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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

In detail 

Business tax measures

Canada Recovery Dividend

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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Additional Tax on Banks and Life Insurers 

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.

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Small Business Deduction

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.

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Substantive CCPCs

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.

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Intergenerational Business Transfers

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.

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Investment Tax Credit for Carbon Capture, Utilization and Storage

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 (CO2) emissions. Eligible equipment must be part of a project where CO2 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. 


2022 to 2030

2031 to 2040

Eligible capture equipment used in a direct air capture project



All other eligible capture equipment



Eligible transportation, storage and use equipment



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 CO2 storage requirements

  • produce a climate-related financial disclosure report 

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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.

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Critical Mineral Exploration Tax Credit

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

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Flow-Through Shares for Oil, Gas and Coal Activities

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.

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International Financial Reporting Standards for Insurance Contracts (IFRS 17)

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. 

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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. 

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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.  

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Corporate Owned Residential Real Estate

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.

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General Anti-avoidance Rule

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.

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International tax measures

International Tax Reform

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 InsightsThe 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

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

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.

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Exchange of Tax Information on Digital Economy Platform Sellers

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. 

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Interest Coupon Stripping

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

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Personal tax measures

Tax-Free First Home Savings Account

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.

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Home Buyers’ Tax Credit

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.

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Multigenerational Home Renovation Tax Credit

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.

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Home Accessibility Tax Credit

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.

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Residential Property Flipping Rule

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.

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Minimum Tax for High Earners

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.

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Labour Mobility Deduction for Tradespeople

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.

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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. 

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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.  

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Reporting Requirements for RRSPs and RRIFs

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.

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Annual Disbursement Quota for Registered Charities

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.

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Charitable Partnerships

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.

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Enhanced Charity Reporting

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.

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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. 

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GST/HST on Assignment Sales by Individuals

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.

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Taxation of Vaping Products

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.

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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.


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 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.


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.

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

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.

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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.

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Beer Taxation

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.

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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 

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Strengthening Canada's Trade Remedy and Revenue Systems

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

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Immigration Investments and Updates

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.

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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:

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

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Contact us

Dean Landry

Dean Landry

National Tax Leader, PwC Canada

Tel: +1 416 815 5090

Shawn Reain

Shawn Reain

National Tax Markets Lead, Compliance.Transformed leader, Partner, PwC Canada

Tel: +1 403 509 6373