The Liberal Government released the 2023 Federal Budget on Tuesday. Here are some of the highlights from the announced budget.

Personal Tax Measures

The Grocery Rebate

The Goods and Services Tax Credit (GSTC) helps to offset the impact of the GST on low- and modest-income individuals and families. The GSTC is non-taxable, income-tested, and indexed to inflation. Budget 2023 proposes to introduce an increase to the maximum GSTC amount for January 2023 that would be known as the Grocery Rebate. Eligible individuals would receive an additional GSTC amount equivalent to twice the amount received for January. The Grocery Rebate would be paid as soon as possible following the passage of legislation, through the GSTC system. The maximum amount under the Grocery Rebate would be $153 per adult; $81 per child; and $81 for the single supplement.

Deduction for Tradespeople’s Tool Expenses

Under the deduction for tradespeople’s tool expenses, a tradesperson can claim a deduction of up to $500 of the amount by which the total cost of eligible new tools acquired in a taxation year as a condition of employment exceeds the amount of the Canada Employment Credit ($1,368 in 2023). The total cost of eligible new tools cannot exceed the total of the employment income earned as a tradesperson and any apprenticeship grants received to acquire the tools, which are required to be included in income. Budget 2023 proposes to double the maximum employment deduction for tradespeople’s tools from $500 to $1,000, effective for 2023 and subsequent taxation years.

Registered Education Savings Plans

The Income Tax Act requires that RESPs place limits on the amount of EAPs that can be withdrawn. For beneficiaries enrolled full-time (i.e., in a program of at least three consecutive weeks’ duration requiring at least 10 hours per week of courses or work in the program), the limit is $5,000 in respect of the first 13 consecutive weeks of enrollment in a 12-month period. For beneficiaries enrolled part-time (i.e., in a program of at least three consecutive weeks’ duration requiring at least 12 hours per month of courses in the program), the limit is $2,500 per 13-week period.

Budget 2023 proposes to amend the Income Tax Act such that the terms of an RESP may permit EAP withdrawals of up to $8,000 in respect of the first 13 consecutive weeks of enrollment for beneficiaries enrolled in full-time programs, and up to $4,000 per 13-week period for beneficiaries enrolled in part-time programs. These changes would come into force on Budget Day.

Allowing divorced or separated parents to open joint RESPs

At present, only spouses or common-law partners can jointly enter into an agreement with an RESP promoter to open an RESP. Parents who opened a joint RESP prior to their divorce or separation can maintain this plan afterwards but are unable to open a new joint RESP with a different promoter. Budget 2023 proposes to enable divorced or separated parents to open joint RESPs for one or more of their children, or to move an existing joint RESP to another promoter. This change would come into force on Budget Day.

Registered Disability Savings Plans (RDSPs)

Registered Disability Savings Plans (RDSPs) are designed to support the long-term financial security of a beneficiary who is eligible for the disability tax credit. Where the contractual competence of an individual who is 18 years of age or older is in doubt, the RDSP plan holder must be that individual’s guardian or legal representative as recognized under provincial or territorial law.

As a result of the challenges in appointing a legal representative, the Finance Department introduced a temporary measure, which is set to expire on December 31, 2023, allowing a qualifying family member (QFM), who is a parent, spouse or common-law partner, to open an RDSP and be the plan holder for an adult whose capacity is in doubt, and who does not have a legal representative.

Budget 2023 proposes to extend the qualifying family member measure by three years, to December 31, 2026. A qualifying family member who becomes a plan holder before the end of 2026 could remain the plan holder after 2026.

In addition, the budget also proposes to broaden the definition of “qualifying family member” to include a brother or sister of the beneficiary who is 18 years of age or older.

Retirement compensation arrangements (RCAs)

As a result, the budget proposes that fees or premiums paid for the purposes of securing or renewing a letter of credit (or a surety bond) for an RCA will not be subject to the 50% refundable tax, beginning on or after March 28, 2023.

For retirement benefits paid after 2023 from employer’s corporate revenues to employees that had RCA benefits secured by letters of credit (or surety bonds), the budget proposes to allow employers to request a refund of 50% of retirement benefits paid up to the amount of refundable taxes previously remitted.

Alternative minimum tax (AMT) for high-income earners

The alternative minimum tax (AMT) is a parallel tax calculation that allows fewer deductions, exemptions and tax credits than under the regular method of calculating income tax. AMT currently applies a flat 15% tax rate with a standard $40,000 exemption amount instead of the usual progressive rate structure. The taxpayer pays the greater of the AMT and regular tax. However, any additional tax paid as a result of AMT can be carried forward for seven years and credited against regular tax to the extent regular tax exceeds AMT in those years.

To better target the AMT to high-income individuals, the 2023 budget proposes several changes to the tax preferences (exemptions, deductions and credits) resulting in more high-income taxpayers being exposed to AMT. Some of the key design features of the new AMT regime are summarized below, with more details becoming available later this year.

• AMT capital gains inclusion rate will increase to 100% (from 80%), while capital loss carry-forwards and allowable business investment losses would apply at 50%.
• 100% inclusion of any stock option benefit will be included in the AMT base.
• Donation of publicly listed securities will include 30% of capital gains from those donations.
• Several deductions applied to AMT will be reduced from 100% to 50%.
• Only 50% of most non-refundable tax credits would be allowed to reduce the AMT (from 100%).
• The AMT exemption will increase from $40,000 to the start of the fourth federal tax bracket (approximately $173,000 for 2024) and indexed to inflation.
• The AMT rate will increase from 15% to 20.5%.
• AMT carry-forward will remain at seven years.
• No announcement yet as to whether certain trusts will be subject to AMT.

These changes would come into effect for taxation years beginning after 2023. The impact of these changes will be that more high-income earners will be subject to the new AMT regime.

Alternative minimum tax (AMT) for high-income earners

To better target the AMT to high-income individuals, the 2023 budget proposes several changes to the tax preferences (exemptions, deductions and credits) resulting in more high-income taxpayers being exposed to AMT. Some of the key design features of the new AMT regime are summarized below, with more details becoming available later this year.

• AMT capital gains inclusion rate will increase to 100% (from 80%), while capital loss carry-forwards and allowable business investment losses would apply at 50%.
• 100% inclusion of any stock option benefit will be included in the AMT base.
• Donation of publicly listed securities will include 30% of capital gains from those donations.
• Several deductions applied to AMT will be reduced from 100% to 50%.
• Only 50% of most non-refundable tax credits would be allowed to reduce the AMT (from 100%).
• The AMT exemption will increase from $40,000 to the start of the fourth federal tax bracket (approximately $173,000 for 2024) and indexed to inflation.
• The AMT rate will increase from 15% to 20.5%.
• AMT carry-forward will remain at seven years.
• No announcement yet as to whether certain trusts will be subject to AMT.

These changes would come into effect for taxation years beginning after 2023. The impact of these changes will be that more high-income earners will be subject to the new AMT regime.

Corporate Tax Measures

• Bill C-208 refined with additional safeguards for genuine intergenerational business transfer from parents to children.
• Several tax credits and other incentives introduced for businesses producing and manufacturing clean energy.
• Public corporations subject to a new 2% tax on equity issuance and repurchases.

 
Other measures proposed in the budget include the following:

• Budget 2023 confirms that financial institutions will be able to start offering First Home Savings Accounts (FHSA) beginning April 1, 2023.
• Budget 2023 proposes to temporarily cap the inflation adjustment for excise duties on beer, spirits and wine at 2%, for one year only, as of April 1, 2023.
• The number of eligible Canadians that may auto-file their tax returns will triple to approximately 2 million by 2025.
• Canada Student Grants will increase by 40%, up to $4,200 for full-time students.
• Raising the interest-free Canada Student Loan limit from $210 to $300 per week of study.
• Increase the number of students eligible for federal aid by 1,000 by waiving the requirement for students aged 22 or older to undergo credit screening to qualify for federal student grants and loans.
• Budget 2023 commits funding to modernize the OAS IT infrastructure.
• Introduction of the new Dental Care Plan, providing dental coverage for uninsured Canadians with annual income of less than $90,000 by the end of 2023.
• Budget 2023 announced that the government has secured commitments from Visa and Mastercard to lower fees for small businesses.
• Budget 2023 announced the government’s intention to reduce junk fees for Canadians, including higher telecom roaming charges, event and concert fees, excessive baggage fees and unjustified shipping and freight fees.