The Federal Government has made changes to the capital gains exemption and employee stock options as well as created labour mobility deductions for tradespeople, underused housing tax, small business air quality improvement tax credit, fuel charge tax credit for farmers. Crowe MacKay's tax advisors review how these changes may impact your 2022 taxes.
Capital Gains Exemption
For 2022, the capital gains exemption for qualified small business corporation shares has risen from $892,218 to $913,630. This exemption will be indexed for inflation in subsequent years. The capital gains exemption for qualified farm or fishing property remains at $1,000,000.
New Labour Mobility Deduction for Tradespeople
For 2022 and subsequent years, a new deduction is available for certain tradespersons or apprentices (Eligible Workers (EW)) who work in temporary work locations. A deduction of up to $4,000 is available for expenses such as temporary lodging near the particular work location, transportation for one round trip from their home to the temporary lodging, and the meals in the course of travel of this one round trip.
In order to qualify for this deduction, the EW must obtain or maintain employment to provide temporary construction services at a remote work location and stay at temporary lodging in Canada near that work location and away from their ordinary residence in Canada during the relocation period. Additionally, the EW must be away from their ordinary residence for at least 36 hours and the temporary lodging must be at least 150 km closer to the particular work location in Canada than their ordinary residence.
It is important to note EWs can claim a maximum of 50% of their employment income from the construction activities at these work locations and may not include expenses for which an employer provided financial assistance that was not included in the EW's income.
Underused Housing Tax
As announced in the 2021 Federal Budget, starting in 2022, residential real estate owned by non-resident, non-Canadians that is vacant or underutilized will have a new national tax of 1% levied on the assessed value annually.
When to File an Annual Declaration
Under the enacted rules, the legal owner of the residential property would need to file an annual declaration unless they are an "excluded owner" such as:
- an individual that is a Canadian citizen or permanent resident of Canada and holds a direct interest in the property;
- a corporation incorporated in Canada and listed on a Canadian stock exchange;
- a registered charity;
- an Indigenous governing body or a corporation owned by an Indigenous governing body; or
- certain other public service bodies (e.g., universities, public colleges, school authorities, hospital authorities).
Owners That are Not Excluded Owners
An owner who is not an excluded owner can be exempt from the tax if the residence in question is the primary place of residence of:
- the owner (if the owner is an individual);
- the owner's spouse or common-law partner;
- a child of the owner or of the owner's spouse or common-law partner, but only if the child is in Canada for the purposes of authorized study and the occupancy relates to that purpose; or
- a tenant occupying the residence under a written agreement at fair rent.
Additional Exemptions
An exemption is also available for residential properties owned by specified Canadian corporations, which are Canadian corporations of which less than 10% of the votes and values of its shares are owned by foreign individuals or corporations.
Additional exemptions for vacation/recreational properties would apply to properties:
- located in an area of Canada that is not an urban area within either a census metropolitan area or a census agglomeration having 30,000 or more residents;
- personally used by the owner (or the owner's spouse or common-law partner) for at least four weeks in the calendar year.
An owner eligible for any of the above exemptions would claim the exemption in the annual return that they would be required to file with the CRA in respect of the residential property.
The Underused Housing Tax would be effective for the 2022 calendar year with the first filing and payment (if an exemption is not available) required on or before April 30, 2023.
non-qualified securities no later than 30 days after grant date and must report the amounts on the new Schedule 59 on or before the filing due date for their taxation year that includes the grant date.
Small Businesses Air Quality Improvement Tax Credit
The Government introduced a temporary Small Businesses Air Quality Improvement Tax Credit to encourage small businesses to invest in upgrading ventilation and air filtration systems to improve indoor air quality. The refundable tax credit would apply to eligible entities' incurred expenditures dedicated to improving air quality in qualifying locations between September 1, 2021, and December 31, 2022. The tax credit rate is 25%.
An eligible entity would receive a maximum credit of $10,000 per qualifying location and a maximum of $50,000 across all qualifying locations. The limits on qualifying expenditures would need to be shared among affiliated businesses. Credit amounts would be included in the taxable income of the business in the taxation year the credit is claimed.
The tax credit is available to Canadian-controlled private corporations and individuals (but not trusts), and members of a partnership that are qualifying corporations or individuals (other than trusts). Specific eligibility requirements will apply to each of these groups.
Qualifying expenditures would include expenses directly attributable to the purchase, installation, upgrade, or conversion of mechanical heating, ventilation, and air conditioning (HVAC) systems, as well as the purchase of devices designed to filter air using high efficiency particulate air (HEPA) filters.
The taxation year for which an eligible entity would claim the tax credit would depend on when the qualifying expenditure was incurred.
- Qualifying expenditures incurred before January 1, 2022, would be claimed by an eligible entity for its first taxation year that ends on or after January 1, 2022.
- Qualifying expenditures incurred on or after January 1, 2022, would be claimed by an eligible entity for the taxation year in which the expenditure was incurred.
Fuel Charge Tax Credit for Farmers
The Government introduced a new refundable tax credit, the Return of Fuel Charge Proceeds to Farmers Tax Credit, to return a portion of fuel charge proceeds directly to farming businesses in backstop jurisdictions (i.e. those who do not meet federal stringency requirements – Ontario, Manitoba, Saskatchewan, and Alberta) for the 2021-22 fuel charge year.
The return of fuel charge proceeds would be available to corporations, individuals, and trusts that:
- Are actively engaged in either the management or day-to-day activities of earning income from farming (i.e., the raising of animals and harvesting of plants in a controlled environment); and
- Incur total farming expenses of $25,000 or more attributable to backstop jurisdictions.
Businesses operating in a partnership are also eligible for this tax credit.
The credit amount would be equal to the eligible farming expenses attributable to backstop jurisdictions in the calendar year in which the fuel year starts, multiplied by a payment rate for the fuel charge year. The payment rate is per $1,000 in eligible expenses and has been set by the Minister of Finance; they are as follows:
- $1.47 in 2021
- $1.73 in 2022
Credit amounts would be included in the taxable income of the business in the taxation year the credit is claimed. Businesses can claim these refundable tax credits through their tax returns that include the 2021 and 2022 calendar years.
Stock Options
Employers that grant employee stock options may be subject to new reporting requirements when filing their corporate tax return. Theses rules came into effect on July 1, 2021. This new requirement only applies to "non-qualified securities." "Non-qualified securities" are stock options above $200,000 issued by large firms with includes non-CCPCs with income above $500 Million annual income. It should be noted CCPCs and "other growing companies" (a term not yet defined) are excluded from these requirements. Employers must notify the employee in writing that the shares are
Looking Back: Tax Changes in the 2021 Canadian Tax Season
The Federal Government has made changes to trust reporting requirements, the capital gains exemption, northern residents deductions, and employee stock options. Crowe MacKay's tax advisors review how these changes may impact your 2021 taxes.
Trust Reporting Requirements
There are new reporting requirements for trusts requiring most trusts to file a T3 return, regardless of income or activity levels (with some exceptions, see below). The new reporting requirements will apply to trusts with taxation years that end on or after December 31, 2021, and will require disclosure of information about the settlor, trustees, and beneficiaries (including contingent beneficiaries), such as name, address, date of birth, jurisdiction of residence, and taxpayer identification number (e.g., SIN).
Certain trusts are excluded from these new rules including:
- Trusts that have been in existence for less than three months
- Trusts that hold assets with a maximum of $50,000 in fair market value throughout the year (these assets are limited to deposits, government debt obligations, and listed securities)
- Graduated rate estates
- Qualified disability trusts
There are significant penalties for non-compliance so you should start gathering the required information if these rules apply to you.
Capital Gains Exemption
For 2021, the capital gains exemption for qualified small business corporation shares has risen from $883,384 to $892,218. This exemption will be indexed for inflation in subsequent years. The capital gains exemption for qualified farm or fishing property remains at $1,000,000.
Northern Residents Deductions
The 2021 Federal Budget proposed to expand the travel component of the Northern Residents Deductions for the 2021 and subsequent taxation years. An eligible individual will be able to claim, for each member of the household, a deduction up to the travel benefit provided by their employer. Alternatively, a $1,200 ($600 for Intermediate Zone) standard amount may be allocated across eligible trips taken by the individual. The Budget proposed a maximum of two trips taken by the individual for non-medical purposes would be allowed to be claimed in total, and any number of trips for medical purposes in a household.
Download our Northern Residents Travel Deduction Form
Employee Stock Options
The Government recently clarified the proposed changes to limit the benefit of the employee stock option deduction. These rules are effective for stock options granted after June 30 , 2021. An employee is subject to a taxable benefit if they acquire shares of their employer under a stock option agreement and the fair market value of the shares at the time of excise exceeds the amount paid by the employee to acquire the shares. A stock option deduction equal to 50% of the taxable benefit is available to employees if certain conditions are met. Under the new rules, a $200,000 annual limit is proposed on the amount of employee stock option grants that can qualify for the 50% stock option deduction. This restriction will apply to stock options in non-CCPCs and mutual fund trusts.
Employee stock options in CCPCs would generally not be subject to this $200,000 limit. Also, non-CCPC employers with annual gross revenues of $500M or less should also not be subject to these measures. Individuals employed by non-CCPCs should keep in mind the limited tax benefit of stock options over the $200,000 annual limit when negotiating their compensation packages.
Looking Back: Tax Changes in the 2020 Canadian Tax Season
The following was introduced in the 2020 Canadian tax season and is available for your reference.
The COVID-19 pandemic's impact on individuals and businesses across the country led to the introduction of government-funded programs to support Canadians while ensuring their safety. Crowe MacKay's tax advisors review how these programs may impact your 2020 taxes.
Capital gains exemption
For 2020, the capital gains exemption for qualified small business corporation shares has risen from $866,912 to $883,384. This exemption will be indexed for inflation in subsequent years. The capital gains exemption for qualified farm or fishing property remains at $1,000,000.
Relief Payments related to COVID-19
Individuals that received COVID-19 relief payments from the Government will be required to report these taxable benefits on their 2020 income tax return. These payments include the Canada Emergency Response Benefit, Canada Recovery Benefit, Canada Recovery Sickness Benefit, and Canada Recovery Caregiving Benefit. All individuals receiving benefits from the relief programs noted above should expect to receive a tax slip issued by the Government for 2020.
Registered Retirement Income Fund (RRIF) Minimum Withdrawals
Effective May 13, 2020, the minimum required withdrawal amount for RRIFs has been reduced by 25% for 2020 due to volatile market conditions from COVID-19. Those who have already withdrawn more than the reduced 2020 minimum amount will not be able to re-contribute the excess amount back into their RRIFs. Tax will only be withheld on withdrawals that exceed the unreduced minimum amount.
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.
