Deputy Prime Minister and Finance Minister Chrystia Freeland delivers the 2023 federal budget speech in the House of Commons last March.Sean Kilpatrick/The Canadian Press
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Financial services professionals are awaiting some expected – and maybe a few unexpected – announcements in the upcoming federal budget that could affect financial planning for their clients.
The federal Liberals have begun a pre-budget rollout of policies related to the housing shortage and renter rights as they try to address Canada’s housing affordability crisis.
The budget, set for release on April 16, is expected to include measures to support seniors and small business owners while ensuring that higher-net-worth Canadians pay more taxes. Here are some predictions on what could be in this year’s document.
A big leftover from last year
An alternative minimum tax (AMT) update is widely expected in this year’s federal budget, especially given the controversy around how the measure will affect charities.
Last year, Ottawa said it planned to cut in half the charitable donation tax credit allowed under the AMT rules and include in the AMT tax base 30 per cent of capital gains on publicly traded securities donated to charity. The proposed AMT changes weren’t included in the budget implementation bill tabled late last fall, which has many tax experts anticipating an update in this year’s plan.
“It seems to signal that the government is hearing about concerns with the AMT proposals and may be providing some response,” says Brian Ernewein, senior advisor at KPMG in Canada’s National Tax Centre.
Some help for seniors
Measures to help seniors deal with the rising living costs and longer life expectancies – as well as those who may require more retirement income – could also be in the offing.
John Waters, vice-president and director of tax consulting services at BMO Private Wealth in Toronto, says one potential change could be increasing the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) survivor’s benefit, which is a monthly benefit paid to the surviving spouse of a deceased CPP/QPP contributor. The federal Liberal Party promised to increase the survivor’s benefit by 25 per cent in its 2019 and 2021 election platforms.
There have also been calls for Ottawa to increase the CPP death benefit, a one-time payment to, or on behalf of, a deceased CPP contributor’s estate. The benefit was reduced to $2,500 from $3,580 in 1998 and some argue the sum is too low, especially considering the recent surge in inflation.
Mr. Waters is also watching to see if Ottawa will put a career extension tax credit in place to incentivize seniors who want or need to continue working past the traditional retirement age. The move could help address Canada’s skills shortage while also helping seniors save more for retirement.
Mr. Waters also says there has been discussion about converting the caregiver tax credit into a refundable tax-free benefit.
He notes both tax credit ideas were in the recommendations put forward by the House of Commons Standing Committee on Finance in its report on pre-budget consultations.
Wilmot George, head of tax, retirement and estate planning at CI Global Asset Management in Toronto, says seniors’ groups continue to push for a reduction in the required annual percentage that must be withdrawn from registered retirement income funds (RRIFs).
“This change would allow seniors to continue to have more of their assets invested in tax-deferred vehicles instead of being forced to draw down certain amounts,” Mr. George says.
Many would also like to see an increase in the age at which registered retirement savings plans (RRSP) must be converted to RRIFs. Currently, the conversion has to happen at the end of the year when RRSP holders turn 71.
Mr. George says another possible incentive could be an increase in the maximum RRSP contribution limit above 18 per cent of earned income – and an increase in the related dollar limit, which is $31,560 in 2024.
“That would certainly help to encourage retirement savings,” Mr. George says. “The government has heard these proposals before. Whether or not it decides to move on them, we’ll have to wait and see.”
Relief for small businesses
Last year’s federal budget also proposed tax changes to support the creation of employee ownership trusts to make selling a business to employees more attractive. Mr. Waters says many are watching to see if Ottawa will provide details on a proposal in its fall economic statement to provide a $10-million capital gains exemption on the sale of a business to an employee ownership trust.
Mr. George says an increase in the small business deduction threshold would be a “nice to have” for business owners in the upcoming budget. Today, Canadian-controlled private corporations pay less federal corporate tax on business income below $500,000. Mr. George says small business owners are looking for a higher threshold to account for rising costs in recent years.
That could also come with an increase in the passive income threshold beyond $50,000. Business owners can lose access to their small business tax rate due to significant passive income – such as income from investments in the stock market or real estate – that goes beyond that threshold in a given year.
Meanwhile, Mr. Ernewein says there’s a suite of “green” investment tax credits pending from the federal government in areas such as clean technology, carbon capture utilization and storage (CCUS), clean hydrogen production, clean technology manufacturing and clean electricity.
“There’s a lot of interest by the business community to have at least some of those in place – enacted and accessible,” he says.
Mr. Ernewein notes that legislation to implement the clean technology and CCUS credits is in the budget bill currently before Parliament, while others will take more time to implement.
A recent KPMG survey shows that nine out of 10 Canadian business leaders want Ottawa to make all previously announced green tax incentives available and provide more support for their climate financing needs.
“Enactment of the legislation makes the credits more tangible and enables business owners to start doing the hard planning and modelling to determine investment returns,” Mr. Ernewein says.
He says the budget isn’t likely to include updates on the government’s review of the Scientific Research and Experimental Development (SR&ED) tax credit or of a “patent-box” incentive regime that would offer companies a lower tax rate on gains from intellectual property developed in Canada.
Mr. Ernewein notes the period for those two consultations ends the day before the budget will be delivered. However, the budget could promote the government’s interest in these consultations.
Some long shots worth mentioning
Every year there’s speculation that Ottawa could increase the capital gains inclusion rate, which is the amount of capital gains from the sale of investments subject to tax. Another often-discussed pre-budget topic is a GST increase.
Mr. George says both seem unlikely to appear in this year’s budget given that another federal election is expected in 2025.
“These are broad-based tax increases that I’m not so sure the government wants to engage so close to an election,” he says.
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