The 2023 federal budget is just around the corner. What new tax measures can we expect to see from Finance Minister Chrystia Freeland? Without a crystal ball, we are left with educated guesses, informed speculation and, in some cases, open questions. Here, we take a look at what the budget may hold and break down some possible outcomes.

Capital gains vs. dividends

With the significant effective tax rate spread between dividends and capital gains, various tax plans are currently being utilized to extract corporate surplus through capital gains. The Department of Finance has publicly expressed its concern this does not align with Canadian tax policy. Without concurrence from our judicial system, the Department of Finance is left with amending the Income Tax Act.

Will we see a new legislative anti‑avoidance provision in Budget 2023 specifically curtailing this type of planning? Will the government introduce the anticipated amendments in response to Bill C‑208, and will such amendments go beyond just narrowing the scope of the intergenerational transfer rules? Will the government, under the confidence and supply agreement, concede to the New Democratic Party’s (NDP) 2021 campaign promise and increase the capital gains inclusion rate to 75 per cent?

Response to Bill C‑208

It is unknown if the government will provide its legislative amendments to Bill C‑208 in the budget. However, we do know the government remains committed to bringing forth legislation to preserve these provisions while protecting the integrity of the tax system.

Wealth tax

While the government has not taken a position on implementing a wealth tax, the NDP has previously stated it would implement a wealth tax if elected. With the government looking for new revenue sources and possibly needing NDP support to pass the budget, could the wealth tax be on the negotiation table?

Cryptocurrency

Reporting and taxation of cryptocurrency has become a taxation policy concern for most jurisdictions. With the Organisation for Economic Co-operation and Development’s release of the Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard in October 2022, will Budget 2023 introduce new reporting and/or taxation measures for cryptocurrency in Canada?

Home office

As the pandemic has changed work environments, we have seen the government administratively modify the home office deduction requirements for the past two years. With new remote working arrangements being implemented by many employers, will Budget 2023 provide further administrative concessions, make legislative amendments or return to the status quo?

Expected tax measures

Based on comments from the Department of Finance at the 2022 Canadian Tax Foundation Annual Tax Conference, we can expect to see the following measures in Budget 2023:

• Introduction of investment tax credits related to clean technology, including hydrogen, with an effective date after the budget release
• Commentary related to a Scientific Research and Experimental Development (SR&ED) review to ensure an efficient system with adequate support
• A two per cent tax on public company share buybacks, with an effective date of Jan. 1, 2024
• An update on Alternative Minimum Tax (AMT) proposed changes

Possible tax measures

Based on outstanding tax measures identified in the 2021 Minister of Finance mandate letter, we could expect to see some of the following in Budget 2023:

• Home Appliance Repairs Tax Credit for the cost of home appliance repairs performed by technicians up to $500 (maximum credit of $75)
• Career Extension Tax Credit for individuals aged 65 and over who earn a minimum working income of $5,000 (maximum credit of $1,650; reference is also made to reducing a portion of tax payable on this income)
• Establishment of a minimum 15 per cent tax rule for top‑bracket earners,  possibly as part of the AMT proposed changes or a new provision
• An update on the General Anti‑Avoidance Rule (GAAR) consultation; the mandate letter makes specific reference to aligning the GAAR with a focus on economic substance
• A disclosure requirement for landlords to disclose pre‑ and post‑renovation rents, and introduce a surtax on excessively increased rent
• A one‑time income tax deduction for new health care professionals who set up practice in rural communities
• Conversion of the Canada Caregiver Credit to a refundable tax‑free benefit

As the government faces increasing challenges, it will be interesting to see what tax measures will be introduced in 2023. For a complete analysis of the budget, join Baker Tilly Budget Watch here.