On November 21, 2023, Federal Finance Minister Chrystia Freeland provided Canadians with the Fall Economic Statement (the "Statement"). The announcement addressed inflation and the housing crisis while following up on previously announced tax measures.
Crowe MacKay's tax experts provide tax highlights of key areas within the Statement that may affect you or your business. If you require assistance, connect with us in Alberta, British Columbia, Northwest Territories, or the Yukon.
Personal Income Tax Measures
Taxpayer Information Sharing - Canadian Dental Care Plan
The Government proposes to amend the Income Tax Act to provide legislative authority for the Canada Revenue Agency to share taxpayer information with an official of Public Services and Procurement Canada solely to administer or enforce the Canadian Dental Care Plan. This would allow Employment and Social Development Canada to engage the services of Public Services and Procurement Canada in administering the Canadian Dental Care Plan.
Similar amendments to the Excise Tax Act and the Excise Act 2001 are proposed.
These amendments would come into force upon royal assent.
Business Income Tax Measures
The Statement announces that the Government intends to deny income tax deductions for expenses incurred to earn short-term rental income in provinces and municipalities that have prohibited short-term rentals. Further, the Government intends to deny income tax deductions when short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements.
These measures would apply to deny all expenses incurred on or after January 1, 2024.
Clean Hydrogen Investment Tax Credit
The 2023 Budget proposed introducing the Clean Hydrogen Investment Tax Credit; additional details will be announced at a later date. The Statement proposes the details with respect to these design elements.
Clean Technology and Clean Electricity Investment Tax Credits - Equipment Using Waste Biomass
The 2022 Fall Economic Statement proposed a 30 per cent refundable Clean Technology Investment Tax Credit. The credit would be available to taxpayers investing in eligible property that is acquired, and that becomes available for use on or after March 28, 2023, and before 2035, subject to a phase out in 2034 (the credit rate would be reduced to 15 per cent for property that becomes available for use in 2034).
Budget 2023 proposed a 15 per cent refundable Clean Electricity Investment Tax Credit, available to taxable and non-taxable entities investing in eligible property as of the date of Budget 2024 for projects that did not begin construction before March 28, 2023. The credit would not be available after 2034. The full design details of the Clean Electricity Investment Tax Credit will be provided at a later date.
The Statement proposes to expand eligibility for the Clean Technology and Clean Electricity Investment Tax Credits to support the generation of electricity, heat, or both electricity and heat, from waste biomass.
Canadian Journalism Labour Tax Credit
The Canadian journalism labour tax credit was introduced in Budget 2019 as one of several measures to support Canadian journalism, providing a refundable 25 per cent tax credit on the salary or wages paid to eligible newsroom employees of a "qualifying journalism organization." Qualifying labour expenditures per eligible newsroom employee are capped at $55,000 for a taxation year.
The Statement proposes to increase the cap on labour expenditures per eligible newsroom employee from $55,000 to $85,000 and that the tax credit rate be temporarily increased from 25 per cent to 35 per cent for four years. As a result, organizations would be able to claim up to $29,750 in eligible labour costs per eligible newsroom employee per year.
These changes would apply to qualifying labour expenditures incurred on or after January 1, 2023. The credit rate would return to 25 per cent for expenditures incurred on or after January 1, 2027, and transitional rules would apply to prorate these changes in cases where an organization's tax year does not follow a calendar year.
Dividend Received Deduction by Financial Institutions - Exception
The Income Tax Act permits corporations to claim a deduction in respect of dividends received on shares of other corporations resident in Canada. Budget 2023 proposed to deny this deduction regarding dividends received by financial institutions on mark-to-market property shares.
TheStatement proposes an exception to this measure for dividends received on "taxable preferred shares" (as defined in the Income Tax Act) that would apply to dividends received on or after January 1, 2024.
Under the Income Tax Act, if a taxpayer receives government assistance in the course of earning income from a business or property, the amount of that assistance may reduce the amount of a related expense or the cost or capital cost of a corresponding property or may be included in the taxpayer's income. The amount of assistance may also reduce the amount of an expenditure on which an associated investment tax credit is based.
Historically, non-forgivable loans from public authorities were generally not considered government assistance, and this position extended to concessional loans (meaning loans that do not bear interest or interest at below-market rates) from public authorities. However, the Tax Court of Canada recently determined that the full principal amount of a concessional loan is government assistance.
The Statement proposes to amend the Income Tax Act to provide that bona fide concessional loans with reasonable repayment terms from public authorities will generally not be considered government assistance. This amendment would come into force on the date of the Statement.
Sales and Excise Tax Measures
Removing the GST/HST From Psychotherapists' and Counselling Therapists' Services
Under the Goods and Services Tax/Harmonized Sales Tax (GST/HST), services covered under a provincial public health care plan are exempt in that province. Exemptions are also provided for most services rendered by health-care practitioners. The Statement proposes that psychotherapists and counselling therapists be added to the list of healthcare practitioners whose professional services rendered to individuals are exempt from the GST/HST. This measure would apply on royal assent of the enacting legislation.
Joint Venture Election
The Government is seeking stakeholders' views and comments on proposed new GST/HST joint venture election rules. The new joint venture election rules are intended to allow more participants in commercial joint ventures access to the simplification benefits of the election. Key elements of these proposed new rules include:
- replacing the condition that the joint venture activities must be eligible activities set out in the legislation or regulations with an all or substantially all commercial activities condition (within the meaning of the GST/HST legislation);
- requiring all electing participants to be registered for GST/HST purposes; and
- replacing existing deeming measures with those that are more precisely focused on tax accounting.
For a qualifying operator and a qualifying participant to make an election or revocation under the proposed new rules, the details of the election or revocation, including the effective date, would have to be filed in a prescribed manner with the Canada Revenue Agency. An election would cease to have effect on the day on which a person that made the election no longer meets the conditions for making it, such as if the person ceased to be registered.
Under the proposed new joint venture election rules, various measures would generally apply to the treatment of the following:
- Supplies made on behalf of the participant
- Tax payable to the Receiver General
- Input tax credits
- Tax adjustments
- Supplies by the operator to the participant
- Joint and several or solidary liability
Underused Housing Tax (UHT)
The Government is proposing to make several changes to the UHT, which are described below. Draft legislative and regulatory proposals relating to these proposed changes will be released for consultation.
Elimination of Filing Requirement for Certain Owners
Generally, if an owner of a residential property is a corporation or is the owner of the residential property on behalf of a partnership or as a trustee of a trust, the owner must file an annual UHT return in respect of the property. If the entity is substantially or entirely Canadian, they may be eligible to claim an exemption from the UHT in their UHT return. Specifically, exemptions may be claimed by:
- A "specified Canadian corporation;"
- A partner of a "specified Canadian partnership;" or
- A trustee of a "specified Canadian trust."
The Government is proposing to make "specified Canadian corporations," partners of "specified Canadian partnerships," and trustees of "specified Canadian trusts", excluded owners for UHT purposes. As excluded owners, these owners would no longer have UHT reporting obligations.
The Government is also proposing to expand the definitions "excluded owner," "specified Canadian partnership," and "specified Canadian trust" to provide UHT filing and tax relief in respect of a broader range of Canadian ownership structures.
These changes would apply in respect of 2023 and subsequent calendar years.
Reduction to Minimum Failure to File Penalties
Currently, the minimum penalty for an individual who is required to file a UHT return but who fails to do so by the filing deadline is $5,000 per failure. The minimum penalty for a corporation that fails to file by the filing deadline is $10,000 per failure.
The Government proposes to reduce these minimum penalties to $1,000 for individuals and $2,000 for corporations per failure.
These changes would apply in respect of 2022 and subsequent calendar years.
Exemption for Certain Employee Accommodations
The Government proposed introducing a new UHT exemption for residential properties held as a place of residence or lodging for employees. This exemption would be available with respect to residential properties located anywhere in Canada other than in a population center within either a census metropolitan area or a census agglomeration having 30,000 or more residents.
This exemption would apply in respect of 2023 and subsequent calendar years.
Additional Technical Changes
The Government is also proposing to introduce technical UHT changes to ensure the UHT applies in accordance with the policy intent and to ensure uniformity of tax statutes.
For example, these changes would:
- provide that unitized, i.e., condominiumized, apartment buildings are not "residential property" for UHT purposes, effective in respect of 2022 and subsequent calendar years; and
- ensure that an individual or a spousal unit can claim the UHT "vacation property" exemption for only one residential property for a calendar year, effective in respect of 2024 and subsequent calendar years.
Additional Time to File 2022 UHT Returns
The deadline for filing the 2022 UHT returns was April 30, 2023. On March 27, 2023, the Canada Revenue Agency announced that it would waive penalties and interest provided UHT returns are filed, or the UHT is paid by October 31, 2023, effectively giving owners six more months to file. On October 31, 2023, the Minister of National Revenue announced that this transitional filing relief would be extended by six more months, giving owners until April 30, 2024, to file their 2022 UHT returns.
UHT returns for the 2023 calendar year will also need to be filed by the normal deadline of April 30, 2024, to avoid penalties and interest.
Previously Announced Measures
The Statement confirms the Government's intention to proceed with several previously announced tax and related measures. Some of these measures are listed below.
- Legislative proposals released on August 4, 2023, including
measures such as:
- Employee Ownership Trusts
- Strengthening the Intergenerational Business Transfer Framework
- The Alternative Minimum Tax for High-Income Individuals
- Modernizing the General Anti-Avoidance Rule
- Global Minimum Tax (Pillar Two)
- Digital Services Tax
- Excessive Interest and Financing Expenses Limitations
- Revised Luxury Tax draft regulations to provide greater clarity on the tax treatment of luxury items
- Legislative proposals released on August 9, 2022, concerning Substantive Canadian-Controlled Private Corporations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.