canadians the Tax-Free First Home Savings Account.
- The Tax-Free First Home Savings Account is a registered plan to give first-time home buyers the ability to save $40,000 on a tax-free basis.
- Contributions will be tax-deductible (like an RRSP)
- Withdrawals to purchase a first home, including from investment income, will be non-taxable (like a TFSA)
Sales and Excise Tax Measures
GST/HST Treatment of Payment Card Clearing Services
The GST/HST definition of “financial service” was amended to confirm that payment card clearing services provided by a payment card network operator are excluded from the definition.
This applies to transactions after March 28, 2023.
Alcohol Excise Duty Temporarily Capped
The current 2% of excise tax applied to beer, spirits and wine, is temporarily capped (i.e. not adjusted for inflation) for one year.
This measure will come into effect April 1, 2023, and end April 1, 2024.
Cannabis Taxation – Quarterly Duty Remittances
The current requirement that licensed cannabis producers excise duties monthly was amended to allow for quarterly remittances.
Currently only certain smaller producers are eligible for quarterly remittances.
This measure comes into effect, beginning the quarter starting April 1, 2023.
Air Travellers Security Charge
An increase of the Air Travellers Security Charge (ATSC) rates by 32.85% has been proposed for air transportation services purchased on or after May 1, 2024.
The purpose of this increase is to raise funds for improving the level of service, screening wait times and strengthen security measures at airports.
Other Tax Measures
Automatic Tax Filing Program Announced
A new automatic filing service will be piloted by the Canada Revenue Agency (CRA), which will assist Canadians who currently do not file their tax returns, to file and facilitate them receiving certain benefits to which they may be entitled.
File My Return Program Expanded
The “File my Return” telephone service, which allows eligible taxpayers to auto-file their tax returns by telephone after answering a series of questions, will be expanded to include more eligible Canadians.
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