If you, like many analysts, were expecting the new federal budget to specify a date for the return to a balanced budget, the answer is: not quite, but almost. In fact, without setting a target date, Finance Minister Chrystia Freeland is anticipating a rapid decline in federal deficits to about $8.4 billion in 2026-2027. Remember that in 2020-2021, when we were deep in the pandemic, the deficit rose to $327.7 billion. So, as a percentage of gross domestic product (GNP), the deficit will go from 14.9% in 2020-2021 to 0.3% in 2026-27, while the federal debt will drop from 47.5% to 41.5% of GDP.
Many will see signs of a pandemic recovery in these forecasts, and perhaps also in the type of measures being put forward. In fact, these are now aimed at issues that have less to do with COVID-19 and more with the emerging inflationary context, where the cost of some goods and services is raising concerns. In particular, a number of provisions focus on access to home ownership.
Here are seven of the most notable measures.
1. A TFSA for houses
The budget proposes to introduce, as of 2023, a new “Tax-Free First Home Savings Account” or, in other words, a real estate TFSA. This would allow individuals over the age of 18 to save up to $8,000 a year to a maximum of $40,000 towards the purchase of a first home. This account will share some features with both registered retirement savings plans (RRSP) and tax-free savings accounts (TFSA): contributions can be deducted from income (as with an RRSP), withdrawals will be tax free (as with a TFSA) and, between deposit and withdrawal, savings will be fully tax-sheltered as they accrue. The saver will have 15 years to withdraw the funds to use for a first home purchase or, at that point, could transfer unused funds into an RRSP. Note that an individual would only be eligible for one “TFSA” of this type in their lifetime, and it cannot be combined with the Home Buyers’ Plan (HBP).
2. An enhanced tax credit
If you are planning to buy a home in the short term, this new plan might be too late for you, in which case the HBP may remain your best option. However, you might be interested to note that another housing-related measure could be useful. The Freeland budget proposes to double the First-Time Home Buyers’ Tax Credit amount to $10,000. This enhanced credit would provide up to $1,500 in direct support to home buyers, and would apply to homes purchased on or after January 1, 2022.
3. Yes to new housing, no to speculation
Still on the subject of home ownership, the government announced an extension to March 31, 2025, of its First-Time Home Buyer Incentive, which allows eligible first-time home buyers to lower their borrowing costs by sharing the cost of buying a home with the government. On the other hand, however, if you were counting on “flipping” by buying a property and then quickly selling it again at a profit, be aware that this practice will now be penalized by new tax measures: essentially, with some exceptions, you will no longer be able to claim the principal residence exemption. Similarly, the government is planning to restrict foreign investment in Canadian property, something it suggests may ease inflationary pressure in the real estate market.
4. Help for affordable housing
For individuals looking to rent rather than own, the budget proposes to provide $4 billion over five years, starting in 2022-2023, to build 100,000 new housing units. In the shorter term, there is also a provision of $475 million in 2022-23 to give a one-time $500 payment to those facing housing affordability challenges. Specific programs are also proposed for Indigenous communities. As well, the government intends to introduce a Multigenerational Home Renovation Tax Credit, which would provide up to $7,500 in support for constructing a secondary suite.
5. Money for teeth
Health care, and especially dental care, is another high-profile component of the Freeland budget, which provides funding of $5.3 billion over five years to offer free dental care to Canadian families. More specifically, the government is planning to cover the cost of dental care for under-12-year-olds starting in 2022, and then expand to under-18-year-olds, seniors, and persons living with a disability in 2023. In 2024 and 2025, partial coverage will be extended to all other Canadian families with an income of less than $90,000, with a co-pay component for those whose annual income is above $70,000. Details of this program, which will cost $5.3 billion over five years, are to be released at a later date.
6. Zero-emission vehicles: the credit continues
If you’re planning to buy a new vehicle, note that the federal incentive program for zero-emission vehicles has been extended by five years, plus eligibility has been broadened to include vans, trucks, SUVs and heavy-duty vehicles. This program has offered Canadian taxpayers purchase incentives of up to $5,000 for eligible electric vehicles since 2019.
7. A boost for small business
Lastly, if you head a small or medium-sized company, you might be interested in the fact that the small business deduction, which gives you a reduced tax rate on the first $500,000 of income, may now continue to apply even if your taxable capital employed in Canada exceeds $15 million. Instead of disappearing at that threshold, it will be phased out gradually until taxable capital reaches $50 million. On another front, if you run a business and, like many employers, find yourself grappling with a labour shortage, you might want to check out the sections of the budget plan devoted to this issue. The government is proposing a number of measures, notably for the health care and construction sectors.
For more details about the budget provisions, feel free to read the documentation published by the government! You’ll find it here.
The following sources were used to prepare this article :
Financial Post, “The federal budget in 60 seconds.”
Government of Canada, “Budget 2022.”
La Presse, “Stimuler les investissements des entreprises.”
Le Devoir, “Que retenir du budget 2022 du Canada ?”
Les Affaires, “Budget: la pénurie de main-d'œuvre dans la mire du fédéral.”
Radio-Canada, “Budget Freeland : Ottawa mise sur les véhicules et les technologies vertes”; “Budget Freeland : une bouée de sauvetage aux acheteurs d’une première maison.”
The Globe and Mail, “Federal Budget 2022”; “Here’s how the 2022 federal budget affects homebuyers and consumers.”