Federal Fall Economic Statement 2022

On November 3, 2022, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, delivered the Federal Government’s Fall Economic Statement 2022 (FES).

No personal or corporate tax rate changes were announced however the Department of Finance (Department) confirmed its intention to proceed with previously announced tax measures, and also introduced several new tax measures intended to provide targeted inflation relief.

Previously Announced Measures

The FES confirms the Department’s intention to proceed with a number of previously announced tax and related measures. The Department indicated these measures will take into account consultations and deliberations from earlier releases.

Significant measures include the following:

• Enhanced reporting requirements for trusts
  Under proposed rules, many trusts that were previously exempt from annual reporting will be required to file a trust return each year going forward. The proposed rules will apply to bare trusts. Bare trust relationships have traditionally been ignored for income tax purposes and their existence is generally not reported to the CRA. The income tax returns and financial statements of the beneficial owner (and not the trustee / nominee) report the assets and all income and losses in respect of the property. The current proposed amendments deal only with reporting obligations and will not alter the income tax treatment of any bare trust.
• Small business deduction
• Tax measures and consultations announced in Budget 2022 for which legislative proposals have not yet been released, including the current provisions under Bill C-208 relating to intergenerational transfers of family businesses

MNP has participated in consultations on many of these measures to highlight considerations and provide recommendations in implementing the proposals. Please click on the links to view copies of the submissions:

• Submission on February 4, 2022 Draft Legislative Proposals – Various Measures
• Submission on February 4, 2022 Draft Legislative Proposals - EIFEL
• Submission on Intergenerational Share Transfers
• Submission on August 9, 2022 Draft Legislative Proposals
• Modernizing and Strengthening the General Anti-Avoidance Rule

Business Tax Measures

Investment Tax Credit for Clean Technologies

The FES proposes a refundable tax credit equal to 30 percent of the capital cost of investments in:

• Electricity generation systems involving renewable energy sources;
• Stationary electricity storage systems that do not use fossil fuels in their operation;
• Low-carbon heat equipment; and,
• Industrial zero-emission vehicles and related charging or refueling equipment.

The proposed measure would limit the available tax credit to 20 percent for companies which do not adhere to certain labour conditions, including paying prevailing wages based on local market conditions, and ensuring that apprenticeship training opportunities are being created.

The new credit is expected to be available as of the day the 2023 Budget is released and will expire at the start of 2035, subject to a phase-out starting in 2032.

Investment Tax Credit for Clean Hydrogen

The Department announced a consultation to be launched on implementing an investment tax credit for clean hydrogen based on the lifecycle carbon intensity of hydrogen.

Share Buyback

The Department announced its intention to introduce a corporate level two percent tax on share buybacks by public corporations in Canada. This measure is comparable to a recent measure introduced in the United States.

Details of this new measure are expected to be released with Budget 2023 and to become effective January 1, 2024.

Digital Platform Operators

The Department released new draft legislation applicable to digital platform operators. The proposals include reporting and due diligence standards applicable to platform operators, following the framework developed by the Organisation for Economic Cooperation and Development. 

Platform operators will be required to report certain information to the CRA related to its sellers and to follow listed due diligence procedures in obtaining various information of sellers and their activities.

Personal Tax Measures

Automatic Advance for the Canada Workers Benefit

The FES proposes an automatic advance for the Canada Workers Benefit (CWB) to eligible individuals who received the benefit for the previous taxation year. The benefit will be paid through quarterly advance payments to such individuals based on the income tax return filed for the previous year.

Extension of the Residential Property Flipping Rule to Assignment Sales

Subsequent to the Residential Property Flipping Rule proposed in Budget 2022, which introduced a deeming rule to tax profits from dispositions of residential property as business income, the FES proposes to extend the deeming rule to profits arising from an assignment sale. Such profits 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, including the extension for assignment sales, would apply in respect of transactions occurring on or after January 1, 2023.

Excessive Interest and Financing Expenses Limitation (new legislation)

In addition to the 2022 FES, the Department released updated proposed legislation on the excessive interest and financing expenses limitation (EIFEL). Key changes include:

• Postponing the effective date to taxation years beginning on or after October 1, 2023 (previously January 1, 2023).
• Broadening the definition of “excluded entity” for purposes of identifying entities exempt from the limitation.
• Relief from the limitation for public-private partnership infrastructure projects.