Tax update 2022

Home Buyer’s Amount [ITA 118.05]

The Home Buyer’s Amount credit has been doubled from $5,000 to $10,000.

Home Accessibility Tax Credit [ITA 118.04]

The annual expense limit for the Home accessibility tax credit has been increased from $10,000 to $20,000.

Labour Mobility Deduction for Tradespeople (LMD) [ITA 8(1)(t)]

The LMD  provides an eligible tradesperson with a deduction for certain transportation, meals and temporary lodging costs incurred for travelling significant distances to earn income at a temporary work location from temporary employment in construction activities during the 2022 and subsequent taxation years [ITA 8(1)(t)].

The eligible temporary relocation must meet the following criteria [ITA 8(14)(c)]:

a)      The temporary lodging must be at least 150 kilometres closer than the ordinary residence to the particular work location;

b)     the particular work location must be located in Canada; and

c)      the temporary relocation must be for a minimum duration of 36 hours.

Eligible expenses include temporary lodging, transportation and meals expenses for one round trip to the work location. For transportation and meals costs, use the simplified method for calculation.

The maximum deduction for all the trips combined is set at $4,000, with an additional limit per work site of 50% of employment income gained at each individual work site.

Medical Expense Tax Credit for Surrogacy and Other Expenses [ITA 118.2(2)(v)]

The definition of “patient”, in cases where an individual would rely on a surrogate or a donor in order to become a parent, has been extended. In these cases, patient would be defined as:

a)      the taxpayer;

b)     the taxpayer’s spouse or common-law partner;

c)      a surrogate mother; or

d)     a donor of sperm, ova or embryos.

This extended definition makes medical expenses paid by the taxpayer, or the taxpayer’s spouse or common-law partner, with respect to a surrogate mother or donor, eligible for the METC.

Air Quality Improvement Tax Credit [ITA 127.43]

The new refundable Air Quality Improvement Tax Credit would be available to eligible entities in respect of qualifying expenditures attributable to air quality improvements in qualifying locations incurred between September 1, 2021, and December 31, 2022 [ITA 127.43].

Eligible entities for a taxation year would include unincorporated businesses, qualifying corporations (CCPCs with taxable capital of less than $15M in the prior year) and partnerships [ITA 127.43(1) “Eligible entities”].

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 primary purpose of which is to increase outdoor air intake or to improve air cleaning or air filtration [ITA 127.43(1) “Qualifying expenditures”].

Qualifying locations would include properties used by an eligible entity primarily in the course of its ordinary commercial activities in Canada (including rental activities), excluding self-contained domestic establishments (i.e., a place of residence in which a person generally sleeps or eats) [ITA 127.43(1) “Qualifying location”].

The tax credit would be refundable and have a credit rate of 25 per cent that would apply to an eligible entity’s qualifying expenditures [ITA 127.43(2)]. An eligible entity would be limited to a maximum of $10,000 in qualifying expenditures per qualifying location [ITA 127.43(1) “total per location expense”] and a maximum of $50,000 across all qualifying locations [ITA 127.43(1) “total ventilation expense”]. The limits on qualifying expenditures would need to be shared among affiliated entities (which share the same definition as “affiliated persons” in ITA 251.1).

Consistent with the general treatment of business tax credits, credit amounts would be included in the taxable income of the business in the taxation year the credit is claimed [ITA 127.43(5)].

The new Form T2039 has been added to compute the credit.

Immediate expensing of depreciable properties [ITR 1104(3.1)]

The immediate expensing incentive, introduced in the 2021 federal budget, allows for eligible businesses to claim up to $1.5 million in depreciation expense on eligible properties. This is done through the Capital Cost Allowance (CCA) claim on the tax return and would allow a claim of up to 100% depreciation expense on eligible properties. The deduction can be claimed for one eligible property or spread among several, as long as the total claim does not go above $1.5 million.

The incentive is temporary, applicable to eligible property available for use before January 1st, 2024, or January 1, 2025, in the case of individuals and Canadian partnerships all the members of which are individuals [ITR 1104(3.1)(b) “immediate expensing property”].

We wrote extensively about this measure in a previous blog article.

Corporate tax measures

Small Business Deduction [ITA 125(5.1)]

There will be an extension of 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 from $10 million to $15 million.

This measure is applicable for tax years starting on or after April 7, 2022.

Substantive CCPC [ITA 123.3 & 248]

Substantive CCPC is a new designation for private corporations (non-CCPCs) that will be subject to the same rules on investment income as CCPCs.

This designation was created to prevent private corporations that are controlled by Canadian individuals (non-CCPCs) from avoiding refundable taxes on investment income and benefitting from a low tax rate. This can arise when taxpayers manipulate the status of their corporations in an attempt to avoid qualifying as a CCPC to achieve a tax-deferral advantage on investment income earned in their corporations.

This measure is applicable for tax years starting on or after April 7, 2022.

“Substantive CCPC” means a private corporation (other than a Canadian-controlled private corporation) that:

a)      is controlled, directly or indirectly in any manner whatever, by one or more Canadian resident individuals, or

b)     would, if each share of the capital stock of a corporation that is owned by a Canadian resident individual were owned by a particular individual, be controlled by the particular individual.

Under this amendment, the rules for investment income gained by substantive CCPCs would be:

·        Additional Refundable Tax on “aggregate investment income” (10 2/3%) [ITA 123.3]

·        Not eligible for the General Rate Reduction of 13% [ITA 123.4]

·        Part of the “aggregate investment income” added to the “Non-eligible refundable dividend tax on hand” (NERDTOH) [ITA 129(4)]

·        Added to the “low-rate income pool” (LRIP) and not eligible to be paid out as eligible dividends [ITA 89(1)]