2023 Federal Budget: A Made-in-Canada Plan

The First Home Savings Account launches April 1, 2023 as a new registered account that combines RRSP and TFSA tax benefits. Eligible first-time home buyers can contribute up to $8,000 per year (lifetime limit $40,000), deducting contributions from income like an RRSP, and making tax-free withdrawals for a qualifying home purchase like a TFSA. Unused contribution room can carry forward to the following year only.

The new Multigenerational Home Renovation Tax Credit provides a 15% refundable tax credit on eligible expenses up to $50,000 ($7,500 maximum credit) for renovations creating a secondary suite for a qualifying relative. Eligible relatives include a senior (65+) or an adult with a disability. The credit applies to permits obtained and expenditures incurred in the 2023 and later tax years.

A one-time Grocery Rebate provides targeted relief to low- and modest-income Canadians facing food inflation. Eligible individuals and families receive a doubling of their maximum GST credit payment: approximately $467 for families with two children, $234 for single Canadians, and $225 for seniors. The rebate is delivered through the CRA using 2021 tax return data.

The Canadian Dental Care Plan provides oral health coverage to uninsured Canadians with family net income under $90,000. The plan launches for seniors over 87 in late 2023, expanding to seniors, children under 18, and persons with disabilities in 2024, and all eligible Canadians by 2025. Benefits include preventive, diagnostic, restorative, and endodontic dental services.

The annual limit on Education Assistance Payments from Registered Education Savings Plans increases to $8,000 (from $5,000) for full-time students, and to $4,000 (from $2,500) for part-time students in the first 13 weeks of enrollment. This gives post-secondary students greater access to RESP funds when tuition and cost-of-living expenses are highest. The change takes effect immediately.

A 30% refundable investment tax credit supports capital expenditures on eligible clean technology property, including solar, wind, water current, wave/tidal energy equipment, and geothermal systems. A reduced 20% rate applies to eligible geothermal energy equipment not used in oil sands extraction. The credit requires meeting labour conditions including prevailing wages and apprenticeship ratios.

Budget 2023 announces a pilot for automatic tax filing for simple returns among low-income Canadians who do not currently file taxes. The CRA will use information already on file to complete a basic return and provide confirmation to the taxpayer. An estimated 200,000 Canadians who qualify for benefits but fail to file returns each year would be captured through this initiative.

Significant changes to the Alternative Minimum Tax take effect in 2024. The AMT rate rises from 15% to 20.5%, the basic exemption increases to $173,205, and the AMT base is broadened significantly. Capital gains inclusion rises to 100% for AMT purposes, and the deduction for charitable donations is reduced to 50% when calculating AMT income. High-income Canadians with large capital gains or who claim stock option deductions are most affected.

A new Employee Ownership Trust structure allows employees to collectively own their company through a trust mechanism. Qualifying business transfers to an EOT benefit from a five-year tax deferral on capital gains, with the vendor paying gains over time. This provides a succession planning vehicle for business owners and ensures business continuity within the existing workforce.

Technical amendments clarify Bill C-208 rules for intergenerational business transfers to ensure genuine family succession is facilitated while preventing tax avoidance. The rules distinguish between immediate (3-year) and gradual (5-10 year) transfer scenarios. Parent-to-child transfers of qualified small business corporation shares can now access the capital gains exemption without triggering dividend recharacterization.