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Canadian Federal Budget 2022 Canadian Federal Budget 2022 Canadian Federal Budget 2022

An economic recovery for all - inclusive, sustainable and innovative

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• Canadian Federal Budget 2022

Canada's Deputy Prime Minister and Finance Minister, Chrystia Freeland, delivered the 2022 Federal budget in the House of Commons on April 7, 2022.

This year's budget focused on three pillars: people, a green transition and innovation in order to stimulate the economy and make life more affordable for Canadians. With unprecedented economic and social challenges, our economy faces significant inflationary pressures, housing needs, supply chain issues, labour shortages and protectionism in key export markets.

Our team of leading KPMG professionals help make sense of the complex and ever-changing Canadian landscape by exploring the implications of key federal budget initiatives, priority investments and proposed tax measures. Our goal is to share insights on the potential economic and societal impacts of these changes. The analysis is aimed at assisting business leaders to understand, prepare and navigate the proposed changes anticipated in the weeks and months ahead.

Stay tuned here for more information.

Three pillars

This year, the federal budget was broken down into three pillars. Navigate below to explore key measures and insights from each pillar.

Broadening economic participation and making life affordable

Climate measures for a competitive and sustainable tomorrow

Rewarding innovation to support Canadian solutions and ingenuity

First impressions and highlights from KPMG's National Tax Centre

KPMG's National Tax Centre has prepared a special edition of TaxNewsFlash-Canada summarizing the announced tax changes.

Canada's Deputy Prime Minister and Finance Minister Chrystia Freeland delivered Canada's 2022 federal budget earlier today, April 7, 2022

Chrystia Freeland delivered Canada's 2022 federal budget earlier today, April 7, 2022

Canada's Deputy Prime Minister and Finance Minister Chrystia Freeland delivered Canada's 2022 federal budget on April 7, 2022

Chrystia Freeland delivered Canada's 2022 federal budget on April 7, 2022

Insights and resources

Taxes, incentives, supports all top of mind in a new KPMG in Canada survey of medium-sized companies

Taxes, incentives, supports all top of mind in a new KPMG in Canada survey

Canada's Deputy Prime Minister and Finance Minister Chrystia Freeland will deliver Canada’s 2022 federal budget on April 7, 2022

Chrystia Freeland will deliver Canada’s 2022 federal budget on April 7, 2022

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Deputy Prime Minister of Canada Chrystia Freeland

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Today, the Deputy Prime Minister and Minister of Finance, the Honourable Chrystia Freeland, released Budget 2022: A Plan to Grow Our Economy and Make Life More Affordable .

Since the depths of the pandemic recession, the government’s focus on jobs – on keeping Canadians employed and on keeping their employers afloat – has ensured Canada’s economy has made a rapid and strong recovery. Canada has seen the best jobs recovery in the G7, having recovered 112 per cent of the jobs lost, and with an unemployment rate that sits at just 5.5 per cent – close to the 5.4 per cent low in 2019 that was Canada’s best in five decades.

In Budget 2022, the government makes targeted and responsible investments to create jobs and prosperity today, and build a stronger economic future for all Canadians. These include:

• Investing in Canadians and making life more affordable: Canadians are the backbone of a strong and growing economy, and measures that support access to housing and a growing workforce are imperative for economic growth. Budget 2022 housing measures include: Putting Canada on the path to double housing construction over the next decade; helping Canadians save for and buy their first home; banning foreign investment that makes housing less affordable for Canadians; and curbing unfair practices that make housing more expensive for Canadians. Budget 2022 also invests in ensuring Canadian workers have the skills they need for the good-paying jobs of today and tomorrow, and will make it easier for the skilled immigrants that our economy needs to make Canada their home. Budget 2022 makes significant further investments in affordable child care, in reducing the backlogs of surgeries and medical procedures in our public health care system, and in advancing reconciliation with Indigenous Peoples.
• Investing in economic growth and innovation: The key to Canada’s long-term prosperity is economic growth. Budget 2022 builds off of Budget 2021’s historic investments in early learning and child care – which could increase real GDP by as much as 1.2 per cent over the next two decades – and includes further critical investments to make Canada’s economy both stronger and more innovative. These investments include a new Canada Growth Fund that will attract tens of billions of dollars in private investment in Canadian industries and Canadian jobs, and a new innovation and investment agency that will help drive productivity and growth across our economy. Budget 2022 also includes up to $3.8 billion to implement Canada’s first Critical Minerals Strategy – one that will create thousands of good jobs and capitalize on a growing need for the minerals used in everything from phones to electric cars. Measures also include steps to build more resilient supply chains, to cut taxes for Canada’s growing small businesses, and to drive the creation, and ensure the protection, of Canadian intellectual property.
• Investing in a clean economy: Protecting our environment and fighting climate change is the right thing to do for the planet, and it is also the right thing to do for our economy. Through Budget 2022, the government will help Canadians and Canadian businesses benefit from the global transition to a clean economy, including through new incentives for the development of clean technologies and carbon capture, utilization, and storage. In addition to further investments to protect our land, lakes, and oceans, the government will also make it more affordable for Canadians to purchase zero-emission vehicles, build and expand a national network of zero-emission vehicle charging stations, and make new investments in clean energy.

Canada entered the pandemic with the lowest net debt-to-GDP ratio of all G7 countries, an advantage that has since increased relative to other countries. With Budget 2022, Canada will maintain this leading position, while also seeing the second fastest recovery in the G7 by the end of this year. With the federal government having invested eight out of every ten dollars to support Canadians and the Canadian economy during the pandemic, Budget 2022 represents a fiscally responsible approach to economic growth and builds an economy that works for everyone. Crucially, it upholds the government’s fiscal anchor – a declining debt-to-GDP ratio and the unwinding of COVID-19-related deficits, which will ensure that Canada’s finances remain sustainable in the long‑term.

“Budget 2022 is about growing our economy, creating good jobs, and building a Canada where nobody gets left behind. Our plan is responsible and considered, and it is going to mean more homes and good-paying jobs for Canadians; cleaner air and cleaner water for our children; and a stronger and more resilient economy for years to come.” The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance

Quick Facts

• Putting Canada on the path to doubling the construction of new homes in the next decade;
• Helping Canadians buy their first home, including by introducing the Tax-Free First Home Savings Account and doubling the First-Time Home Buyers’ Tax Credit; and
• Launching a new Housing Accelerator Fund that will target the creation of 100,000 net new housing units in the next five years.
• More than $3 billion in funding to make zero-emission vehicles more affordable and build a national network of charging stations;
• Significant new investments to protect our land, lakes, and oceans; and
• The creation of the Canada Growth Fund to help attract tens of billions of dollars in private capital towards building a net-zero economy by 2050.
• $5.3 billion over five years to provide dental care for Canadians with family incomes of less than $90,000 annually, starting with under 12‑year‑olds in 2022, expanding to under 18‑year‑olds, seniors, and persons living with a disability in 2023, and with full implementation by 2025. The program would be restricted to families with an income of less than $90,000 annually, with no co-pays for those under $70,000 annually in income;
• Up to $3.8 billion to implement Canada’s first Critical Minerals Strategy;
• $11 billion in additional funding to continue to support Indigenous children and their families, and help Indigenous communities continue to grow and shape their futures;
• More than $8 billion in new funding to better equip the Canadian Armed Forces, strengthen Canada’s contributions to our core alliances like NATO and NORAD, and reinforce Canada’s cyber security;
• Further support for Ukraine and its people in the face of Russia’s illegal invasion, including up to $1 billion in new loan resources to the Ukrainian government through a new Administered Account for Ukraine at the International Monetary Fund (IMF), and an additional $500 million in military aid;
• A temporary Canada Recovery Dividend, representing a one-time 15 per cent tax on the 2021 taxable income above $1 billion of Canada’s largest banking and life insurers’ groups, to help support Canada’s broader recovery; and
• A permanent 1.5 percentage point increase in the corporate income tax rate of banking and life insurance groups on taxable income above $100 million.

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• Making Housing More Affordable
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• Clean Air and a Strong Economy
• Creating Good Middle Class Jobs
• Canada’s Leadership in the World
• Strong Public Health Care
• Moving Forward on Reconciliation
• Safe & Inclusive Communities
• Investing to Make Life More Affordable
• Supporting Canada’s Rural Communities
• Supporting Early Learning and Child Care
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Share this Story: Read the full text of the 2022 federal budget from Finance Minister Chrystia Freeland

Read the full text of the 2022 federal budget from finance minister chrystia freeland.

Federal spending falls to $452 billion in the new fiscal year with a deficit of $52 billion

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Finance Minister Chrystia Freeland has tabled her second pandemic budget . Federal spending falls to $452 billion in the new fiscal year with a deficit of $52 billion, which are the lowest figures since before the pandemic but still significantly above pre-pandemic levels. Read the full budget below.

Read the full text of the 2022 federal budget from Finance Minister Chrystia Freeland Back to video

Related stories, read the rest of our coverage of the 2022 budget, tax-exempt sperm and 8 other weird and wonderful highlights from federal budget 2022, this content is reserved for subscribers.

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Canadian Federal: 2022–23 Budget

Fiscal Policy

Thu Apr 07 2022 21:22:00 GMT+0000 · Rebekah Young

THE ART (AND MATH) OF GIVING AND TAKING

• Canada’s Federal 2022–23 Budget unleashes more spending, masked by major revenue windfalls and new revenue-raising measures.
• New spending measures tally $56.6 bn by FY27, ticking off the boxes on many of the Liberals’ election pledges on housing, healthcare, and green investments, along with some under the recent Liberal-NDP pact including a national dental care program (though there is a notable absence of pharmacare).
• Revenue windfalls since the Fall Update amount to a whopping $85.5 bn by FY27. Meanwhile, new revenue-raising measures—including the anticipated taxes on banks and insurers and new plans for a government expenditure review—would yield $25.4 bn by FY27.
• The net budgetary impact shows a $51 bn improvement by FY27 but over half of this ($31 bn) accrues to the recently closed FY22 as higher nominal growth has padded government coffers.
• Apart from the material improvement in the FY22 deficit (-4.6% of GDP versus the earlier-forecasted -5.8%), the path for deficits looks broadly similar to the last official update in December with shortfalls gradually tapering to -0.3% by FY27 (chart 1).
• Canada’s federal net debt shows similar modest improvements relative to the last official update (chart 2). The level for FY22 is estimated slightly lower than prior expectations at 46.5% of GDP—though mostly driven by a stronger denominator—while gradual improvements are expected over the horizon with the level expected to sit at 41.5 % by FY27. A declining trajectory remains the only fiscal anchor.
• There are some laudable measures targeting growth potential and affordability over the medium term—from investments supporting innovation, green growth, and housing supply—but they fall short of a comprehensive growth agenda that would change our medium term outlook for Canada just yet. The budget however does provide a frank assessment of the longer term challenges Canada faces ahead and that is a start.
• In the near term, the government has largely refrained from launching major new supports to offset inflationary pressures facing many Canadians. A one-time $500 payment to Canadians experiencing housing need (through the existing Canada Housing Benefit) is targeted and time-limited, with a relatively modest aggregate impact ($475 mn in FY23).
• However, once provincial relief measures (likely in the order of $7 bn) and retroactive relief payments for childcare in Ontario for FY22 are folded in, directionally at least, there is likely continued pressure on prices.
• Not that there was much lingering doubt, but today’s Budget reaffirms that the onus will fall squarely on the Bank of Canada to wrangle inflation. Markets are braced for a 50 bps move next week (and more to come before the year is out).
• Dated forecast assumptions likely mean more revenue windfalls ahead for the federal government, but still-outstanding (and notable) pledges that would likely put a call on these eventually.

BROAD TAKE-AWAYS

The Budget broadly met our expectations with its tax-and-spend approach to fiscal management. The government set out major new spending by FY27 ($56.6 bn—or closer to $65 bn when various reprofiling and reallocation measures are folded in), offset by stronger economic (e.g., revenue) developments ($85 bn) and new revenue-raising measures ($25.5 bn). The net impact is a cumulative $51 bn to debt-financed spending by FY27 (or a more modest $20 bn if FY22 is netted out) relative to the fiscal path set out in December’s Economic and Fiscal Update. In other words, the Budget confirms the spending bias for Canada’s federal finances even if the bottom line doesn’t appear starkly different.

Budgetary developments reinforce our outlook for the Canadian economy. The Canadian economy is already operating above capacity, inflationary pressures are persistent, and the Budget does little to tether expectations. Economic assumptions that inform this Budget (Table 1, page 5) are stale (i.e., assumes 3.9% CPI versus Scotia’s 5.9% in 2022). While the government has wisely refrained from undertaking major new broad-based measures to offset near-term affordability pressures, the system is still primed to spend more once provincial relief measures are factored in that would put more pressure on our price outlook in the near term. Overall, the Budget bolsters our expectation that monetary policy will shoulder the brunt of reining in inflation—and puts (even) more conviction around a 50 bps move next week.

The Budget is delivered in a highly uncertain and volatile environment. With exogenous factors driving government bond yields higher around the world, (federal) fiscal activism reinforces—at the margins—the uplift in the Canadian yield curve, particularly pronounced at the shorter end. Much of today’s developments had likely already been anticipated by markets, and, frankly, get swallowed up by far bigger market-moving events south of the border (and overseas) in the lead-up to Budget Day and the days and weeks to follow.

Looking further out on the horizon, there is little by way of a game-changing growth agenda. There are some important markers such as the carbon capture, utilization, and storage tax incentive, the new innovation agency, and the Canada Growth Fund that—if effective in driving desired outcomes—could materially change the economic landscape and the path to net-zero, but there is still a high degree of implementation uncertainty surrounding these measures so we wouldn’t change our longer-term forecasts just yet. Other measures (e.g., around housing, immigration) should directionally drive higher growth potential and improved affordability over the medium term, but again it would not change our outlook just yet. A frank assessment of the challenges ahead is a start.

It is not just a missed opportunity to set out a national vision for future prosperity over the long run, but also a missed chance to assuage markets in the near term that Canada has a plan. With markets closely monitoring various versions of the yield curve for signs of inversion as a harbinger for a recession, strong economic fundamentals (and a good fiscal buffer) over the medium term are still the best defense in supporting the longer end of the curve.

KEY POLICY MEASURES

For a relatively small document, the Budget covers a broad and all-encompassing landscape of ‘priorities’. Allocation of new spending is spread across eight major themes ranging from housing, green growth, jobs, international priorities, to reconciliation. A ninth category covers revenue-raising measures. See Table 2 (page 5) for an annotated list of priorities and key components.

Housing and housing affordability is a central theme of Budget 2022. A $10 bn (5-year) package focuses largely on supply including low-income housing (totalling $8.8 bn including $4 bn to municipalities). These are important investments that tackle a structural shortage—with the Budget pointing to 3.5 mn homes needed over the next nine years—and it is encouraging to see that the federal government plans to use its weight to ensure concessions are made around zoning and other reforms. There are a series of measures ($1.3 bn) supporting first-time homebuyers including a new tax-free savings account, a doubling of the first-time homebuyers’ tax credit, and more flexible first-time homebuyer incentive. Underpinning demand, these potentially work against affordability objectives, and run the risk that it reinforces regressivity in home-buying. There will also be a 2-year ban on foreign buyers, speculation tax measures, and a rent-to-own program among other measures announced.

Budget 2022 further advances Canada’s green transition. Most measures announced in the Budget had been anticipated, notably via the recent tabling of the 5-year Emissions Reduction Plan at the end of March. A bulk of the $12 bn announced today (or $6.8 bn) around the green agenda falls to the transportation sector including the shift to electric vehicles. Details around tax credits for carbon capture, utilization and storage (CCUS)—including thresholds and exclusions—should provide $2.6 bn to the sector but the Budget presses provinces to complement these incentives, while the exclusion of enhanced oil recovery is likely to draw attention.

There is a great deal of airtime given to a broader growth and innovation agenda but it is more a string of measures as opposed to a comprehensive or compelling vision for stronger growth and productivity. Signature measures include two new arms-length agencies: a Canada Growth Fund to provide concessional support to leverage private capital towards achieving Canada’s resilient growth objectives (capitalized at $15 bn, $1.5 bn concessional), along with a new Canadian Innovation and Investment Agency ($1 bn). There is a tax cut for small businesses by increasing the threshold before companies are phased out of more favourable tax treatment (from $15 mn to $50 mn). Another $3 bn investment in “supply chains” through a host of channels is also provided. The net spend for this growth agenda comes to $5 bn over 5 years. At the same time, the Budget reprofiles $6 bn in infrastructure funds beyond the horizon of the budget (while nudging provinces to accelerate the uptake). A bit of a misnomer—a chapter on middle class jobs with another $6 bn attached to it—is mostly related to immigration programs. These are important investments but hardly comprehensive as the government faces chronic labour productivity challenges.

There is another $18 bn spread across a range on other government priorities. This includes further measures towards reconciliation ($10.6 bn), reinforced support for National Defense ($7.2 bn), a new national dental program ($5.3 bn), and safe community investments ($1.7 bn).

The Budget tables substantial new measures on the revenue-raising side of the ledger ($25.4 bn). A surtax on banks and insurers—albeit a smaller 1.5 ppts versus the platform pledge of 3 ppts—features prominently, along with the anticipated Canada Recovery Dividend—a one-time 15% tax on taxable income above $1 bn in 2021 for combined revenues of $6.1 bn. There is also a clamp-down in Canadian-controlled private corporations to bring in an estimated $4.2 bn, along with a commitment to examine a minimum tax for high earners. CRA enforcements are expected to recover another $3.4 bn. Finally—and a new element—is the plan to launch a government expenditure review that would net $8.9 bn in government revenues over the five year horizon. The latter is commendable (along with ramped up efforts to reallocate across priorities within the Budget itself), but such a review will take time and comes with a host of uncertainties. In fact, netting out the bank taxes, $19 bn of the $25 bn new sources of revenue carries risk.

FISCAL PROJECTIONS

Deficits are expected to continue to decline over the horizon [but at a slower pace] relative to December’s Update. The estimated shortfall for FY22 (-$114 bn, -4.6% of GDP) is much-improved relative to the earlier-anticipated (-$145 bn) owing to much stronger revenue performance. The FY23 balance is expected to decline further to -$53 bn, -2.0% of GDP with consolidation slowing thereafter to land at -$8 bn, -0.3% of GDP by FY27. Notably, the fiscal framework does not yet incorporate any potential spending pressures related to national pharma which would be material if and when implemented.

Net federal debt remains on a firmly downward trajectory. The federal accumulated deficit is estimated to have come down modestly as of share of GDP in FY22 (to 46.5% from 47.5% the year prior) and is expected to gradually descend to 41.5% by FY27 (about 2.5 ppts lower than the Fall Update’s projection. To little surprise, a declining debt trajectory remains the only loose fiscal anchor for the federal government. With stale economic forecasts that likely underestimate baseline expectations, higher nominal GDP growth is likely to do some of that work in the near term, though a “heightened impact” scenario of prolonged conflict shows this anchor could be breached.

Higher interest rates are expected to put modestly more pressure on debt servicing costs, but these are still expected to remain low by historic standards. Debt servicing costs are estimated at 1.0% of GDP in FY22 and are expected to rise modestly to 1.4% of GDP by FY27 in line with rising interest rates. As a share of revenues, the projected increase is more visible: from 7.5% to 10.6% over the horizon. There is a wide range of views on where rates will settle (and why) over the medium term; the government estimates the impact of a sustained 100 bps increase in interest rates would drive these numbers closer to 1.7% of GDP. These levels would still be well-below historic highs (chart 3).

Borrowing requirements for FY23 are estimated at $435 bn (of which $378 bn reflect refinancing needs) slightly down from FY22 requirements ($453 bn). The government plans to issue $212 bn in bonds in FY23(versus $255 bn in FY22), of which 35% would be long bonds (10-year+), marking a slight shift away from the longer end though the average term to maturity would sit close to 7 years by the end of FY23. The government plans to issue another $5 bn green bonds after its inaugural $5 bn issuance last year. For perspective on incremental market supply, recall the Bank of Canada is expected to roll off maturing government bond assets from its balance sheets ($64 bn and $88 bn maturing in 2022 and 2023).

IT’S ALL RELATIVE

Canada’s general government debt outlook will likely show greater improvements relative to peers. Recall, provincial finances hold sway with about half of Canada’s outstanding government debt at the subnational level so tighter-than-anticipated fiscal paths for most provinces, along with today’s modest improvements at the federal level should translate into improvements in the general government balance relative to peers when the IMF updates its now-stale comparative debt outlook later this month (charts 4 & 5). In the meantime, a handful of peers have or will unleash new spending (notably, Japan, Germany, and the UK) to ward off legitimate economic weakness. The impact of the Russian invasion of Ukraine is driving divergences in growth outlooks along regional and commodity-dependence lines that, for now, likely strengthens Canada’s relative position.

Canada cannot rest on its laurels. Its lack of reserve currency status puts a lower tolerance on debt levels that limits the usefulness of peer comparisons. While commodity channels may boost Canada’s relative outlook for now, the direction of this driver over the medium term hinges on the successful execution of Canada’s green transition plans. Meanwhile, rating agencies should be relieved to see modest improvements to the federal track (and to be able to punt difficult discussions around structural deficits down the road given that pharma commitments weren’t tabled today). Nevertheless, with looming provincial pressures over the medium term they will likely increasingly ask tough questions and Canada—across all levels of government—will eventually need a coherent response.

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2022 Federal Budget analysis

In brief .

On April 7, 2022, the Deputy Prime Minister and Minister of Finance, Chrystia Freeland, presented the government’s budget. The budget:

announces the Canada Recovery Dividend, a one-time 15% tax on banks and life insurers, and proposes an additional 1.5% tax on banking and life insurer groups

expands eligibility for the small business deduction

addresses tax planning that manipulates Canadian-controlled private corporation (CCPC) status, in the context of investment income taxation; and reduces the foreign tax deductions that CCPCs may claim for foreign accrual property income

introduces a refundable tax credit for carbon capture, utilization and storage, and the Critical Mineral Exploration Tax Credit   

clarifies the government’s position with respect to taxation of insurance contracts, in light of the upcoming new international financial reporting standard (IFRS 17)

curtails certain aggressive tax planning arrangements by financial institutions that result in artificial tax deductions

amends the application of the general anti-avoidance rule, to ensure that it applies in respect of tax attributes that have not yet become relevant to the computation of tax

announces a public consultation on the Canadian implementation of OECD model rules that introduce a global minimum tax (Pillar Two) for large multinational enterprises

introduces the Tax-Free First Home Savings Account, a new registered account for first-time homebuyers, and doubles the First-Time Home Buyers’ Tax Credit

doubles the annual expense limit for the Home Accessibility Tax Credit and introduces the Multigenerational Home Renovation Tax Credit

deems profits from certain residential property dispositions to be business income

increases the disbursement quota for charitable organizations

This Tax Insights discusses these and other tax initiatives proposed in the budget.

Tax measures

Canada recovery dividend, additional tax on banks and life insurers , small business deduction, substantive ccpcs, intergenerational business transfers, investment tax credit for carbon capture, utilization and storage.

• Clean Technology Tax Incentives

Critical Mineral Exploration Tax Credit

Flow-through shares for oil, gas and coal activities, international financial reporting standards for insurance contracts (ifrs 17).

• Hedging and Short Selling by Canadian Financial Institutions  
• Limiting Aggressive Tax Avoidance by Financial Institutions 

Corporate Owned Residential Real Estate

General anti-avoidance rule, international, international tax reform, exchange of tax information on digital economy platform sellers, interest coupon stripping, tax-free first home savings account, home buyers’ tax credit, multigenerational home renovation tax credit, home accessibility tax credit, residential property flipping rule, minimum tax for high earners, labour mobility deduction for tradespeople.

• Medical Expense Tax Credit 
• Borrowing by Defined Benefit Pension Plans   

Reporting Requirements for RRSPs and RRIFs

Annual disbursement quota for registered charities, charitable partnerships, enhanced charity reporting.

• GST/HST Health Care Rebate

GST/HST on Assignment Sales by Individuals

Taxation of vaping products.

• Cannabis Taxation Framework
• WTO Settlement – Canadian Wine Exemption

Beer Taxation

• CRA Audits, Employee Ownership Trusts and SR&ED

Strengthening Canada's Trade Remedy and Revenue Systems

Immigration investments and updates, previously announced, in detail , business tax measures.

The budget proposes the Canada Recovery Dividend (CRD), a one-time 15% tax on bank and life insurer groups. A group subject to the tax would be a bank or life insurer and any financial institution (for the purposes of Part VI of the Income Tax Act [ITA]) related to the bank or life insurer.

The CRD would be determined based on a corporation’s taxable income for taxation years ending in 2021, subject to a proration rule for short taxation years. Bank and life insurer groups subject to the CRD would be permitted to allocate a $1 billion taxable income exemption between group members. The CRD would apply for the 2022 taxation year and would be payable in equal amounts over five years.

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The budget proposes an additional 1.5% tax on the taxable income for members of bank and life insurer groups (determined in the same manner as for the CRD). Bank and life insurer groups subject to the additional tax would be allowed to allocate a $100 million taxable income exemption between group members. The additional tax would apply to taxation years that end after April 7, 2022. For a taxation year that includes April 7, 2022, the tax would be pro-rated.

Small businesses benefit from a reduced corporate income tax rate of 9% provided through the small business deduction (SBD). The SBD applies on up to $500,000 per year of active business income (the business limit) of CCPCs. The business limit is allocated among associated CCPCs and is reduced on a straight-line basis when:

the combined taxable capital employed in Canada of the CCPC and its associated corporations is between $10 million and $15 million, or 

the combined “adjusted aggregate investment income” of the CCPC and associated corporations is between $50,000 and $150,000

To facilitate small business growth, the budget proposes to extend the range over which the business limit is reduced, based on the combined taxable capital employed in Canada of the CCPC and its associated corporations. The new range would be $10 million to $50 million. For example:     

a CCPC with $30 million in taxable capital would have up to $250,000 of active business income eligible for the small business deduction, compared to $0 under current rules

a CCPC with $12 million in taxable capital would have up to $475,000 of active business income eligible for the small business deduction, compared to up to $300,000 under current rules

This measure would apply to taxation years that begin on or after April 7, 2022.

Use of Foreign Entities

The budget proposes amendments to align the taxation of investment income earned and distributed by “substantive CCPCs” with the rules that currently apply to CCPCs. Substantive CCPCs would be private corporations resident in Canada (other than CCPCs) that are ultimately controlled (in law or in fact) by Canadian-resident individuals. The test would contain an extended definition of control that would aggregate the shares owned, directly or indirectly, by Canadian resident individuals. This measure would address tax planning that manipulates CCPC status without affecting private corporations that are ultimately controlled by non-resident persons and subsidiaries of public corporations. It would also cause a corporation to be a substantive CCPC in circumstances where the corporation would have been a CCPC, but for the fact that a non-resident or public corporation has a right to acquire its shares.

Substantive CCPCs earning and distributing investment income would be subject to the same anti-deferral and integration mechanisms as CCPCs, with respect to such income. Specifically, investment income would be subject to a federal tax rate of 38⅔%, of which 30⅔% would be refundable upon distribution. Furthermore, the investment income earned by substantive CCPCs would be added to their “low rate income pool,” such that distributions of such income would not entitle the shareholders to the enhanced dividend tax credit. Substantive CCPCs would continue to be treated as non-CCPCs for all other income tax purposes.

This measure would generally apply to tax years that end on or after April 7, 2022, subject to an exception in certain cases where the tax year of the corporation ends because of an acquisition of control caused by the sale of all or substantially all of the shares of a corporation to an arm’s length purchaser. This exception will be available only where the purchase and sale agreement resulting in the acquisition of control was entered into before April 7, 2022 and the share sale occurs before the end of 2022.  

Foreign Resident Corporations

The budget also proposes changes to the tax treatment of investment income earned by CCPCs (and substantive CCPCs) through foreign subsidiaries.

Investment income earned by a controlled foreign affiliate (CFA) of a Canadian taxpayer is generally included in foreign accrual property income (FAPI). The Canadian taxpayer must include its share of this FAPI in its Canadian taxable income for the year in which the FAPI accrues. An offsetting deduction is provided for the foreign tax paid on this FAPI, to prevent double taxation. This deduction is equal to the amount of foreign tax, multiplied by the “relevant tax factor.” The relevant tax factor is 4 where the Canadian taxpayer is a corporation, and 1.9 where the taxpayer is an individual. This means that a larger deduction is available for corporations, reflecting the fact that corporate income is subject to an additional level of tax when distributed to shareholders. Similar deductions for foreign tax are provided when a Canadian corporation receives dividends from foreign affiliates that are paid from taxable surplus (which represents after-tax FAPI, as well as certain other income) or from hybrid surplus (which represents certain capital gains).

The budget proposes to change the relevant tax factor for CCPCs (and substantive CCPCs) to 1.9 (the same as the relevant tax factor for individuals). This would reduce the foreign tax deductions that CCPCs (and substantive CCPCs) may claim for FAPI, as well as for dividends paid from taxable surplus and hybrid surplus. Accordingly, a full deduction will be available only where the effective foreign tax rate on this income is at least 52.63%. This change is intended to eliminate the tax deferral advantage that could otherwise be obtained where a CCPC (or substantive CCPC) earns investment income through a foreign affiliate, and relies on foreign tax deductions to shelter this income from the 38⅔% federal refundable tax on investment income.

The budget also proposes changes to the system for integrating personal taxes and corporate taxes on investment income earned by CCPCs (and substantive CCPCs) through foreign affiliates. The proposed changes would provide integration through the capital dividend account (CDA), which can be distributed tax-free to Canadian-resident individual shareholders, rather than through the general rate income pool, as currently provided for a CCPC. Specifically, deductions claimed for taxable surplus dividends, for foreign withholding tax in respect of taxable surplus dividends, and for hybrid surplus dividends (less the amount of foreign withholding tax paid on such dividends) would be added to the CDA of a CCPC (or substantive CCPC). This would allow an amount representing after-tax income that was subject to tax in the corporation at the highest combined personal income tax rate to be distributed to the corporation’s Canadian resident individual shareholders without being subject to additional Canadian income tax.

The proposed changes would apply to taxation years beginning on or after April 7, 2022.

Private Member’s Bill C-208, which received royal assent on June 29, 2021, introduced an exception to the anti-surplus stripping rules in section 84.1 of the ITA. The intention of the exception is to facilitate intergenerational business transfers. When the Bill was enacted, the Department of Finance raised concerns that the amendments might unintentionally allow surplus stripping without a genuine intergenerational transfer. 

The budget does not contain any measures to address those concerns, but instead announces a consultation (closing June 17, 2022) on how the existing rules could be modified to protect the integrity of the tax system while continuing to facilitate genuine intergenerational business transfers. The budget commits the government to bringing forward legislation to be included in a bill to be tabled in Fall 2022.

The budget introduces the Carbon Capture, Utilization and Storage (CCUS) refundable tax credit, which can be claimed by businesses that incur, beginning January 1, 2022, eligible expenses related to the purchase and installation of eligible equipment used in an eligible new project that captures carbon dioxide (CO 2 ) emissions. Eligible equipment must be part of a project where CO 2 captured in Canada was used for an eligible use. The CCUS equipment would be included in two new capital cost allowance (CCA) classes. The table below shows the applicable rates for the CCUS tax credit. 

To claim the CCUS tax credit, the business must:

subject the project to a validation and verification process, details of which are yet to be provided

prove that the project meets CO 2 storage requirements

• produce a climate-related financial disclosure report 

Clean Technology Tax Incentives – Air-Source Heat Pumps

Capital cost allowance (cca) for clean energy equipment.

The budget expands eligibility for CCA classes 43.1 and 43.2 to include air-source heat pumps primarily used for space or water heating, effective for property that is acquired and becomes available for use after April 6, 2022. 

Zero-emission technology manufacturing and processing

The budget also includes the manufacturing of air-source heat pumps used for space or water heating as an eligible zero-emission technology manufacturing or processing activity, for the purposes of the temporary reduced corporate income tax rates for qualifying zero-emission technology manufacturers that apply to taxation years beginning after 2021.

The budget introduces a 30% Critical Mineral Exploration Tax Credit (CMETC) for eligible expenditures incurred in the exploration and mining of eligible specified minerals that are used in the production of certain parts for zero-emission vehicles, or advanced materials, clean technology or semi-conductors. The CMETC would: 

apply to expenditures renounced under eligible flow-through share agreements entered into after April 7, 2022 and before April 1, 2027

follow the rules in place for the existing Mineral Exploration Tax Credit (METC)

• not be permitted to be claimed in addition to the METC

Effective for flow-through share agreements entered into after March 31, 2023, the budget eliminates the flow-through share regime for oil, gas and coal activities, thereby no longer allowing the renunciation of oil, gas and coal exploration and development expenditures to a flow-through share investor.

On January 1, 2023, IFRS 17, the new accounting standard for insurance contracts, will introduce a new reserve known as the contract service margin (CSM). The CSM will result in a large portion of profits earned on underwritten insurance contracts being deferred and recognized over the estimated life of the contracts. Following extensive consultation with the insurance industry, the budget proposes to make changes consistent with the policy intent described in the government’s May 2021 news release, but with certain relieving modifications and consequential changes to protect the minimum tax base of life insurers. 

Life Insurance

For life insurance contracts, the budget proposes that, for tax purposes:

the CSM associated with segregated funds be fully deductible, and 

10% of the CSM for life insurance contracts (other than segregated funds) be deductible, and this deductible portion will be included in income for tax purposes when non-attributable expenses are incurred in the future

The budget provides transition rules as follows:

a transition period of five years to smooth out the tax impact of converting insurance reserves from IFRS 4 to IFRS 17, including the non-deductible portion of the CSM on transition 

a transition of five years for the mark-to-market gains or losses on certain fixed-income assets on the effective date, since insurers will also be required to adopt IFRS 9 on January 1, 2023

certain reserves will be reclassified from insurance contracts under IFRS 4 to investment contracts under IFRS 17. A deduction for the investment contract amount will be allowed on transition, since the premiums for these contracts have been included in income for accounting and tax purposes

Adjustments to Maintain Minimum Tax 

In order to avoid the erosion of the Part VI tax base due to the IFRS 17 transition, the budget proposes to include the non-deductible CSM and accumulated other comprehensive income in the minimum tax base and to deny a deduction for deferred tax assets from the minimum tax base for life insurers.

Mortgage and Title Insurance

The budget proposes a deduction of 10% of the CSM for mortgage and title insurance contracts, and the  deductible portion will be included in income for tax purposes when non-attributable expenses are incurred in the future. A transition period of five years is provided to smooth out the tax impact of the non-deductible portion of the CSM.

Property and Casualty (P&C) Insurance

The budget proposes to maintain the current tax treatment for P&C insurance contracts (other than title and mortgage insurance contracts), and proposes a transition period of five years to smooth the tax impact of converting from IFRS 4 to IFRS 17.    

These measures, including the transitional rules, would apply as of January 1, 2023. 

Hedging and Short Selling by Canadian Financial Institutions

The government is concerned that certain financial institution groups are engaging in aggressive tax planning arrangements and hedging transactions, to use two entities within the same group to create artificial tax deductions in the group through owning Canadian shares on which tax-free dividends are received, and entering into a securities lending arrangement to borrow and short sell the same shares to qualify for dividend compensation payment deductions. Under these arrangements, the financial institution group generates an artificial tax deduction equal to two-thirds of the amount of dividend compensation payments made to the lender over the term of the arrangement. The same result could also be achieved if a securities dealer carries out a similar transaction on its own without the use of a related financial institution.

The budget proposes to:

deny a deduction for dividends received by a taxpayer on Canadian shares, if a registered securities dealer that does not deal at arm’s length with the taxpayer enters into transactions that hedge the taxpayer's economic exposure to the Canadian shares, where the registered securities dealer knew or ought to have known that these transactions would have such an effect

deny a dividend deduction for dividends received by a registered securities dealer on Canadian shares it holds, if it entered into hedging transactions to eliminate all or substantially all of its economic exposure to the Canadian shares

provide that, when the dividend deduction is denied in these situations, the securities dealer will be permitted to claim a full (instead of two-thirds) deduction for a dividend compensation payment it makes under a securities lending arrangement entered into in connection with the related hedging transactions

The proposed amendments would apply to dividends and related dividend compensation payments that are paid or become payable on or after April 7, 2022, unless the relevant arrangements were in place before April 7, 2022, in which case the amendments would apply after September 2022. 

Limiting Aggressive Tax Avoidance by Financial Institutions

The budget proposes to examine changes to the financial transaction approval process to limit the ability of federally regulated financial institutions to use corporate structures in tax havens to engage in aggressive tax avoidance.  

The budget announces a federal review of housing in order to understand the role of large corporate players in the market and the impact on Canadian renters and homeowners. This will include an examination of a number of options, including potential changes to the tax treatment of large corporate players that invest in residential real estate. Further details will be released later this year, with potential early actions to be announced before the end of the year.

The general anti-avoidance rule (GAAR) is intended to prevent abusive tax avoidance transactions while not interfering with legitimate commercial and family transactions. If abusive tax avoidance is established, the GAAR applies to deny the tax benefit created by the abusive transaction.

The Federal Court of Appeal decision in Wild v Canada (2018 FCA 114) held that the GAAR did not apply to a transaction that resulted in an increase in a tax attribute that had not yet been used to reduce taxes. The budget seeks to reverse this decision and proposes that the ITA be amended to provide that the GAAR can apply to transactions that affect tax attributes that have not yet become relevant to the computation of tax. This measure would apply to transactions undertaken on or after April 7, 2022, and to transactions prior to April 7, 2022 under notices of determination issued on or after April 7, 2022 in respect of the transactions. 

The government also intends to release a consultation paper on modernizing the GAAR. The consultation period will run through the summer of 2022, with legislative proposals expected before the end of 2022.

International tax measures

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting has developed a two-pillar plan to reform the international tax system, as part of the “BEPS 2.0” initiative. On October 8, 2021, Canada and 135 other countries in the Inclusive Framework committed to adopt this plan (For a discussion on that commitment, see our Tax Insights “ The new international tax framework and Canada’s digital services tax ”). The budget provides an update on the two pillars of this international tax reform initiative.

Pillar One will introduce new rules for allocating taxing rights between countries, to address challenges raised by the digital economy. These rules will generally apply to multinational enterprises (MNEs) with annual revenue above €20 billion and profit margins above 10%. The right to tax a portion of these MNEs’ profits will be reallocated to market countries (i.e. the countries where the MNEs’ users and customers are located). The details of these rules are still being developed.

The budget notes that Canada is currently working with its international partners to develop a multilateral convention to implement these Pillar One rules, and will introduce implementing legislation once a multilateral agreement has been reached. The budget also notes that if these rules have not come into force by January 1, 2024, Canada’s proposed Digital Services Tax (DST) would take effect in respect of revenues earned as of January 1, 2022. The budget states that the government hopes and assumes the Pillar One rules will be implemented by 2024, making this DST unnecessary.

Pillar Two will introduce a 15% global minimum tax. This tax will generally apply to MNEs with global revenues of at least €750 million. These MNEs will be required to compute their effective tax rate (ETR) in each country where they operate. If the ETR for a particular country is below 15%, a top-up tax will be imposed, to raise that ETR to 15% (this top-up tax may be reduced by a substance-based income exclusion, which is computed based on the payroll costs and net book value of tangible assets located in the jurisdiction). 

The top-up tax will be collected under two charging rules. The main rule is the Income Inclusion Rule (IIR), which generally requires the ultimate parent of the MNE to pay the top-up tax computed for its foreign subsidiaries (and can also apply in certain other circumstances). The Undertaxed Profits Rule (UTPR) is a backstop rule, which collects any top-up tax that is not collected by the IIR. The UTPR allocates this residual top-up tax amongst all countries in which the MNE group operates (and which have adopted the UTPR), based on the employees and tangible assets located in those countries. A country may also choose to adopt a domestic minimum top-up tax, which is based on the Pillar Two rules but collects top-up tax on the income of entities located in that country (rather than foreign entities). Model rules to implement Pillar Two were released by the OECD in December 2021 (for a discussion on these model rules, see our Tax Policy Alert “ OECD releases Pillar Two 15% minimum effective tax rate Model Rules ”.

The budget announced that Canada will implement Pillar Two, along with a domestic minimum top-up tax (which will apply to Canadian members of MNE groups that are within the scope of Pillar Two). Draft legislation to implement Pillar Two will be released for consultation in the future. The IIR and domestic minimum top-up tax would come into effect in 2023, with the effective date to be determined. The UTPR would come into effect no earlier than 2024.

The budget includes a public consultation on the Canadian implementation of the Pillar Two rules and the domestic minimum top-up tax. This consultation is focused on ensuring that the implementing legislation includes any necessary adaptations of the model rules to the Canadian legal and tax context (rather than broader design choices or policy considerations). The consultation is open until July 7, 2022.

The budget proposes to implement model rules developed by the OECD for reporting by digital platform operators with respect to platform sellers. 

The rules would require reporting platform operators that provide support to reportable sellers for relevant activities to determine the jurisdiction of residence of their reportable sellers and report certain information regarding these sellers.  

Reporting platform operators would be entities that are engaged in the following activities: 

contracting directly or indirectly with sellers to make the software that runs a platform available for connecting the sellers to other users (excluding certain types of software for payment processing and online aggregators), or 

collecting compensation for the relevant activities facilitated through the platform   

The measure would generally apply to platform operators that are resident in Canada for tax purposes, as well as platform operators that are not resident in Canada or a partner jurisdiction and that facilitate relevant activities by sellers resident in Canada or with respect to rental of immovable property located in Canada.    

A partner jurisdiction is a jurisdiction that has implemented similar reporting requirements on platform operators and that has agreed to exchange information with the Canada Revenue Agency (CRA) on reportable platform sellers.

An exception to the rules will be available to platform operators that:

demonstrate to the CRA that their platform does not have reportable sellers or their business model does not allow sellers to profit from compensation received, or

facilitate the provision of relevant activities for which the total compensation over the previous year is less than €1 million, and that elect to be excluded from reporting

The rules would apply to calendar years beginning after 2023. Reporting platform operators would be required to report to the CRA specified information on reportable sellers by January 31 of the year following the calendar year for which a seller is identified as a reportable seller. This would allow the first reporting and exchange of information to take place in early 2025, with respect to the 2024 calendar year. 

To avoid duplicative reporting, a reporting platform operator would not have to report information about a seller if:

another platform operator will be reporting the required information about that seller, and

adequate assurances from the other platform are obtained that it will report the required information

The CRA will automatically exchange with partner jurisdictions the information received from Canadian platform operators on sellers resident in the partner jurisdiction and rental property located in the partner jurisdiction. Likewise, the CRA will receive similar information from the partner jurisdiction. 

The budget proposes an amendment to the interest withholding tax rules to ensure that the total interest withholding tax paid under an interest coupon stripping arrangement is the same as if the arrangement had not been undertaken. 

Interest coupon stripping arrangements generally involve a non-resident lender selling its right to receive future interest payments (interest coupons) in respect of a loan made to a non-arm’s length Canadian-resident borrower to a party that is not subject to withholding tax, or is subject to a rate of withholding tax that is lower than the applicable rate to the non-resident lender. Under such arrangements, the non-resident lender generally retains its right to the principal amount of the loan.

The proposed rules apply to interest accrued on or after April 7, 2022 that is paid or payable by a Canadian resident borrower to an interest coupon holder. However, the application of the rules is deferred to April 7, 2023 where:

the debt was issued by the Canadian resident borrower prior to April 7, 2022, and

• the payment is made to an interest coupon holder that deals at arm’s length with the non-resident lender, and who acquired the interest coupon under an arrangement entered into before April 7, 2022

Personal tax measures

The budget proposes to create a new registered account, the Tax-Free First Home Savings Account (FHSA). Individuals will be able to open an FHSA in 2023.

To open an FHSA, an individual must be a resident of Canada and over 17 years of age, and must not have lived in a home that they owned during the year the FHSA is opened or during the preceding four calendar years.

The lifetime limit on contributions to an FHSA will be $40,000, subject to an annual limit of $8,000. Contributions will be deductible and income earned in an FHSA will not be subject to tax. Unused annual contribution room cannot be carried forward. Individuals will also be allowed to transfer funds from a Registered Retirement Savings Plan (RRSP) to an FHSA on a tax-free basis, subject to the contribution limits.

Withdrawals from an FHSA to make a qualifying first home purchase will be non-taxable. Once an individual has made a non-taxable withdrawal to purchase a home, they will be required to close the FHSA within a year of the first withdrawal and will not be eligible to open another FHSA.

If an individual has not used the FHSA funds within 15 years of opening the FHSA, it will have to be closed. Withdrawals from an FHSA for non-qualifying purposes will be taxable. To provide flexibility, individuals will be able to transfer funds tax-free to an RRSP or Registered Retirement Income Fund (RRIF).

The Home Buyers’ Plan (HBP) will continue to be available, but an individual will not be permitted to make both an FHSA withdrawal and an HBP withdrawal in respect of the same qualifying home purchase.

For acquisitions of a qualifying home made after December 31, 2021, the budget proposes to double the First-Time Home Buyers’ Tax Credit (HBTC), available to first-time home buyers, from $750 to $1,500. The HBTC is a non-refundable credit and can be split between spouses or common-law partners.

A qualifying home is one that the individual (or individual’s spouse or common-law partner) intends to occupy as their principal residence no later than one year after its acquisition.

An individual is a first-time home buyer if neither the individual nor the individual’s spouse or common-law partner owned and lived in another home in the calendar year or any of the four preceding calendar years. The HBTC is also available for certain acquisitions for the benefit of an individual eligible for the Disability Tax Credit, even if not a first-time home buyer.

The budget proposes to introduce the Multigenerational Home Renovation Tax Credit (MHRTC), a refundable credit on eligible expenses for a qualifying renovation. The value of the credit is 15% of the lesser of the eligible expenses and $50,000, and applies in respect of work performed and paid for, or goods acquired, after December 31, 2022.

A qualifying renovation is one that creates a secondary dwelling unit to permit an eligible person to live with a qualifying relation. Eligible persons include individuals who, at the end of the taxation year that includes the end of the renovation period, are over 64 years of age or are over 17 years of age and eligible for the Disability Tax Credit. A qualifying relation in respect of an eligible person includes an adult individual who is a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, nice, nephew or spouse or common-law partner of any of those individuals.

Expenses eligible for the MHRTC include the cost of labour and professional services, building materials, fixtures, equipment rentals and permits. Items that retain a value independent of the renovation (e.g. furniture, construction tools, audio-visual electronics) would not qualify, nor would financing costs or the cost of recurring or routine maintenance, gardening, housekeeping or security.

The MHRTC may be claimed by an individual who ordinarily resides, or intends to ordinarily reside, in the eligible dwelling within 12 months after the end of the renovation period and who is an eligible person, the spouse or common-law partner of an eligible person, or a qualifying relation in respect of an eligible person. The MHRTC may also be claimed by a qualifying person, in respect of an eligible person, who owns the eligible dwelling. One or more eligible claimants may share the MHRTC.

The Home Accessibility Tax Credit (HATC) is a non-refundable credit available on eligible home renovation expenses in respect of an eligible dwelling of an individual eligible to claim the Disability Tax Credit, or who is older than 64 at the end of a tax year.

For eligible expenses incurred after 2021, the budget proposes to increase the annual expense limit of the HATC from $10,000 to $20,000. The value of the HATC will be calculated by applying 15% to the lesser of the eligible expenses and $20,000.

For residential properties sold after December 31, 2022, the budget proposes that profits arising from dispositions of properties owned for less than 12 months would be deemed to be business income.

The proposed deeming rule would not apply if the disposition of the property is in relation to certain life events, including death, the addition of a related person, separation, personal safety, disability or illness, a qualifying employment change, insolvency or an involuntary disposition (e.g. natural disaster).

Where the new deeming rule applies, the Principal Residence Exemption would not be available. 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 is still a question of fact whether profits are taxed as business income.

The budget announces the government’s intention to examine a new minimum tax regime targeting high income Canadians. Details on a proposed approach will be released in the 2022 Fall Economic and Fiscal Update.

The budget proposes to introduce a labour mobility deduction for tradespeople, to recognize certain travel and temporary relocation expenses of workers in the construction industry. This measure would allow eligible workers to deduct up to $4,000 in certain eligible expenses per year, to a maximum of 50% of the employment income from construction activities at the particular work location. 

Eligible workers would be a tradesperson or apprentice who:

temporarily relocates to obtain or maintain employment under which the duties are of a temporary nature in a construction activity at a particular work location, and

ordinarily resided (prior to the relocation) in Canada and, during the period of the relocation, at temporary lodging in Canada near the work location

To qualify, the temporary relocation must be at least 150 kilometers closer than the ordinary residence and for a minimum duration of 36 hours, and the work location must be in Canada.

Eligible expenses include reasonable amounts associated with temporary lodging near the work location, transportation for one round-trip from the location where the individual ordinarily resides to the temporary lodging, and meals for the individual in the course of travel while making one round trip to and from the temporary lodging. 

Individuals would not be entitled to claim lodging expenses for a period, unless they maintain an ordinary residence elsewhere for their or their immediate family’s use during that time period.

This measure would apply to the 2022 and subsequent taxation years.

Medical Expense Tax Credit for Surrogacy and Other Expenses

The budget proposes to extend the Medical Expense Tax Credit (METC) to a broader definition of “patient,” in cases where an individual would rely on a surrogate or donor to become a parent. In these cases, a “patient” would be defined as: 

the taxpayer

the taxpayer’s spouse or common-law partner

a surrogate mother; or 

a donor of sperm, ova or embryos 

This broader definition would allow medical expenses paid by the taxpayer (or the taxpayer’s spouse or common-law partner), with respect to the surrogate mother or donor, to be eligible for the METC.

The budget proposes to allow reimbursements of expenses to a patient, under the expanded definition above, to be eligible for the METC provided that the reimbursement is made in respect of an expense that would generally qualify for the METC. 

The budget also proposes to permit fees paid to fertility clinics and donor banks, in order to obtain sperm or ova, to be eligible under the METC. Only expenses incurred in Canada will be eligible.   

This measure will apply to expenses incurred in 2022 and subsequent years. 

Borrowing by Defined Benefit Pension Plans

Registered pension plans are restricted from borrowing money except in limited circumstances. Generally, borrowing is allowed for the acquisition of income producing real property in certain cases and for borrowing where the term of the loan does not exceed 90 days and the property of the plan is not pledged as security for the loan. Temporary rules permit borrowing for terms longer than 90 days if repaid by April 30, 2022. 

The budget proposes to provide additional borrowing flexibility to administrators of defined benefit registered pension plans (other than individual pension plans) by replacing the 90-day term limit with a limit on the total amount of borrowed money (for purposes other than acquiring real property) equal to the lesser of:

20% of the value of the plan’s assets (net of unpaid borrowed amounts), and

the amount, if any, by which 125% of the plan’s actuarial liabilities exceeds the value of the plan’s assets (net of unpaid borrowed amounts)

The new borrowing limit would be redetermined on the first day of each fiscal year of the plan based on the value of assets and unpaid borrowed amounts on that day and the actuarial liabilities on the effective date of the plan’s most recent actuarial valuation report. 

This measure would apply to amounts borrowed by defined benefit registered pension plans (other than individual pension plans) on or after April 7, 2022.  

The budget proposes to require financial institutions to expand the annual reporting required on each RRSP and RRIF administered by the financial institution, to include the total fair market value, determined at the end of the calendar year, of property held in the RRSP and RRIF. This increased reporting is intended to assist the CRA in its risk-assessment regarding qualified investments held by RRSPs and RRIFs.

This measure would apply to the 2023 and subsequent taxation years.

Annually, registered charities must spend a minimum of 3.5% of the value of the charity’s property that is not used in carrying out charitable activities or administration (property value), on its grants to qualified donees and/or its charitable programs (this is known as the charity’s “disbursement quota” [DQ]). The budget proposes to increase the DQ rate from 3.5% to 5% for the portion of property value that is in excess of $1 million.

The budget also proposes to allow the CRA to provide discretionary relief from the DQ, and to publicly disclose information relating to such a discretionary decision. The budget also proposes to remove a rule in the ITA, which allows the value of certain property that is accumulated under a permission of the CRA to be excluded from the DQ calculation. Approved property accumulations arising from permission to accumulate applications submitted to CRA prior to January 1, 2023 will still benefit from the current rule, which provides for a reduced DQ obligation. 

These measures come into force for fiscal periods beginning on or after January 1, 2023.

Registered charities must carry on their charitable activities directly and/or provide gifts to other registered charities. However, some operating charities use intermediary organizations, that are not themselves qualified donees, to help them carry out their charitable activities. In such a case, the charity is obligated to maintain direction and control over its resources being used by the intermediary. 

The budget proposes to clarify and improve the rules in this area by allowing charities to make disbursements to non-qualified donee-recipients, provided that certain accountability requirements are met. For example, the charity must (among other actions) conduct a pre-grant inquiry of the grantee, record the terms of the grant in a written agreement, monitor the grant for charitable use and, for the purposes as set out in the written agreement, obtain receipts or other documents from the grantee regarding the use of funds, receive both periodic reports and detailed final reports on the grantee’s use of the funds, and disclose such grants in excess of $5,000 in the charity’s annual information return. The budget will also prohibit a registered charity from accepting a gift that expressly or implicitly requires the charity to make a disbursement or provide a grant to a non-qualified donee. 

The changes would apply upon royal assent of the enacting legislation.

The government also indicated it intends to improve the collection of information from charities, including whether charities are meeting their disbursement quota, and on information related to investments and donor-advised funds held by charities.

Indirect tax measures

Goods and services tax/harmonized sales tax (gst/hst) health care rebate.

In 2005, the GST/HST public service body rebate for hospitals was expanded to include qualifying charities and non-profit organizations that provide health care services similar to those traditionally performed in hospitals, in certain instances. One of the conditions of the expanded hospital rebate is that a charity or non-profit organization deliver the health care service with the active involvement of, or on the recommendation of, a physician, or if in a geographically remote community, with the active involvement of a nurse practitioner.

The budget proposes to amend the GST/HST eligibility rules for the expanded hospital rebate to recognize the increasing role of nurse practitioners in delivering health care services, regardless of location. As such, the rebate entitlement will no longer distinguish between health care services rendered by a physician and those provided by a nurse practitioner. 

This measure will apply to claim periods that end after April 7, 2022, for tax paid or payable after that date. 

An assignment sale in respect of residential housing is a transaction in which a purchaser (an assignor), who has entered into an agreement of purchase and sale with a builder of a new home, assigns the agreement, including all related rights and obligations, to another person (an assignee). The GST/HST treatment of assignment sales has been inconsistent.

The budget proposes to amend the Excise Tax Act to eliminate this uncertainty by making all assignment sales of newly constructed or substantially renovated residential housing taxable. To eliminate an element of double taxation, proposed changes would result in the amount attributable to a deposit to be excluded from the consideration of the assignment sale subject to GST/HST. As is currently the case, the assignor would generally continue to be responsible to charge, collect and remit any applicable GST/HST. Because the GST/HST new housing rebates are determined by the total consideration payable for a new home, including consideration for a taxable supply of an assignment, these changes may affect the amount of GST/HST new housing rebates available to the purchaser. 

The change would apply in respect of any assignment entered into on or after the day that is one month after April 7, 2022.

The budget proposes refinements to the proposed excise duty taxation framework for vaping products, including a federal excise duty rate of $1 per 2 ml, or fraction thereof, on the first 10 ml of vaping substance, and $1 per 10 ml, or fraction thereof, for volumes beyond that. If a province or territory were to choose to participate in a coordinated vaping taxation regime administered by the federal government, the combined duty rates would be doubled in respect of dutiable vaping products intended for sale in that participating jurisdiction.

The budget also proposes to allow the duty-free importation of up to twelve unstamped vaping products of less than 10 ml each (or a combination of products of 10 ml or more when the total volume is below 120 ml), for personal use, for travellers returning to Canada after absences of 48 hours or more.

The proposed federal excise duty framework for vaping products would come into force on October 1, 2022. It is also proposed that retailers may continue to sell, until January 1, 2023, unstamped products that are in inventory as of October 1, 2022.

Cannabis Taxation Framework 

Excise duty quarterly remittances.

The budget proposes to allow certain licensed cannabis producers to remit excise duties on a quarterly, rather than monthly basis, starting from the quarter that began on April 1, 2022. This option would only be available in respect of a fiscal quarter, beginning on or after April 1, 2022, of a licensee that was required to remit less than a total of $1 million in excise duties during the four fiscal quarters immediately preceding that fiscal quarter.

Contracts-for-Service 

To address inventory management issues and inefficiencies in the supply chain for the cannabis industry, the budget proposes to allow the CRA to approve certain contract-for-service arrangements between two licensed cannabis producers. These approved arrangements would permit, as the case may be, two licensed producers to:

transfer stamps and packaged, but unstamped, products between them

stamp and enter cannabis products into the retail market that have been packaged by the other producer, and

pay the excise duty on cannabis products that were stamped by the other producer

This proposal would come into force upon royal assent of the enacting legislation.

Penalties 

Penalties are imposed on licensees when they lose excise stamps. To address inequities between certain jurisdictions, the budget proposes to amend the penalty provision for lost stamps, so that the higher penalty for losing stamps for a province or territory with an additional cannabis duty adjustment only applies if the adjustment rate is greater than 0%.

There are currently no penalty provisions for situations where unlicensed parties illegally possess or purchase cannabis products, or where licensed parties illegally distribute such products. The budget proposes that existing cannabis penalty provisions would also apply to these situations.

These proposals would come into force upon royal assent of the enacting legislation.

Licences 

The budget proposes to exempt holders of a Health Canada-issue Research Licence or Cannabis Drug Licence from the requirement to be licensed under the excise duty regime. As a result, such licensees will presumably no longer be required to post financial security.

The budget also proposes to allow the CRA to issue excise duty licences that would be valid for up to the lesser of five years or the longest period for which the relevant Health Canada licence or licences are valid.

General Administration – Excise Act, 2001

The budget proposes a number of administrative changes to the Excise Act, 2001 related to licencing, compliance with federal and provincial taxation requirements, security and virtual audits, with respect to the taxation of cannabis.

WTO Settlement on the 100-per-cent Canadian Wine Exemption

Under the Excise Act, 2001, wine is generally subject to excise duties, with certain Canadian wine being exempt. In 2018, the exemption for Canadian wine was challenged at the World Trade Organization. Canada reached a settlement on this dispute in July 2020, in which it agreed to repeal the exemption by June 30, 2022. Accordingly, the budget proposes to repeal the exemption for Canadian wine, with the measure coming into force on June 30, 2022.

The budget proposes to eliminate excise duty for beer containing no more than 0.5% alcohol by volume, bringing the tax treatment of this type of beer into line with the treatment of wine and spirits with the same alcohol content.

The proposed measure would come into force on July 1, 2022.

Other measures

Cra audits, employee ownership trusts and scientific research and experimental development (sr&ed).

The budget also proposes:

to provide $1.2 billion over five years starting in 2022-2023, for the CRA to expand audits of larger entities and non-residents engaged in aggressive tax planning

to create the Employee Ownership Trust, a new, dedicated type of trust under the ITA to support employee ownership of a business; the government will continue to engage with stakeholders to finalize the development of tax rules tailored to the requirements of these trusts and to assess remaining barriers to their creation 

• to review the SR&ED program and to examine whether changes to eligibility would be warranted to ensure adequacy of support and improve overall program efficiency; the government will also consider whether the tax system can play a role in encouraging the development and retention of intellectual property from R&D conducted in Canada, including the suitability of adopting a patent box regime 

The budget: 

announces the government's intention to amend the Special Import Measures Act and the Canadian International Trade Tribunal Act, to strengthen Canada's trade remedy system by better ensuring unfairly traded goods are subject to duties and increasing the participation of workers

proposes to provide $4.7 million over five years, starting in 2022-23, and $1.1 million ongoing, to the Canada Border Services Agency to create a Trade Remedy Counseling Unit to assist companies, with a focus on small and medium-sized enterprises

• proposes to amend the Customs Act to implement electronic payments and clarify importer responsibility for duties and taxes

As part of the federal government’s 2022 budget, several key investments were announced to specifically enhance Canada’s capacity to meet the immigration demands of the country’s growing economy; create opportunities for newcomers; and maintain a modernized immigration system. To this end, the budget captures $3.99 billion in funding to support immigration over the course of the next five years, including dedicated funding to Canada’s immigration plan for permanent residents, temporary residents, as well as refugees/asylum seekers and immigration support services. 

Modernized Immigration Support Services

In addition to the $85 million investment announced in the 2021 Economic and Fiscal Update aimed at reducing processing times and pandemic-related application backlogs, the budget proposes to invest $187.3 million over five years and $37.2 million ongoing to support services. This is aimed to support the development and implementation of technology and tools used to assist with Immigration, Refugees and Citizenship Canada’s (IRCC’s) capacity to respond to enquiries, to address administrative backlogs and to streamline application processing. 

Temporary Foreign Workers, Students and Visitors

Recognizing current processing times for employer-based applications under the Temporary Foreign Worker Program, the government proposes to invest $64.6 million over three years to increase capacity to process employer applications within established service standards, as well as $29.3 million to create a “Trusted Employer Model.” This model, which is designed to eliminate unnecessary red tape, would be available to repeat employers and reduce administrative burdens to those who meet the highest standards of working and living conditions and wages in high-demand fields. 

In addition, and in response to the anticipated growing number of temporary residents to Canada, the budget is allocating $385.7 million over five years, and $86.5 million ongoing, for IRCC, Canada Border Services Agency and Canada Security Intelligence Service to support the entry of temporary residents including visitors, workers and students.

Immigration Settlement and Citizenship

A core component of the budget as it relates to immigration, includes significant investments and funding dedicated to streamlining pathways to permanent residence (PR); bolstering the stability and integrity of Canada’s asylum system, including new programs for Ukrainian nationals; and moving to online-only citizenship and refugee application processes. Of note for economic PR applicants, the government proposes to amend the Immigration and Refugee Protection Act (IRPA) to improve and streamline Canada's ability to select applicants in the Express Entry Pool who best meet labour market needs. In this regard, the government has committed $2.1 billion over five years and $317.6 million ongoing in new funding to support the processing and settlement of 451,000 new permanent residents to Canada by 2024. 

Service fee exemptions

The budget proposes to amend the IRPA to exempt the following four services/application types from government processing fees under the Service Fees Act: Authorization to Return to Canada (ARC); Criminal Rehabilitation; Restoration of Temporary Resident Status; and Temporary Resident Permit.

Previously announced measures

The budget confirms that the government will proceed with the following previously announced measures, as modified to take into account consultations and deliberations since their announcement or release:

legislative proposals relating to the Select Luxury Items Tax Act; for more information, see our Tax Insights “ Finance releases draft legislative proposals to implement a luxury tax ”

legislative proposals released on February 4, 2022, which included 2021 federal budget and other measures; for more information, see our Tax Insights :

“ Finance releases draft legislative proposals: corporate income tax measures ”

“ Finance releases draft legislative proposals: mandatory disclosure rules ”

“ Excessive interest and financing expenses limitation (EIFEL) regime ”

“ Navigating the proposed trust reporting rules: Trustees need to be prepared ” (February 17, 2022 update)

“ Finance releases draft legislative proposals: asset wealth management industry measures ”

“ Finance releases draft legislative proposals: GST/HST measures for cryptoasset mining ”

legislative proposals to introduce the Digital Services Tax Act; for more information, see our Tax Insights “ 2021 Federal fall economic statement: Tax highlights ”

2021 federal budget measures with respect to hybrid mismatch arrangements and having a consultation on Canada’s transfer pricing rules

an anti-avoidance rules consultation announced on November 30, 2020 in the Fall Economic Statement

• measures confirmed in the 2016 federal budget relating to the GST/HST joint venture election

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Tax Insights: 2022 Federal budget ─ Encouraging affordable housing and sustainability

Dean Landry

National Tax Leader, PwC Canada

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What the 2022 federal budget says about Canada’s commitment to a green recovery

Post-Doctoral Research Fellow, Peter B. Gustavson School of Business, University of Victoria

Associate Professor, Peter B. Gustavson School of Business, University of Victoria

Assistant Professor, School of Public Administration, University of Victoria

Disclosure statement

Kevin Andrew's post-doctoral fellowship is funded by the Pacific Institute for Climate Solutions.

Basma Majerbi receives funding from Social Sciences and Humanity Research Council (SSHRC) of Canada and the Pacific Institute for Climate Solutions (PICS).

Ekaterina Rhodes receives funding from the Social Sciences and Humanities Research Council of Canada and the Swedish Research Council. She is also a President of the Canadian Society for Ecological Economics.

University of Victoria provides funding as a member of The Conversation CA-FR.

University of Victoria provides funding as a member of The Conversation CA.

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Every year, the federal budget outlines government spending priorities and sources of revenue for the coming year. While COVID-related spending dominated the previous two budgets , the 2022 budget comes amid new geopolitical uncertainties, including the war in Ukraine, ongoing socio-economic challenges in the wake of the pandemic, rising inflation, housing affordability, supply chain disruptions and increased pressure for accelerated climate action.

The federal government’s recently announced 2030 Emissions Reduction Plan , which aims to reduce greenhouse gas emissions to 40 to 45 per cent below 2005 levels by 2030 , is expected to cost $9.1 billion in new investments, not including the cost of the investment tax credit for carbon capture and storage.

In our recent study , we find that Canada emerged as a leader among its G20 peers in terms of green fiscal stimulus spending and policies. Green fiscal stimulus aims to spur economic growth and create jobs while reducing emissions.

As we look at the 2022 budget released on April 7, we ask whether Canada will continue building on its green recovery commitment, as Chrystia Freeland promised to do when she took over the finance portfolio in August 2020. Today’s budget included over $12 billion in investments in lowering emissions over the next five years. These include electric vehicle infrastructure investments and purchase incentives , an expansion of the Low Carbon Economy Fund and a new tax credit for carbon capture, utilization and storage.

Budget 2022 is an opportunity for Canada to continue its leadership in green fiscal policy. It marks a critical juncture with Canada’s 2030 emissions reduction goals looming.

Canada emerges as a green stimulus leader

At the onset of the COVID-19 induced recession, academics , environmental advocates and multilateral institutions renewed their calls for a green fiscal response and to “build back better.”

Our research analyzed more than 900 policies enacted by G20 nations from early 2020 until December 2021 using a novel dataset — the Energy Policy Tracker. Canada accounts for 286 of these policies, adding up to $113 billion (US$85 billion) and including both federal and provincial measures.

In the fight against the COVID-19 pandemic, Canada has emerged as a green recovery leader with the highest spending per capita on policies aimed at reducing emissions. Yet Canada, like other countries, also committed large amounts on policies supporting fossil fuels, called brown stimulus.

We constructed a Green Energy Policy Index (GEPI) that allows us to rank countries based on both green and brown stimulus measures using a more granular classification of policies that are low carbon, fossil conditional or fossil unconditional.

Low-carbon policies support the energy transition by increasing energy efficiency, lowering energy demand or supporting renewable energy. Examples include investments in transit , home retrofit programs that increase energy efficiency and investments in renewable energy and grid modernization projects .

Fossil-conditional policies support the fossil-fuel sector, but include conditions aimed at reducing emissions. One example is fuel switching, such as transitioning coal power plants to natural gas. A more controversial example is the program that provides up to $1.72 billion to some provinces and the industry-funded Alberta Orphan Well Association to support the cleanup of orphan and inactive wells . Some pandemic-related support for the aviation industry is classified as fossil conditional because recipients of the bailouts must follow climate-risk disclosure guidelines.

Fossil-unconditional policies support the fossil fuel sector with no conditions to aid the low-carbon transition. There are limited federal examples of such policies in our dataset. However, there is considerable provincial variation in fossil unconditional policies. One prominent example is the Alberta government’s $1.5 billion equity investment in the Keystone XL pipeline.

Taking into account the combination of all these measures, Canada ranks fourth among the G20.

The effectiveness of green stimulus

Global efforts to implement green stimulus measures emerged in the wake of the 2008-09 financial crisis. Such measures, aimed at stimulating a greener economic recovery, accounted for less than nine per cent of the total fiscal stimulus package in Canada, way below the G20 average of about 17 per cent.

Even among countries with large green fiscal stimulus packages, such as South Korea , these measures did not lead to reductions in emissions, likely because they were not backed up with meaningful long-term investments, carbon pricing or regulatory measures. Global emissions rebounded quickly .

Whether the pandemic-related green fiscal stimulus will be more effective is subject to future research. Our GEPI index can help answer that question in future studies. However, past country experiences from the global financial crisis highlight that green fiscal stimulus policies are complementary to carbon pricing and climate regulations .

Read more: The climate emergency warrants a strong mandate on zero-emission vehicles from the federal government

An independent assessment of Canada’s recent emissions reduction plan suggests that over two-thirds of projected emissions reductions are attributed to the carbon tax and flexible regulations. Canada’s commitment to increase the carbon tax to $170 per tonne of carbon dioxide by 2030 put the country in the right direction, consistent with major climate scenario models , including work by the Bank of Canada , although more aggressive carbon pricing will be required beyond 2030 if we are to ensure a smooth transition to net zero by 2050.

Green spending in the federal budget

The new budget announced more than $12 billion in new green spending and other incentives that will make it more affordable for Canadians to adopt clean technologies over the next five years. This signals that Canada is continuing to build on its leadership in stimulating a green economic recovery. Note that spending levels are returning to normal as the economy recovers. For context, the data covered in our paper included over $60 billion in energy-related federal spending during 2020 and 2021 alone.

Today’s budget also introduced the $15 billion Canada Growth Fund , which has reducing emissions as one of its aims and more details on the highly anticipated investment tax credit for carbon capture, utilization and storage (CCUS) , which is costed at $2.6 billion over the next five years. Lastly, the government announced a Critical Minerals Strategy aimed at developing the raw inputs required to meet increased demand for batteries.

Overall, the ability of these measures to help Canada achieve its 2030 emissions reduction goal will depend on two key factors. First, the government must implement previously announced complementary regulatory policies, such as the Clean Fuel Standard , quickly and maintain the rise in the carbon price. Second, these measures cannot be undone by future governments.

A clear path for climate policy is needed to encourage private sector investments and accelerate the low carbon transition of the Canadian financial system. This is vital since today’s budget estimates that Canada will require between $125 and $140 billion of annual investment to 2050 to meet our net-zero target.

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Federal budget 2022: Here are the highlights

Social sharing, finance minister chrystia freeland's budget focuses on housing, greening the economy.

Finance Minister Chrystia Freeland has tabled her second federal budget. Here are the highlights:

HOME-BUYING HELP

The budget promises to introduce tax-free savings accounts that would give first-time home buyers the chance to save up to $40,000. Contributions would be tax-deductible and withdrawals to buy a first home would not be taxed. The program is expected to provide $725 million in support over five years.

AFFORDABLE HOUSING

The government is launching a new housing accelerator fund — worth $4 billion over five years — to help municipalities speed up housing development. The goal is to create 100,000 new housing units in the next five years. The budget also extends the rapid housing initiative, pledging $1.5 billion over two years to create at least 6,000 new housing units to help tackle homelessness.

DENTAL CARE

Moving on a commitment in its confidence and supply agreement with the NDP, the government is promising $5.3 billion over five years and $1.7 billion each year thereafter for a national dental care program. It will begin this year with children under 12 years old and expand to cover Canadians under 18 years old, seniors and people with disabilities in 2023. The program, which is to be fully implemented by 2025, is limited to families with incomes of less than $90,000 a year. For those with an income of less than $70,000, no co-payments will be required.

DEFENCE AND SECURITY 

The budget boosts defence spending by $8 billion over five years, bringing Canada's defence budget to a projected 1.5 per cent of GDP. That falls short of the two per cent of GDP NATO has called on member nations to spend — especially since Russia's war on Ukraine began — but the $8 billion includes $500 million in military aid to Ukraine. The budget also earmarks $875 million over five years to combat rising threats to cybersecurity, and $100 million over six years to strengthen leadership in the Canadian Armed Forces, modernize the military justice system and implement culture change in the CAF.

ENVIRONMENT AND CLIMATE CHANGE

To help meet Canada's climate change targets, the budget offers $2.6 billion over five years to finance a new investment tax credit for businesses that spend money on carbon capture, utilization and storage (CCUS). The government also plans to extend incentives and expand eligibility for a program to entice more Canadians to buy electric cars, vans, trucks and SUVs, which will cost $1.7 billion over five years. The government also plans to impose a sales mandate to ensure that at least 20 per cent of new light-duty vehicle sales will be zero-emission vehicles (ZEVs) by 2026; that market share is supposed to rise to at least 60 per cent by 2030 and 100 per cent by 2035. The budget also commits $3.8B to launch Canada's first strategy to develop exploitation of critical minerals used in everything from phones to airplanes.

INDIGENOUS RECONCILIATION

The budget promises to spend an additional $11 billion over six years to support Indigenous children, families and communities, including $4 billion for housing over seven years. It pledges $4 billion over six years to help ensure access for First Nations children to health, social and educational services through Jordan's Principle. Almost $400 million over two years will go to improve infrastructure on reserves, including $247 million for water and wastewater infrastructure. To address a key commitment on reconciliation, the budget sets aside $210 million to help communities document, locate and memorialize burial sites at former residential schools. The money also will help the National Centre for Truth and Reconciliation pay for a new building and assist with the "complete disclosure" of federal documents related to residential schools. The budget sets aside just over $5 million over five years to allow the RCMP to assist in community-led investigations into burial sites at former residential schools.

DIVERSITY AND INCLUSION

In line with the government's diversity and inclusion agenda, the budget promises $100 million over five years for a federal LGBTQ2 action plan, $85 million more to support ongoing work on the anti-racism strategy and $50 million to support Black-led and Black-serving community organizations. It also commits $15 million to support local journalism in underserved communities and to help racialized and religious minority journalists present their experience and perspectives.

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Government of Canada Announces Date of Budget 2022 

From: Department of Finance Canada

Media advisory

The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, will present Budget 2022 in the House of Commons on April 7, at approximately 4:00 p.m. EDT.

March 29, 2022

The Department of Finance will hold an embargoed reading for media prior to the tabling in the House of Commons that will be accessible in-person and virtually.

Participation in the embargoed reading is restricted to media representatives who are accredited through the Parliamentary Press Gallery and experts invited by media outlets.

The embargoed reading will start at 9:00 a.m. EDT and will last until approximately 4:00 p.m. EDT. During the embargoed reading, Department of Finance officials will be on site to provide information on a deep background, not-for-attribution basis only. Audio recording or video recording with audio of these briefings for the purpose of broadcast is strictly prohibited. Only those participating in-person will be able to ask questions. Those participating remotely will have access to all the embargoed Budget documents, be able to listen to the embargoed press conference, and will be able to communicate with team members who are participating on location. Event and registration details will be emailed directly to Press Gallery members.

April 7, 2022

Embargoed reading: Confederation Room The Westin Ottawa 11 Colonel By Drive, Ottawa

Press conference: Governor General Room The Westin Ottawa 11 Colonel By Drive, Ottawa

Note: all times Eastern Daylight Time

9:00 a.m.            

Embargoed reading begins. Media participating in-person should arrive at the Confederation Room, The Westin Ottawa no later than 8:30 a.m. if they would like to take advantage of the full embargoed reading. Those attending in-person will be asked to attest to being fully vaccinated (two or more doses) against COVID-19, or having received an exemption due to medical contraindications. In addition, we ask all those who attend in-person to wear a face mask at all times except to consume food and drink.

9:30 a.m.            

Department of Finance officials will be available to provide information on a deep background, not-for-attribution basis only. Audio recording or video recording with audio of these briefings for the purpose of broadcast is strictly prohibited.

2:45 p.m.            

The Deputy Prime Minister’s embargoed press conference begins.

4:00 p.m.            

(approximate time) The Deputy Prime Minister delivers remarks in the House of Commons. Embargo is lifted by a Department of Finance official.

Embargo procedure

All media representatives and experts will be required to accept the terms of an undertaking with respect to the embargo in order to take part in the secure reading. The embargo will be lifted by a Department of Finance official once the Deputy Prime Minister begins speaking in the House of Commons at approximately 4:00 p.m. EDT.

Additional details on this process will be outlined in the email sent to Press Gallery members. 

The Department of Finance, after consultation with the Parliamentary Press Gallery Executive, may refuse access to any future economic update or Budget embargoed briefings, or other Department of Finance embargoed releases, to any person and/or their entire organization if they breach the terms of the embargo agreement.

Media may contact:

Adrienne Vaupshas Press Secretary Office of the Deputy Prime Minister and Minister of Finance [email protected]

Media Relations Department of Finance Canada [email protected] 613-369-4000

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Archived - Chapter 4: Creating Good Middle Class Jobs

In the face of a pandemic that has changed all of our lives, workers in Canada have shown remarkable resilience. Whether adapting to work from home, restructuring entire businesses to manufacture personal protective equipment, or heading to their frontline job in the middle of a lockdown, the determination and ingenuity of Canada’s workforce has kept our economy moving during an unprecedented and challenging two years.

Those investments worked. Canada’s economy has recovered 112 per cent of the jobs lost at the outset of the pandemic. Our unemployment rate in February 2022 was at 5.5 per cent, which is lower than prior to the pandemic. Job creation is remarkably strong, and even our hardest-hit sectors are starting to get back up and running.

But with our unemployment rate hitting near-record lows, some businesses are still struggling to find workers. This is a problem in Canada and around the world. A strong and prosperous economy requires a diverse, talented, and constantly growing workforce. And yet too many Canadians—women with young children, new graduates, newcomers, Black and racialized Canadians, Indigenous peoples, and persons with disabilities among them—are facing barriers to finding meaningful and well-paid work.

In Budget 2022, the government is putting in place important measures that will help address those issues and meet the needs of our workers, our businesses, and the Canadian economy so that it can keep growing stronger for years to come.

Key Ongoing Actions

The federal government has made historic investments to help workers succeed and ensure that Canadian businesses have access to a diverse, skilled workforce. These include:

• $30 billion over five years to build a Canada-wide early learning and child care system;
• Expanding the Canada Workers Benefit to support an estimated one million additional Canadians, which could mean $1,000 more per year for a full-time, minimum-wage worker;
• More than $3 billion over three years to support nearly 500,000 new job and training opportunities, including by helping mid-career workers transition to in-demand jobs, and helping young Canadians gain valuable work experience;
• Making post-secondary education more accessible by doubling the Canada Student Grants amount until July 2023—meaning up to $6,000 per year in non-repayable aid for full-time students in need—and by waiving interest on Canada Student Loans through to March 2023;
• Introducing a $15 per hour federal minimum wage and legislating 10 days of paid sick leave to improve the working conditions for the nearly one million workers in the federally-regulated private sector; and,
• Increasing the length of Employment Insurance sickness benefits from 15 to 26 weeks, as of summer 2022.

4.1 Delivering on Child Care

Supporting early learning and child care view the impact assessment.

In Budget 2021, the federal government made an historic and transformative investment of $30 billion over five years. Combined with previous investments announced since 2015, $9.2 billion ongoing will be invested in child care, including Indigenous Early Learning and Child Care, starting in 2025-26.

Child care is not just a social policy—it is an economic policy, too. Affordable, high-quality child care will grow our economy, allow more women to enter the workforce, and help give every Canadian child the best start in life.

In less than a year, the federal government reached agreements with all 13 provinces and territories. This means, by the end of 2022, that Canadian families will have seen their child care fees reduced by an average of 50 per cent. By 2025-26, it will mean an average child care fee of $10-a-day for all regulated child care spaces across Canada. Most provinces and territories are also moving ahead with faster than anticipated initiatives to support access to affordable high-quality child care spaces (Figure 4.1).

Alberta, Saskatchewan, and the Northwest Territories have already cut child care fees in half. In Ontario, fees will be reduced by an initial 25 per cent retroactive to April 1, 2022. Yukon has already put in place a $10-a-day target for child care spaces as of April 1, 2021, five years ahead of schedule. Prince Edward Island is targeting $10-a-day spaces by the end of 2024.

As the federal government worked with provinces and territories on the completion and implementation of agreements, many raised that infrastructure funding was a challenge for non-profit and public providers where real estate costs were too high or building materials too expensive.

• In response to requests from provinces and territories, and to support the implementation of the Canada-wide early learning and child care system, Budget 2022 proposes to provide $625 million over four years, beginning in 2023-24, to Employment and Social Development Canada for an Early Learning and Child Care Infrastructure Fund.

This funding will enable provinces and territories to make additional child care investments, including the building of new facilities.

4.2 Immigration for Our Economy

Immigration is vital to our economy, our communities, and to our national identity as a country that is diverse and welcoming of everyone. Indeed, multiculturalism is one of Canada’s great success stories and an example to the world.

Throughout the pandemic, many newcomers have been on the front lines, working in key sectors like health care, transportation, the service sector, and manufacturing. Without them, Canada’s economy would not have overcome the challenges of the last two years.

In the decades to come, our economy will continue to rely on the talents of people from all over the world, just as we have in decades past. Our future economic growth will be bolstered by immigration. And Canada will remain a leader in welcoming newcomers fleeing violence and persecution.

In Budget 2022, the federal government is proposing investments to enhance our capacity to meet the immigration demands of our growing economy; to create opportunities for all newcomers; and to maintain Canada’s world-class immigration system.

Canada’s Ambitious Immigration Plan

Canada welcomed more than 405,000 new permanent residents in 2021—more than any year in Canadian history.

To meet the demands of our growing economy, the federal government’s 2022-24 Immigration Levels Plan—tabled in February 2022—sets an even higher annual target of 451,000 permanent residents by 2024—the majority of whom will be skilled workers, which will help to address persistent labour shortages.

This higher target—along with the government’s 2021 Economic and Fiscal Update investments to resolve delays and backlogs in processing and new investments proposed in this Budget—will help make our immigration system more responsive to Canada’s economic needs and humanitarian commitments.

The Immigration Levels Plan helps reunite family members with their loved ones, and allows us to continue to be home to the talents of those already in Canada by granting permanent status to temporary residents—including essential workers and international students.

The Immigration Levels Plan also includes firm global humanitarian commitments, including a plan to resettle at least 40,000 Afghan refugees in the coming years. On March 30, 2022, Canada marked an important milestone by welcoming the 10,000th Afghan refugee since August 2021. In addition, the government has introduced new immigration streams for Ukrainians, set out in Chapter 5.

• To support the processing and settlement of new permanent residents to Canada as part of Canada’s Immigration Levels Plan—including the government’s increased commitment to Afghan refugees—the government has committed $2.1 billion over five years and $317.6 million ongoing in new funding.

As announced in Budget 2021, the government also intends to amend the Immigration and Refugee Protection Act to improve Canada’s ability to select applicants that match its changing and diverse economic and labour force needs. These people will be from among the growing pool of candidates seeking to become permanent residents through the Express Entry System.

Efficiently Welcoming Visitors, Students, and Workers to Canada

Every year, Canada welcomes millions of tourists, international students, and temporary foreign workers. Together, they inject billions of dollars into our economy; bring new ideas and energy to our schools and businesses; create lasting commercial and social ties; and fill openings in our workforce.

As the world recovers from the pandemic and travel restrictions are lifted, Canada can expect to see a growing number of temporary residence applications, visitor visas, and study permits.

• Budget 2022 proposes to provide $385.7 million over five years, and $86.5 million ongoing, for Immigration, Refugees and Citizenship Canada, the Canada Border Services Agency, and the Canadian Security Intelligence Service to facilitate the timely and efficient entry of a growing number of visitors, workers, and students.

Securing the Integrity of Canada’s Asylum System View the impact assessment

Canada is a welcoming destination for those seeking refuge and each year takes in tens of thousands of people fleeing violence and persecution.

Around the world, the number of displaced people and families tragically continues to rise. In the months and years to come, many will seek to come to Canada.

Canada’s asylum system—the border officers, immigration officials, and members of the Immigration and Refugee Board who process, investigate, and adjudicate asylum claims—has recently benefited from enhanced temporary funding. As the COVID-19 situation in Canada continues to improve and border restrictions ease, the federal government is committed to ensuring that Canada’s asylum system has the long-term resources it needs.

• Budget 2022 proposes to provide Immigration, Refugees and Citizenship Canada, the Canada Border Services Agency, the Immigration and Refugee Board, and the Canadian Security Intelligence Service with $1.3 billion over the next five years, and $331.2 million ongoing, to support the long-term stability and integrity of Canada’s asylum system.
• The government is also proposing to introduce amendments to the Immigration and Refugee Protection Act to allow Immigration, Refugees and Citizenship Canada to require the electronic submission of asylum claims. Claims can currently be submitted either digitally or on paper, making it difficult to keep track of all information relevant to a file and ultimately leading to processing delays. This reform will help modernize and streamline the asylum process and reduce wait times for claimants.

Supporting Legal Aid for Asylum Seekers View the impact assessment

Each year, thousands fearing persecution seek refuge in Canada. After their arrival, asylum seekers have the right to a fair hearing to determine their legal status.

For those who cannot afford legal support, immigration and refugee legal aid can provide eligible asylum claimants with legal information, advice, and representation. These services, delivered in partnership with provinces, make the asylum system more efficient and help asylum seekers receive fair outcomes.  

• Budget 2022 proposes to provide $43.5 million in 2022-23 to maintain federal support for immigration and refugee legal aid services.

Improving Support Services for Immigrants and Visitors to Canada

As global demand to visit, study, and work in Canada increases—in addition to a growing number of permanent residents moving to Canada—so too must the government’s ability to provide accessible, timely, and responsive services.

• Budget 2022 proposes to provide $187.3 million over five years, and $37.2 million ongoing, for Immigration, Refugees and Citizenship Canada to improve its capacity to respond to a growing volume of enquiries and to invest in the technology and tools required to better support people using their services.

Improving the Citizenship Program

Becoming a citizen allows new Canadians to fully participate in Canadian society, including through the ability to vote, to run for public office, and to travel under a Canadian passport.

To modernize the process of obtaining Canadian citizenship, the federal government recently launched new online services, which include the ability to submit applications electronically. However, current legislation limits the government’s ability to modernize the citizenship application process through digitization, meaning processing takes longer and online tools are limited.

• To further improve the experience of applicants and to enable the Citizenship Program to accommodate higher levels of applications, the government intends to introduce legislative amendments to the Citizenship Act to enable automated and machine-assisted processing and the safe and secure collection and use of biometric information.

The 2021 Economic and Fiscal Update also provided funding in 2022-23 for citizenship processing, as part of an $85 million investment to reduce processing times and pandemic-related application backlogs.

4.3 A Workforce for the 21 st Century Economy

Structural shifts in the global economy—including an increase in automation and a global transition to lower-emission industries and technologies—will require some workers in sectors across Canada to develop new skills and adjust the way they work.

“3.1 million Canadian jobs will change in some way over the next decade due to the climate transition” RBC Economics (2022)

The transition to a new career can be a difficult and stressful time—workers have bills to pay, families to take care of, and established roots in their communities. As our economy changes, Canada’s jobs and skills plan must be tailored to the needs of those workers and help them to meet the needs of growing businesses and sectors.

In recent years, the federal government has made significant investments to connect workers to jobs—including mid-career workers, young people, and underrepresented workers—with nearly 500,000 opportunities for skills development and in-demand jobs in Budget 2021.

Budget 2022 proposes to build on past investments, to work with provincial and territorial partners on improving how skills training is provided, to launch intensive engagement with labour groups on how Canada can better support skilled workers as they navigate a changing economy, and support union-led apprenticeship training for those who are underrepresented in the trades. 

Modernizing Labour Market Transfer Agreements

Every year, the federal government provides more than $3 billion in funding to provinces and territories to provide training and employment support through the Labour Market Transfer Agreements. These investments help more than one million Canadians every year prepare for their next job through programs ranging from skills training and wage subsidies, to career counselling and job search assistance.

The federal government is taking steps to renew this partnership with provinces and territories in order to be more responsive to the needs of workers, businesses, and the economy.

• Budget 2022 proposes to amend Part II of the Employment Insurance Act to ensure more workers are eligible for help before they become unemployed, and that employers can receive direct support to re-train their workers.

Over the coming year, the government also intends to intensify work with provinces and territories to modernize these agreements, reflecting the changing needs and challenges of both the current and future Canadian labour market. This will include working together to support mid-career workers in transitioning to new sectors and help local economies adapt and prosper.

Bringing Workers to the Decision-Making Table

Canada’s long-term economic success depends on matching workers with the right skills to employers in growing sectors. For some workers, having the right skills could mean a small change, like learning a new method. For others, it might mean deeper training towards a career in a new field, such as the skilled trades or clean technologies.

The future of work should be led by workers—and unions need to be at the forefront of our planning for the jobs of tomorrow.

• Budget 2022 proposes to provide $2.5 million in 2022-23 for Employment and Social Development Canada to launch a new union-led advisory table that brings together unions and trade associations. In the coming year, the table will advise the government on priority investments to help workers navigate the changing labour market, with a particular focus on skilled, mid-career workers in at-risk sectors and jobs. Further details will be announced in the coming weeks. 

The results will be used to inform future actions and investments to help workers make the transition to the jobs and sectors that need them.

Doubling the Union Training and Innovation Program View the impact assessment

The skilled trades are vital to the future of the Canadian economy and offer workers rewarding careers in fields ranging from carpentry to electricians and boilermakers. The federal government wants to provide more women, newcomers, persons with disabilities, Indigenous peoples, and racialized Canadians with the chance to have good-quality jobs in high-paying skilled trades, and unions play a critical role in training skilled trades workers.

Since 2017, the Union Training and Innovation Program has supported union-based apprenticeship training in the Red Seal trades, including through investments in training, equipment, and materials, as well as in support for innovative approaches to address barriers facing apprentices.

• Budget 2022 proposes to provide $84.2 million over four years to double funding for the Union Training and Innovation Program. Each year, the new funding would help 3,500 apprentices from underrepresented groups begin and succeed in careers in the skilled trades through mentorship, career services, and job-matching.  

Sustainable Jobs

Workers will always be at the heart of the government’s plan to build a strong economy and a bright future for Canadians. As the world moves to a net-zero emissions future, we must ensure that everyone has a real and fair chance to succeed and that no region gets left behind. Already, the federal government has made progress towards building a just transition for workers through sustainable jobs and have undertaken public consultations on legislation that will support workers and communities in the shift to a low-carbon future. This work continues.

In March, in the 2030 Emissions Reduction Plan: Canada’s Next Steps for Clean Air and a Strong Economy, the government committed to skills training, including through a new Futures Fund for Alberta, Saskatchewan, and Newfoundland and Labrador. Along with the government’s commitment to a new Clean Jobs Training Centre, this will help workers have the tools to succeed. The federal government will also continue to work with its partners, including labour unions, to design programs that take into account current barriers and underrepresentation, so that there is a level playing field for everyone.

Canada’s long-term success depends on workers. From engineers, scientists, farmers, construction workers, tradespeople, resource workers, energy workers, researchers, and more, everyone will have a role to play in the economy of tomorrow.

4.4 Connecting Workers to Good Jobs

With record lows in unemployment as Canada emerges from the pandemic, employers across the country—especially in rural Canada—are finding it difficult to hire the workers they need.

Budget 2022 proposes to grow our workforce by addressing barriers faced by mothers, Black and racialized Canadians, newcomers, persons with disabilities, young Canadians, and other people who are underrepresented in Canada’s workforce. This will include improving labour mobility and foreign credential recognition, and creating opportunities for persons with disabilities.

The government also intends to engage with experts on the role that a Career Extension Tax Credit could play in boosting the labour force participation of seniors who want to continue to work later in life.

Labour Mobility Deduction for Tradespeople

Canada is growing, and that means more homes, roads, and important infrastructure projects need to be built. Skilled trades workers are essential to Canada’s success and we need them to be able to get to the job site—no matter where it is.

Workers in the construction trades often travel to take on temporary jobs—frequently in rural and remote communities—but their associated expenses do not always qualify for existing tax relief.

Improving labour mobility for workers in the construction trades can help to address labour shortages and ensure that important projects, like housing, can be completed across the country.

• Budget 2022 proposes to introduce a Labour Mobility Deduction, which would provide tax recognition on up to $4,000 per year in eligible travel and temporary relocation expenses to eligible tradespersons and apprentices. This measure would apply to the 2022 and subsequent taxation years.  

Supporting Foreign Credential Recognition in the Health Sector View the impact assessment

The pandemic has only worsened the labour shortages in our health care sector. Internationally-trained health care professionals can help fill these gaps and ensure that Canadians receive the quality health care they deserve.

The Foreign Credential Recognition Program helps skilled newcomers secure meaningful, well-paying jobs by funding provinces, territories, and organizations to improve foreign credential recognition processes and by providing direct support to skilled newcomers. This support includes mentoring, job placements, and financial assistance for exams and classes.

• Budget 2022 proposes to provide $115 million over five years, with $30 million ongoing, to expand the Foreign Credential Recognition Program and help up to 11,000 internationally trained health care professionals per year get their credentials recognized and find work in their field. It will also support projects—including standardized national exams, easier access to information, faster timelines, and less red tape—that will reduce barriers to foreign credential recognition for health care professionals.  

An Employment Strategy for Persons With Disabilities View the impact assessment

Persons with disabilities should be fully included in Canada’s economic recovery. However, despite being ready and willing to work, their employment rates are much lower than those of Canadians without disabilities—59 per cent versus 80 per cent, according to the 2017 Canadian Survey on Disability. The federal government is steadfast in its commitment to an inclusive recovery—and we cannot leave persons with disabilities behind.

• Budget 2022 proposes to provide $272.6 million over five years to Employment and Social Development Canada to support the implementation of an employment strategy for persons with disabilities through the Opportunities Fund. This will help to address labour market shortages through increased participation by persons with disabilities and make workplaces more inclusive and accessible. Of this funding, $20 million will be allocated to the Ready, Willing and Able program to help persons with Autism Spectrum Disorder or intellectual disabilities find employment. 

This measure will also form an important part of the government’s Disability Inclusion Action Plan, which will aim to improve the quality of life for persons with disabilities, and build on more than $1.1 billion in funding that the federal government has committed to advance the inclusion of persons with disabilities since 2015. 

Improving the Temporary Foreign Worker Program

The Temporary Foreign Worker (TFW) program allows foreign nationals to work in Canada on a temporary basis in order to fill jobs that Canadians are unavailable or unwilling to take. The workers that come to Canada through the TFW program contribute to the labour in a range of sectors, including agriculture and fish and other food processing.

As employers across the country face difficulties in finding workers, the TFW program is experiencing a growing demand. However, additional steps need to be taken to ensure the health, safety, and quality of life of those who come to work in Canada—the importance of which has been reinforced by the unacceptable experience of some temporary foreign workers during the pandemic.

Budget 2022 proposes a number of measures to increase protections for workers, to reduce administrative burdens for trusted repeat employers, and to ensure employers can quickly bring in workers to fill short-term labour market gaps. These include:

• $29.3 million over three years to introduce a Trusted Employer Model that reduces red tape for repeat employers who meet the highest standards for working and living conditions, protections, and wages in high-demand fields. Further details on this program will be announced in the coming year.  
• $48.2 million over three years, with $2.8 million in remaining amortization, to implement a new foreign labour program for agriculture and fish processing, tailored to the unique needs of these employers and workers. The program will be regularly reviewed by the Minister of Employment, Workforce Development and Disability Inclusion for its impact on local labour markets to maximize the employment of Canadians and permanent residents and to ensure the program is not negatively impacting wages for Canadians and permanent residents.  
•   $64.6 million over three years to increase capacity to process employer applications within established service standards.
•   $14.6 million in 2022-23, with $3 million in remaining amortization, to make improvements to the quality of employer inspections and hold employers accountable for the treatment of workers.

Completing the Employment Equity Act Review

Through the Employment Equity Act, the government promotes and improves equality and diversity in federally regulated workplaces. Since the introduction of the Employment Equity Act, continued progress has been made to address inequalities but some workers are still facing barriers to employment and promotion and many federal workplaces fail to reflect the full diversity of Canada’s population. That is why, on July 14, 2021, the government launched an arm’s length Task Force to review the Act and advise on how to modernize the federal employment equity framework.

• Budget 2022 proposes to provide $1.9 million in 2022-23 in order to complete the Employment Equity Act Review in coming months. A final report will be publicized in fall 2022.

4.5 Towards A Better Employment Insurance System

Over the last two years, millions of Canadians’ livelihoods have been interrupted by lockdowns, illness, or the need to care for loved ones. At the start of the pandemic, the government responded by introducing emergency income support that ensured workers and their families could continue to make ends meet, even as the pandemic prevented them from working.

As Canada’s economy continues to recover from the pandemic and emergency programs wind down, the Minister of Employment, Workforce Development and Disability Inclusion is consulting with Canadians on what needs to be done to build an Employment Insurance (EI) system that better meets the current and future needs of workers and employers. This includes simpler and fairer rules for workers, new ways to support experienced workers transitioning to a new career, and coverage for self-employed and gig workers. 

The government will release its long-term plan for the future of EI after the consultations conclude.

Extending Temporary Support for Seasonal Workers

In certain regions of the country, seasonal industries—including fishing and tourism in Atlantic Canada and British Columbia—are the lifeblood of local economies. The Employment Insurance (EI) system is critical to ensuring that the workers these industries count on have the support they need between work seasons. 

In 2018, to address gaps in EI support between seasons, the government introduced a pilot project in 13 regions of the country to provide up to five additional weeks—for a maximum of 45 weeks—for eligible seasonal workers. The temporary support was extended in Budget 2021 to ensure continued support during the pandemic. 

• Budget 2022 proposes to extend these rules until October 2023 as the government considers a long-term solution that best targets the needs of seasonal workers. The cost of this measure is estimated at $110.4 million over three years, starting in 2022-23.
• As part of this extension, the government proposes to maintain a recently introduced legislative fix to ensure that the timing of COVID-19 benefits does not affect future EI eligibility under the rules of the program.

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