Tax Measures: Supplementary Information
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This annex provides detailed information on tax measures proposed in the 2022 Fall Economic Statement.
Table 1 lists these measures and provides estimates of their fiscal impact.
|Personal Income Tax|
|Extension of the Residential Property Flipping Rule to Assignment Sales||–||-1||-1||-1||-1||-1||-5|
|Automatic Advance for the Canada Workers Benefit||0||750||780||790||805||820||3,945|
|Business Income Tax|
|Investment Tax Credit for Clean Technologies||0||1,070||1,110||1,135||1,600||1,735||6,650|
1 A positive amount represents a decrease in revenue; a negative amount represents an increase in revenue.
2 A "–" indicates a small amount (less than $500,000).
3 Totals may not add due to rounding.
Personal Income Tax Measures
Extension of the Residential Property Flipping Rule to Assignment Sales
Budget 2022 proposed the Residential Property Flipping Rule, a new deeming rule to ensure profits from flipping residential real estate are always subject to full taxation. Starting on January 1, 2023, 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, subject to the exceptions listed below.
The 2022 Fall Economic Statement proposes to extend this new deeming rule to profits arising from the disposition of the rights to purchase a residential property via an assignment sale. Profits arising from an assignment sale would be deemed to be business income if the rights to purchase a property were assigned after having been owned for less than 12 months.
The Residential Property Flipping Rule would not apply when a transaction is in relation to at least one of the life events listed below:
- The death of the taxpayer or a person related to the taxpayer;
- One or more persons related to the taxpayer becoming a member of the taxpayer's household or the taxpayer becoming a member of the household of a related person;
- The breakdown of the marriage or common-law partnership of the taxpayer if the taxpayer has been living separate and apart from their spouse or common-law partner for at least 90 days prior to the disposition;
- A threat to the personal safety of the taxpayer or a related person;
- The taxpayer or a related person suffering from a serious illness or disability;
- An eligible relocation of the taxpayer or the taxpayer's spouse or common-law partner (i.e., generally a relocation that enables the taxpayer to carry on business, be employed or attend full-time post-secondary education);
- An involuntary termination of the employment of the taxpayer or the taxpayer's spouse or common-law partner;
- The insolvency of the taxpayer; or
- The destruction or expropriation of the property.
The 12-month holding period for the Residential Property Flipping Rule will reset once the property is owned by the taxpayer who entered into a purchase and sale agreement. This will ensure the Residential Property Flipping Rule cannot be bypassed when selling a constructed property simply because a taxpayer held the rights to purchase the property before it was constructed. In other words, the 12-month holding period would reset once a taxpayer secures ownership of the property.
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 Residential Property Flipping Rule, including the extension for assignment sales, would apply in respect of transactions occurring on or after January 1, 2023.
Automatic Advance for the Canada Workers Benefit
The Canada Workers Benefit (CWB) is a refundable tax credit that supplements the earnings of low- and modest-income workers. An individual claims the CWB when completing their tax return, but filers are automatically assessed by the Canada Revenue Agency (CRA) for eligibility if the CWB is not claimed. An advance payment option is available through which eligible individuals may apply to receive up to half of their anticipated CWB entitlement for a taxation year through up to four advance payments. Despite recent efforts to raise awareness of this option, the provision is little used.
To provide CWB beneficiaries with more timely support throughout the year, the 2022 Fall Economic Statement proposes to automatically provide individuals who received the CWB for the previous taxation year an entitlement for the current taxation year through quarterly advance payments, so long as their income tax return for the previous year is received and assessed by the CRA prior to November 1 of the current year.
- For couples, base CWB advance payments would be paid to the spouse or common-law partner who claimed it using Schedule 6 of the income tax return or who received it through CRA automatic determination.
- An individual who received only the disability supplement in the prior year (i.e., because their spouse or common-law partner claimed the basic benefit) would receive advance payment of the current year's supplement.
Half of an individual's estimated CWB entitlement for a year, determined on the basis of their prior-year tax return (and where applicable, that of their spouse), would be delivered through advance payments in July, October and January. Any residual entitlement would be calculated and paid through the individual's tax return for the year.
- In the case of a couple in which both partners received advance payments (e.g., a couple that formed during the year), only the individual claiming the couple's CWB on their tax return (themselves, or through automatic determination) would report the advance payments received by both partners for that year, with the exception of any advance payments received by a spouse in respect of the disability supplement, which they would continue to report on their own return.
Eligibility to receive advance payments during the course of a year would cease in cases where an individual is incarcerated for a period of 90 days or more; moves out of the country; or dies prior to July 1 (death on or after July 1 does not typically lead to a change in CWB entitlement for the individual or the surviving spouse/parent).
- Where one of these changes in circumstance occurs, the CWB beneficiary would not be entitled to advance payments after their change in eligibility took place.
- The eligible spouse of an individual who became ineligible due to a change in circumstance described above could become entitled to advance payments on the basis of their individual working income and net income (excluding that of the now ineligible spouse) for the portion of the year following the individual's change in circumstance.
Changes in circumstances relating to eligibility criteria not mentioned above would not affect individuals' advance payment entitlements for the current taxation year.
Advance payments would be issued automatically starting in July 2023 for the 2023 taxation year, and the option to apply for an advance payment under the existing provision would no longer be available after January 1, 2023.
Business Income Tax Measure
Investment Tax Credit for Clean Technologies
The 2022 Fall Economic Statement proposes to introduce a refundable Clean Technology Investment Tax Credit equal to 30 per cent of the capital cost of eligible equipment.
The following types of equipment would be eligible for the credit:
- equipment to generate electricity from solar, wind and water energy that is described under subparagraphs (d)(ii), (iii.1), (v), (vi), and (xiv) of capital cost allowance Class 43.1;
- stationary electricity storage equipment that is described under subparagraphs (d)(xviii) and (d)(xix) of Class 43.1, but that does not use any fossil fuels in operation, which includes, but is not limited to, batteries, flywheels, supercapacitors, magnetic energy storage, compressed air energy storage, pumped hydroelectric energy storage, gravity energy storage, and thermal energy storage;
- active solar heating equipment, air-source heat pumps, and ground-source heat pumps that are described under subparagraph (d)(i) of Class 43.1;
- equipment to generate heat or electricity from concentrated solar energy;
- equipment to generate heat or electricity from small modular nuclear reactors; and
- non-road zero-emission vehicles described in Class 56 (e.g. hydrogen or electric heavy duty equipment used in mining or construction) and charging or refuelling equipment described under subparagraph (d)(xxi) of Class 43.1 or subparagraph (b)(ii) of Class 43.2 that is used primarily for such vehicles.
Going forward, the government will continue to review eligibility for relevant technologies, including additional ones.
Application and Phase-Out
The Clean Technology Investment Tax Credit would be available in respect of the capital cost of property that is acquired and that becomes available for use on or after the day that the 2023 Budget is released, where it has not been used for any purpose before its acquisition.
Businesses would be able to benefit from the full amount of both the Clean Technology Investment Tax Credit and the Atlantic Investment Tax Credit.
The Clean Technology Investment Tax Credit would be gradually phased out starting with property that becomes available for use in 2032 and would no longer be in effect for property that becomes available for use after 2034. The credit would gradually phase out with a credit rate of 20 per cent in 2032, 10 per cent in 2033 and 5 per cent in 2034.
The tax credit rate available under the Clean Technology Investment Tax Credit would depend on whether the claimant meets certain labour conditions. The Clean Technology Investment Tax Credit rate for eligible investments would require that all labour conditions be fulfilled in order to obtain the 30-per-cent rate. A 20-per-cent rate would be available to claimants that do not meet the labour conditions.
The Department of Finance will consult with a broad group of stakeholders, but especially with unions, on how best to attach labour conditions to the proposed tax credit. Additional details on the labour conditions will be announced in Budget 2023.
Strategic Environmental Assessment Statement
The Clean Technology Investment Tax Credit is expected to have positive environmental impacts by encouraging the adoption of clean technologies, contributing to fewer emissions of greenhouse gases and air particulates. This would contribute towards Canada's goal of reducing greenhouse gas emissions by 40 to 45 per cent below 2005 levels by 2030 and achieving net-zero greenhouse gas emissions by 2050.
The Clean Technology Investment Tax Credit would also contribute to achieving the Federal Sustainable Development Strategy target related to achieving 90 per cent of electricity generated from renewable and non-emitting sources by 2030.
Previously Announced Measures
The 2022 Fall Economic Statement confirms the government's intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their release:
- Legislative proposals released on August 9, 2022, including with respect to the following measures:
- The Tax-Free First Home Savings Account (FHSA);
- The First-Time Home Buyers' Tax Credit (HBTC);
- The Multigenerational Home Renovation Tax Credit;
- The Residential Property Flipping Rule;
- The Medical Expense Tax Credit for Surrogacy and Other Expenses;
- Borrowing by Defined Benefit Pension Plans;
- Annual Disbursement Quota for Registered Charities;
- Reporting Requirements for Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs);
- Fixing Contribution Errors in Defined Contribution Pension Plans;
- The Canada Recovery Dividend and the Additional Tax on Banks and Life Insurers;
- The Investment Tax Credit for Carbon Capture, Utilization and Storage;
- Clean Technology Tax Incentives – Air-Source Heat Pumps;
- The Critical Mineral Exploration Tax Credit;
- Eliminating Flow-Through Shares for Oil, Gas and Coal Activities;
- The Small Business Deduction;
- International Financial Reporting Standards (IFRS 17);
- Hedging and Short Selling by Canadian Financial Institutions;
- The Application of the General Anti-Avoidance Rule to Tax Attributes;
- Substantive Canadian-Controlled Private Corporations;
- Interest Coupon Stripping;
- Quarterly Remittances and Technical Amendments to the Cannabis Taxation Framework;
- Enhanced Reporting Requirements for Trusts;
- Mandatory Disclosure Rules;
- The Avoidance of Tax Debts;
- The Electronic Filing and Certification of Tax and Information Returns;
- Modifications to the vaping taxation framework related to marking, customs storage, and duty liability;
- Draft regulations under the Underused Housing Tax Act and amendments to the Underused Housing Tax Act and related amendments to the Income Tax Act;
- other technical amendments to the Income Tax Act and Income Tax Regulations proposed in the August 9th release; and
- Legislative and regulatory proposals relating to the Goods and Services Tax/Harmonized Sales Tax, excise levies and other taxes and charges announced in the August 9th release.
- Legislative proposals released on April 29, 2022 with respect to Hybrid Mismatch Arrangements.
- Tax measures and consultations announced in Budget 2022 for which legislative proposals have not yet been released.
- Legislative proposals released on February 4, 2022, including with respect to the following measures:
- Allocation to Redeemers Methodology for Mutual Fund Trusts;
- Taxes Applicable to Registered Investments;
- Audit Authorities;
- Interest Deductibility Limits; and
- Crypto Asset Mining.
- Legislative proposals tabled in a Notice of Ways and Means Motion on December 14, 2021 to introduce the Digital Services Tax Act.
- The transfer pricing consultation announced in Budget 2021.
- The anti-avoidance rules consultation announced on November 30, 2020 in the Fall Economic Statement and updated in a consultation paper released on August 9, 2022.
- The income tax measure announced on December 20, 2019 to extend the maturation period of amateur athletes trusts maturing in 2019 by one year, from eight years to nine years.
- Measures confirmed in Budget 2016 relating to the Goods and Services Tax/Harmonized Sales Tax joint venture election.
The 2022 Fall Economic Statement also reaffirms the government's commitment to move forward as required with other technical amendments to improve the certainty and integrity of the tax system.
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