Budget 2023 covers a wide range of topics, from healthcare to the new Employee Ownership Trust, increased Alternative Minimum Tax and a continued (and excessive) focus on climate change. There are even some conciliatory measures to appease the NDP and keep their coalition with the Liberal government functioning in an attempt to avoid a non-confidence vote, thus attempting to delay what many views as a ‘must have soon please’ federal election. 

The budget includes several initiatives the government says are “aimed at improving the lives of Canadians.” We’ve seen this government use this type of language in nearly all its budgets that it has cared to release (remember, we skipped 2020 entirely). We read this type of language with apprehension, given the economic ruin that the last eight years of fiscal recklessness have brought to Canada.  

According to the Government of Canada, the ‘Made-in-Canada Plan’ focuses on a ‘strong middle class, an affordable economy, and a healthy future.’ Unfortunately, we view this as a marketing spin at best. The Liberal government has projected the deficit to be another whopping $40B, and they have left their November 2022 fiscal plan (yes, the plan from 6 months ago) to balance the budget at some point in the future in the rear-view mirror. Gone are the days when the idea of the ‘budget-balancing itself’ was hip. In Budget 2023, the government has reached deep into its bag of old, expensive tricks, which we speculate should work to keep inflation high and hurt those the government proposes to help. 

Whether you’re a business owner, a concerned citizen, or simply interested in the government’s plan to “build a more sustainable economy” (whatever that means), keep scrolling for our overview of this year’s federal budget, namely the measures that we think may affect you the most.   

 

Key Highlights of the 2023 Canadian Federal Budget 

The 2023 budget was tabled on March 28, 2023. Here are some key highlights that have the potential to impact you: 

Personal Implications 

Registered Disability Savings Plans (RDSPs) 

An extension to the Qualifying Family Member provision regarding the Registered Disability Savings Plan (RDSP) until December 31, 2026, and an expansion to allow siblings to open RDSPs and hold the plans. 

Automatic Return Filing 

Increasing the number of eligible Canadians who can take advantage of the free File My Return service to two million by 2025. Up to 12% of Canadians do not file their taxes due to the cost of doing so, what’s more is that these people may not owe tax but may be missing out on benefits because the taxes are unfiled.  

We’d like to see the government setup automatic filing for qualifying residents, and believe that this measure is a step in the right direction. 

Registered Education Savings Plans (RESPs) 

An increase in Educational Assistance Payment withdrawals from $5,000 to $8,000 for full-time students and from $2,500 to $4,000 for part-time students in their first 13 weeks.  

Additionally, Canada Student Grants are to be increased by 40%, with full-time students receiving up to $4,200.  

Also, divorced or separated parents will have the ability to open joint RESP accounts for their children. 

Tax-Free First Home Savings Account 

On April 1, 2023, a new measure to support first-time homebuyers became effective: the Tax-Free First Home Savings Account.  

This account allows eligible individuals to save up to $40,000, tax-free, towards the purchase of their first home. Find out more about the TFFHSA here. 

Canadian Dental Care Plan 

To increase access to dental care for all Canadians, the federal budget has implemented the Canadian Dental Care Plan, which should become effective at the end of 2023. The plan will provide coverage for eligible uninsured Canadians of all ages with a family income of $90,000 or less. The benefits diminish at $70,000 in family income and are eliminated at a family income of 90,000 or more.  

This has long been one of the key mandates that the NDP have insisted on in order to avoid a confidence vote, which would trigger a federal election. 

Grocery Rebate 

With the price of essential goods at an all-time high, a new, one-time Grocery Rebate aims to ease stress by providing inflation relief to Canadians in need.   

The Grocery Rebate will see eligible Canadians receiving an average of:   

  • $467 for eligible couples with two children 
  • $234 for single Canadians without children 
  • $225 for seniors 

While we recognize the need to offer assistance to the growing number of Canadians who are living on the margins, we can’t help but wonder if it was a good idea to triple the government’s carbon tax on April 1, 2023, a tax which is certainly contributing to the price pressures that Canadians are experiencing.   

Alternative Minimum Tax (AMT) 

Effective January 2024, there will be significant changes to the Alternative Minimum Tax (AMT) rules. These rules aim at folks who earn income and, in the government’s eyes, pay too little tax on that income. 

The proposed changes include:  

  • Standard exemption being increased from $40k-$173k 
  • An increase in the AMT rate from 15% to 20.5%. 
  • Limitations to control excessive use of tax preferences.  
  • A rise in the capital gains inclusion rate in the AMT calculation from 80% to 100%.  
  • Many of the current deductions will be reduced to 50%.  
  • Restricting the usage of some non-refundable tax credits against AMT.  
  • Inclusion of 30% of capital gains realized on donations of publicly listed securities.

 

Business Implications 

Credit Card Fees 

The government announced that it had received commitments from Visa and Mastercard to lower transaction fees for small businesses.  

According to the federal budget, more than 90% of small businesses can expect their interchange fees to decrease by up to 27%. 

Employee Ownership Trusts 

The introduction of Employee Ownership Trusts. These are a vehicle whereby employees can own shares of private companies and participate in the company’s growth and profit without having to use the employee’s cash to purchase the shares. Eligible companies are called a ‘qualifying business’, which is a Canadian Controlled Private Corporation with all, or substantially all, of its assets used in active business. 

The budget contains specifics around ownership percentages, governance matters, who are eligible employees for participating in EOTs, as well as rules around distributions. 

EOTs may be valuable tools for the succession planning of the business’s current owners. 

Benefits to employees who are involved in EOTs: 

  • Increased capital gains tax deferral on the transfer of a qualifying business to an EOT (capital gains reserve of up to 10 years, currently a maximum of 5 years); 
  • The business may loan funds to the EOT with a repayment period of 15 years without triggering an income inclusion like a typical shareholder loan, making it easier to effect transfers without the need for immediate capital; 
  • EOTs are exempt from the 21-year rule. 
  • Notwithstanding the above, an EOT would be taxed like a typical Inter-Vivos trust, including a deduction for distributions to beneficiaries. 

A consultation now open will run to the end of May 2023, focusing on “how best to enhance employee rights and participation in the governance of Employee Ownership Trusts.”

Healthcare Support 

To alleviate backlogs and provide much-needed relief to the industry, $198.3 billion will support and enhance the Canadian healthcare system.

Alcohol Excise Duty 

As the hospitality and tourism industry continues to recover from an uncertain economic climate and return to pre-pandemic levels, the April 1, 2023, Alcohol Excise Duty was reduced from 6.3% to 2% to support Canadian brewers and other businesses in the beverage space. 

Intergenerational Business Transfers 

2023’s Canadian budget proposes amendments to fix the giant holes left in the Intergenerational Family Business Transfer rules introduced by Bill C-208 in 2021 (see our blog here). Bill C-208 aimed to level the playing field between intergenerational sales and sales to third parties of a private company. Before Bill C-2018, there was a staggering tax advantage for individuals transferring shares to third parties rather than keeping it in their family, which many viewed as unfair.  

As with many of this government’s legislative adventures, Bill C-208 was rushed through quickly, and the drafting was sloppy, leaving gaping holes for savvy tax planners to take advantage of. We now have a set of rules to plug those holes. The 2023 budget proposes rules that include two transfer options:

  • An immediate intergenerational business transfer (three-year test) 
  • A gradual intergenerational business transfer (five-to-10-year test) 

These two types of transfers will require that the child control the company and that the child be employed in active business operations of the company throughout the term. For anyone hoping to take advantage of the old rules, these new rules come into effect on January 1, 2024. 

 

Climate Implications 

The 2023 budget largely focused on a cleaner Canada. Here are some of the Canadian Government’s propositions:  

  • A $3 billion investment in clean electricity projects through Natural Resources Canada. 
  • Expand the zero-emission technology manufacturers’ corporate tax cut eligibility to include nuclear manufacturing and processing activities. 
  • The Clean Technology Investment Tax Credit provides a refundable credit of 30% of the cost of clean technology manufacturing equipment, including carbon capture, utilization and storage expansion. 
  • The Clean Hydrogen Investment Tax Credit ranges from 15-40% to support clean hydrogen production projects.  
  • NOTE that labour requirements, including wage level floors and training opportunities, must be met to receive these credits in full. 

Conclusion 

Overall, the 2023 Canadian Federal Budget was another very expensive one that does little to help Canada’s competitiveness problem or boost our employment numbers. While we are pleased to see the government transferring money to the people most hurt by their spendthrift inflationary economic policies, we would have liked to see more focus on developing a robust and thriving economy. Perhaps next year. 

So, what does that mean? Stay hopeful but expect shifts.  

While there is still much work to be done, the government’s commitment to investing in the future bodes well for the years ahead. 

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