Deputy Prime Minister and Finance Minister Chrystia Freeland delivered the Fall Economic Statement 2023 (FES) in the House of Commons on Tuesday, Nov. 21, 2023.

The FES announced several new measures to incentivize the construction of new rental housing, such as:

• An additional $15 billion in new loan funding, starting in 2025‑26 for the Apartment Construction Loan Program (formerly known as the Rental Construction Financing Initiative)
• $1 billion over three years, starting in 2025‑26 for the Affordable Housing Fund to support non‑profit, co‑op and public housing providers
• An investment of $309.3 million in new funding for the Co‑operative Housing Development Program
• A new Canadian Mortgage Charter, to build on existing guidance and expectations for how financial institutions are to work with Canadians to provide relief and ensure payments are reasonable for borrowers

The key tax measures outlined in the FES are summarized below:

Sales and excise tax measures

Removing the GST from new co‑op rental housing: The FES announces co‑operative housing corporations that provide long‑term rental accommodation would also be eligible for the removal of the GST on new rental housing, provided the other conditions have been met. The measure does not apply when occupants have an ownership or equity interest.

Removing the GST from psychotherapy and counselling services: The FES proposes psychotherapists and counselling therapists be added to the list of health care practitioners whose professional services rendered to individuals are exempt from the GST/HST. This measure would apply on Royal Assent of the enacting legislation.

Joint venture election: To allow more participants in commercial joint ventures access to the simplification benefits of the joint venture election, new joint venture election rules are proposed. Key elements of these proposed rules include:

• Replacing the condition the joint venture activities must be eligible activities set out in the legislation or regulations with an all or substantially all commercial activities condition (within the meaning of the GST/HST legislation);
• Requiring all electing participants to be registered for GST/HST purposes; and
• Replacing existing deeming measures with revised deeming measures more precisely focused on tax accounting

The government is seeking stakeholders’ views and comments on coming into force considerations for the proposed new joint venture election rules, which are currently proposed to come into force on the day on which the act enacting the new rules receives Royal Assent.

Underused Housing Tax

In response to suggestions from Canadians about the implementation of the UHT, the government is proposing to make several changes to the UHT to help facilitate compliance, while ensuring the tax continues to apply as intended. These changes are described below:

• Elimination of filing requirement for certain owners: To reduce the UHT compliance burden in relation to Canadian entities, the government is proposing to make “specified Canadian corporations,” partners of “specified Canadian partnerships” and trustees of “specified Canadian trusts” “excluded owners” for UHT purposes. As excluded owners, these owners would no longer have UHT filing obligations. The government is also proposing to expand the definitions of “excluded owner,” “specified Canadian partnership” and “specified Canadian trust” to provide UHT filing and tax relief in respect of a broader range of Canadian ownership structures. These changes would apply in respect of 2023 and subsequent calendar years.
• Reduction to minimum failure to file penalties: The government is proposing to reduce the minimum penalties ⁠–⁠ per failure ⁠–⁠ to $1,000 for individuals and $2,000 for corporations. These changes would apply in respect of 2022 and subsequent calendar years.
• Exemption for certain employee accommodations: The government is proposing to introduce a new UHT exemption for residential properties held as a place of residence or lodging for employees. This exemption would be available in respect of residential properties located anywhere in Canada other than in a population center within either a census metropolitan area or a census agglomeration having 30,000 or more residents. This exemption would apply in respect of 2023 and subsequent calendar years.

Draft legislative and regulatory proposals relating to these proposed changes will be released for consultation in the draft legislation section of the Department of Finance website. Taxpayers can share their feedback on these proposals by emailing Consultation‑Legislation@fin.gc.ca by Jan. 3, 2024.

Business income tax measures

Cracking down on non‑compliant short‑term rentals: The FES announces that the federal government intends to deny income tax deductions for expenses incurred to earn short‑term rental income ⁠–⁠ including interest expenses ⁠–⁠ in provinces and municipalities that have prohibited short‑term rentals. The FES further announces the federal government intends to deny income tax deductions when short‑term rental operators are not compliant with applicable provincial or municipal licensing, permitting or registration requirements. These measures would deny all expenses incurred on or after Jan. 1, 2024.

Clean Hydrogen Investment Tax Credit: Budget 2023 proposed the Clean Hydrogen Investment Tax Credit (ITC) and announced the credit’s main design elements in respect of eligible projects, credit rates measuring carbon intensity, eligible equipment, verification and compliance. The FES proposes the details in respect of these design elements. The details include components that address:

• Eligible clean ammonia production equipment
• Power purchase agreements and other similar agreements
• Renewable natural gas
• Clarification on the initial project carbon intensity (CI) assessment and validation process; and
• Compliance requirements and recovery of tax credit amounts if you fall into a different tier

Clean Technology and Clean Electricity Investment Tax Credits ⁠–⁠ equipment using waste biomass to generate electricity and heat: The FES proposes to expand eligibility for:

• The 30 per cent Clean Technology Investment Tax Credit to include systems that produce electricity, heat or both electricity and heat from waste biomass. This expansion of the tax credit would be available to businesses investing in eligible property that is acquired and becomes available for use on or after the date of the 2023 FES.
• The 15 per cent Clean Electricity Investment Tax Credit to include systems that produce electricity or both electricity and heat from waste biomass, which would be available as of the date of Budget 2024 for projects that did not begin construction before March 28, 2023.

Employee ownership trusts: The FES proposes to exempt the first $10 million in capital gains realized on the sale of a business to an employee ownership trust (EOP) from taxation, subject to certain conditions. This incentive is proposed to be effective for the 2024, 2025 and 2026 tax years.

Canadian journalism labour tax credit: The 2023 FES proposes to increase the cap on labour expenditures per eligible newsroom employee from $55,000 to $85,000. It is further proposed the Canadian journalism labour tax credit rate be temporarily increased from 25 per cent to 35 per cent for a period of four years. As a result, organizations would be able to claim up to $29,750 in eligible labour costs per eligible newsroom employee per year. These changes would apply to qualifying labour expenditures incurred on or after Jan. 1, 2023. The credit rate would return to 25 per cent for expenditures incurred on or after Jan. 1, 2027. Transitional rules would apply to prorate these changes in cases where an organization’s tax year does not follow a calendar year.

Dividend received deduction by financial institutions ⁠–⁠ exception: The ITA permits corporations to claim a deduction in respect of dividends received on shares of other corporations resident in Canada. Budget 2023 proposed to deny the dividend received deduction in respect of dividends received by financial institutions on shares that are mark‑to‑market property. The 2023 FES proposes an exception to this measure for dividends received on “taxable preferred shares” (as defined in the ITA). This exception ⁠–⁠ along with the rest of the measure ⁠–⁠ would apply to dividends received on or after Jan. 1, 2024.

Concessional loans: In response to a Federal Court of Appeal decision, the 2023 FES proposes to amend the ITA to provide that bona fide concessional loans with reasonable repayment terms from public authorities will generally not be considered government assistance. This amendment would come into force on the date of the 2023 FES.

Personal income tax measures

A new employment insurance adoption benefit: The FES proposes to introduce a new 15‑week shareable EI adoption benefit.

Taxpayer information sharing for the Canada Dental Care Plan: the FES proposes to amend the ITA to provide legislative authority for the Canada Revenue Agency (CRA) to share taxpayer information with the official of Public Services and Procurement Canada solely for the purposes of the administration or enforcement of the Canada Dental Care Plan. These amendments will come into force upon Royal Assent.

International tax measures

International shipping: To ensure consistency with international tax norms, as well as greater consistency between the international shipping provisions of the ITA and the proposed new Global Minimum Tax Act, it is proposed to make the exemption for international shipping income in the ITA generally available to Canadian resident companies. This would allow shipping companies with management in Canada to continue their operations in line with both the Pillar Two international shipping exclusion and the exemption in the ITA. This measure would also effectively remove the incentive the current tax rules create for shipping companies with management in Canada to incorporate and carry on certain international shipping activities in foreign jurisdictions. This measure would apply to taxation years that begin on or after Dec. 31, 2023.

Contact your Baker Tilly tax advisor for more details.

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