Welcome to a special episode of the Soundbites podcast, brought to you by Investment Executive and powered by Canada Life. We’re coming to you later in the week than normal to bring you immediate reaction to yesterday’s federal budget. Here to comment is John Yanchus, tax and estate planning consultant with Canada Life. John offered his views on significant housing market reforms, heftier taxes on banks and life insurers, and what was not included in the budget. But we started with his first impressions.

John Yanchus (JY): This year’s federal budget didn’t introduce measures that directly impact life insurance products, living benefits or wealth products specifically, but there were various proposed tax measures, both impacting individuals and businesses. With high inflation, a hot housing market, and the war in the Ukraine as its backdrop, the Liberal-NDP government’s 2022 budget focused on affordability, housing, defence and reconciliation with indigenous communities.

Efforts to reform the housing industry.

JY: The 2022 federal budget had a huge focus on housing in general, but more specifically in five different areas. The first area focused on savings. This provided financial help to individuals in the form of a new tax-free first home savings accounts. This will give first-time homebuyers the ability to save up to $40,000. Contributions would be tax deductible, and withdrawals to purchase a first home would be tax free. Investment growth inside the FHSA would be tax free as well. The second area is an anti-flipping tax. The budget introduces new tax rules so that any person who sells a property that they have held for less than 12 months would be subject to full taxation on their profits as business income. The principal residence exemption would also be unavailable under the new rules. Exemptions would apply for Canadians who sell their home due to certain life circumstances. The third area provides restrictions on foreign buyers. This will prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational residential property in Canada for a period of two years. The fourth area are tax credits. We have enhancements to existing tax credits to support first-time home buyers, and a new tax credit to support home renovations for multi-generational homes. The last area of focus was on building. There are measures aimed at doubling housing construction over the next decade and making more affordable housing available. Combined, these efforts will address the under-supply of houses, and the over-demand which has put a strain on the economy and caused housing prices to increase out of reach of most Canadians.

Tax changes for banks and life insurers.

JY: According to the budget document, the pandemic resulted in the federal government spending more than $350 billion for the health and safety and direct support measures of Canadians. As a means of recovering a portion of these expenditures, the budget proposes that certain banks and life insurance companies need to pitch in more under the following measures, the first being a temporary Canada Recovery Dividend, under which banking and life insurers groups pay a one-time 15% tax payable over five years on taxable income above $1 billion for the 2021 taxation year. The second component is a permanent increase in the corporate income tax rate by 1.5% on the taxable income of banking and life insurance groups above $100 million, such that an overall federal corporate income tax rate above this threshold will increase from 15% to 16.5%.

What wasn’t included in this year’s budget.

JY: I always like to mention the widely speculated items that people expect to be included in the budget but were not addressed in the budget. So, an increase in the capital gain inclusion rate was not addressed in this budget. Any measures that affect the principal residence exemption for Canadian residents was not addressed. Measures targeting capital gains planning or a wealth tax was not included. These are all items that the financial industry are probably happy that the government did not address.

And, finally, what’s the takeaway for money managers and financial advisors?

JY: If you look down to the advisor or the client level, there probably isn’t much here. I mean, you might have advisors helping first-time home buyers, that type of thing. But there’s nothing on funds, there’s nothing on personal tax rates, there’s nothing on corporate tax rates. So, I think it’s pretty uneventful for financial advisors and for clients.

Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to John Yanchus of Canada Life. Next week, we’ll be back in our normal Wednesday spot at investmentexecutive.com. Thanks for listening.


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Read more from John Yanchus:

INSIGHTS: Canada’s 2022 Federal Budget

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