The priorities for the 2023 Canadian Federal Budget, as stated by Finance Minister Chrystia Freeland, are spending on healthcare, green energy, and a sustainable fiscal plan for what is expected to be a challenging year. With the Bank of Canada expecting the economy to post near-zero growth in the coming quarters, any significant increases in spending could be received as stimulus and could present a headwind for the Bank of Canada in pursuit of a 2% inflation target.
Healthcare – The Federal Budget is expected to include funding ($46.2 billion estimated over the next decade) from the federal government to provincial governments. Federal Government Funding is conditional based on shared priorities between the federal government and provinces. Bilateral agreements will be negotiated with each province outlining priorities for that province. For example, Ottawa proposes a 5% annual increase to the Canada Health Transfer (CHT). The additional money is applied to four specific areas: family health service, health workers and backlogs, mental health and substance abuse, and a modernized health system. To be granted additional monetary resources, each province must improve how health data is collected, shared, used, and reported to Canadians. The goals are to improve the management of public health emergencies and the transparency of the results.
Clean Economy – In response to the US’s recent $300 billion IRA climate bill and the $1 trillion infrastructure bill, if Canada wants to be a leader or keep pace with the US in green energy, then Canada must commit investment to green infrastructure. This commitment to green energy infrastructure is in addition to the $200 billion Invest in Canada Plan of 2016. What is expected is an investment in green energy through business and household retrofitting policies, tax credits for green energy technology transition, and subsidies for green-oriented infrastructure development (EV charging stations), battery production, public transit, and modernization of the Canadian electricity grid for renewables. In addition, many initiatives require partnering with provincial governments to upgrade efficiencies of residential buildings, low-income housing, and Indigenous communities.
- The affordability crisis in housing: The budget may contain tax credits for first-time home buyers, rent-to-own in instances where landlords sign an agreement to transfer to the renter at some specific time, and a new savings account for a first home purchase.
- Share buybacks: The budget may include a 2% corporate tax on the net value of all share buybacks by public corporations.
- Strengthening GAAR: There may be the introduction of changes that limit aggressive tax planning and avoidance by individuals and businesses.
- Scientific Research and Experimental Development: We could see changes to simplify the process.
- Employee Ownership Trust: The Canadian budget may include a dedicated employee ownership trust (EOT) under the income tax act to encourage employee ownership of businesses. Under the EOT, employees are gifted shares held in trust, and the owners receive compensation for selling shares out of the profits.
- GST/HST: Canadians could expect an increase in the rate and the application of the tax to items currently exempt.
- There could be amendments to the intergenerational family business transfer rules to prevent surplus stripping.
- There could be assistance for individuals, such as:
- Enhancing the Canadian Worker’s Benefits.
- An increase in Old Age Security.
- One-time top-up to the Canada Housing Benefit.
- Doubling the GST credit.
- Increasing climate action incentive payments.
- There is the possibility for changes to:
- Increase the capital gains inclusion rate to 75%.
- Reduce the dividend tax credit.
- Reduce the interest deductibility for large corporations.
If you have any questions about how these proposed budget changes may affect you, please don’t hesitate to contact us.
Warren Gerow is an independent investment wealth consultant at Sightline Wealth Management.
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