Tax Insights: 2022 Federal budget ─ What could be in it

March 16, 2022

Issue 2022-10

In brief

With Canada’s 2022 federal budget looming, we consider what tax measures our Liberal government might have in store for us. Since it is a minority government, the Liberals will require the support of another federal party to enact its budget proposals.

In detail

Liberal party election platform

The Liberal party’s 2021 federal election platform did not propose any broad-based tax measures.* Some of the tax measures promised in its platform have already been implemented while for some others, legislation is before Parliament or draft legislative proposals have been released for consultation (see Previously proposed tax measures, below). Most of the remaining measures were included in the December 16, 2021 mandate letter to the Deputy Prime Minister and Minister of Finance (see Mandate letter, below). The federal government will likely be anxious to use the first budget of its new mandate to move forward on as many of its priorities as possible.

Mandate letter

Prime Minister Trudeau’s mandate letter to the Deputy Prime Minister and Minister of Finance, Chrystia Freeland, indicates a busy tax agenda for the federal government and provides insight into a number of the measures that could be in the 2022 federal budget. Tax-related measures in the mandate letter that have not yet been addressed are set out below. The mandate letter directs the minister to deliver on the following commitments:

For businesses

Banks and insurance companies* – increase the corporate income tax payable by banks and insurance companies that earn more than $1 billion annually (by 3 percentage points) and require them to pay a temporary Canada Recovery Dividend to the government
Innovation and clean technologies* –
- develop an investment tax credit (ITC) of up to 30% for a broad range of clean technologies (both market‑ready and emerging)
- introduce additional ITCs for renewable energy and battery storage solutions
- double the mineral exploration tax credit for minerals essential to the manufacture of clean technologies
- eliminate flow-through shares for oil, gas and coal projects
- improve the Scientific Research & Experimental Development program by reducing red tape, better aligning eligible expenses with current innovation and making the program more generous for companies that engage in riskier projects
Carbon – introduce an ITC for investments in carbon capture, utilization and storage (CCUS) projects (this will include feedback from the government’s 2021 CCUS consultation)
Organisation for Economic Co-operation and Development (OECD)-led global tax agreement – work with global partners to bring into effect and then legislate implementation of this agreement on base erosion and profit shifting (BEPS) that:
- reallocates a portion of the profits of certain large multinational enterprises to countries where their customers are located (i.e. BEPS Pillar 1)
- adopts a 15% global minimum tax (i.e. BEPS Pillar 2)

For more information, see our:

– Evolution of tax: OECD updates “The implications for Canadian businesses of new global and domestic tax changes”

– Tax Insights “The new international tax framework and Canada’s digital services tax”

– global Tax Policy Alerts at www.pwc.com/gx/en/services/tax/publications/tax-policy-bulletin.html

Also, see Previously proposed tax measures (below) for the status of Canada’s proposed digital services tax.

Real estate investment trusts (REITs) – review and consider possible reforms to the tax treatment of REITs

For individuals

Minimum tax rate* – establish a federal minimum 15% tax rule for top-bracket earners
Home ownership –
- create a tax-free First Home Savings Account*
- double the first-time home buyers’ tax credit* and the home accessibility tax credit*
- establish a multigenerational home renovation tax credit*
- require landlords to disclose in their income tax filings the rent they receive pre- and post-renovation and to pay a proportional surtax if the increase in rent is excessive
- establish an “anti-flipping” tax* on residential properties (i.e. where the property has been held for less than 12 months)

Employment* – introduce:
- a labour mobility tax credit for workers in the building and construction trades
- a career extension tax credit for seniors who want to stay in the workforce

Other personal tax measures –
- introduce a tax credit to cover the cost of home appliance repairs performed by technicians*
- convert the Canada caregiver credit into a refundable tax-free benefit*
- expand the medical expense tax credit to include costs reimbursed to surrogate mothers for in vitro fertilization (IVF) expenses*
- introduce a one-time income tax deduction for health care professionals starting out in their careers, to help with the costs of setting up their practice in a rural community
- introduce rules to make anti-abortion organizations that provide dishonest counselling to pregnant women ineligible to be registered charities

Other tax measures

Tax fairness* –
- modernize the general anti-avoidance rule regime to focus on economic substance and restrict the ability of federally regulated entities to use certain tiered structures in international tax planning for Canadian-derived profit to reduce taxes in Canada
- invest in the Canada Revenue Agency to close the tax gap and combat aggressive tax planning, avoidance and evasion (this is a perennial budget measure) and improve its capacity to audit real estate transactions

Previously proposed tax measures

The 2022 federal budget can also be expected to affirm the government’s intention to move ahead with its previously announced measures.

Legislative proposals relating to the Income Tax Act and other legislation (2021 federal budget and previous budget measures)

The February 4, 2022 draft legislative proposals include 2021 federal budget and other measures. For more information, see our Tax Insights:

Notice of Ways and Means Motion to introduce an Act to implement a Digital Services Tax

Draft legislation to implement a Canadian digital services tax was released on December 14, 2021. Stakeholder comments were due by February 22, 2022. For more information, see our Tax Insights “2021 Federal fall economic statement: Tax highlights”.

Legislative proposals relating to the Select Luxury Items Tax Act

Draft legislative proposals for the 2021 budget measure to implement a tax on luxury cars, boats and planes were released on March 11, 2022. Stakeholder comments are due by April 11, 2022. The tax is proposed to come into effect on September 1, 2022. For more information on this new proposed tax, see our upcoming Tax Insights at www.pwc.com/ca/taxinsights.

Other previously proposed tax measures

Previously proposed or outstanding tax measures include:

hybrid mismatch arrangements – draft legislative proposals for this 2021 budget measure have not yet been released
transfer pricing - a consultation on Canada’s transfer pricing rules was announced in the 2021 budget, but has not yet begun
Bill C-208, An Act to amend the Income Tax Act (transfer of small business or family farm or fishing corporation) (royal assent: June 29, 2021) – draft legislative proposals to respond to any unintended tax avoidance loopholes created by this private member’s bill have not yet been released. For more information, see our Tax Insights “Tax relief for intergenerational transfers of small businesses and family farms: But how will the new rules work?”

Next steps

To stay informed about the 2022 federal budget:

subscribe to our budget memo and other tax publications at www.pwc.com/ca/stayintouch
refer to our budget web page at www.pwc.com/ca/budget
reach out to your PwC adviser to discuss what the potential budget measures could mean for you or your business

^{* For more information, see our Tax Insights “Liberal party tax platform: What it could mean for you and your business”.}