Below the glossy surface of help to first time buyers and tax incentives for investing in clean energy, the 2022 Federal Budget has made some substantial moves that will impact wealthy Canadian families, many of whom are first generational wealth and small business owners. With the fragility of the Liberal-NDP coalition hanging in the balance, Singh will continue to pressure Prime Minister Trudeau to do more, opening up the landscape for a string of future measures aimed at Canada’s wealthy 1 per cent.
The following measures introduced in the budget may be of interest to wealthy families and business owners concerned for the future of their estates:
Plans to reveal a tax on high-income earners
After previously raising taxes on the wealthiest one per cent of Canadians, the government is now setting their sights on high-income Canadians who they believe are not paying enough income tax.
“28 per cent of filers with gross income above $400,000 pay an average federal PIT [Personal Income Tax] rate of 15 per cent or less, which is less than some middle-class Canadians pay.” As such, “…a new minimum tax regime…will go further towards ensuring that all wealthy Canadians pay their fair share of tax,” the budget reads.
The government has indicated its plans to reveal these important tax measures impacting wealthy Canadians in its 2022 fall economic and fiscal update.
Tax on Banks and Life Insurers means increased costs for customers and shareholders
In addition to putting wealthy Canadians on notice, the government is going after insurance companies and banks, with a one-time 15 per cent tax on income earned during 2021 tax year titled the “Canada Recovery Dividend’, as well as a permanent 1.5 per cent increase of corporate income tax. The squeeze on financial institutions to help pay for the recovery are popular politically. What does this mean for you? Economists and representatives in the finance world warn that the cost will pass on to customers and shareholders.
Higher tax rates on taxpayers and CCPCs until changes to GAAR are ironed out
Another change of note is the strengthening of the general anti-avoidance rule (GAAR), which aims to prevent abusive tax avoidance transactions. Budget 2022 “proposes to amend the Income Tax Act to provide that the GAAR can apply to transactions that affect tax attributes that have not yet been used to reduce taxes.” This leaves considerable uncertainty regarding the type of transaction that could impacted, the scope and reach of GAAR itself, and thus will take years to clarify via litigation. In the meantime, the likely consequences will be that taxpayers and CCPCs will have to pay the higher tax rates or pay substantial interest charges while the rules are clarified.
No relief in sight for business owners in relation to inter-generational transfers…
Many small business owners and their advisors hoped the budget would provide the further clarification required with regard to Bill C-208, which deals with the inter-generational transfer issue facing family businesses. Frustratingly, the government is proposing another consultation before it can offer further explanation.
…although, good news for business owners too, with the phase out of small business tax
The budget proposes to phase out access to the small business tax rate gradually, with access to be fully phased out when taxable capital reaches $50 million, rather than at $15 million. This should reduce disincentives for businesses to grow beyond $10 million.
Accounting for the above, how can you protect your wealth and estate for the future?
MacMillan Estate Planning’s team of in-house lawyers, accountants and financial planners have an arsenal of innovative solutions and tax minimization strategies available to families, helping to protect and preserve your wealth. If you think the 2022 Budget impacts you, please take advantage of our complimentary consultations; call us or email us: 1-833-266-6464 / inquiry@macmillanestate.com to learn more.
