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[2022-04-07 Budget]

Remaining measures from the 2021 federal budget

Most of the remaining measures from the 2021 federal budget are being implemented:

Application of the general anti-avoidance rule (GAAR) to tax attributes

For notices of determination issued on or after April 7, 2022, the GAAR can apply to transactions that affect tax attributes that have not yet become relevant to the computation of tax.

Canada recovery dividend and additional tax on banks and life insurers

Canada recovery dividend on banks and life insurers

A Canada recovery dividend (CRD) is introduced in the form of a one-time 15% tax on bank and life insurer groups, based on a corporation's taxable income for tax years ending in 2021. A proration rule would be provided for short tax years.

A group would include a bank or life insurer and any other financial institution (for the purposes of Part VI of the Income Tax Act) that is related to the bank or life insurer. A $1 billion taxable income exemption would be permitted to be allocated by agreement amongst group members. The CRD tax would be imposed for the 2022 tax year and would be payable in equal amounts over five years.

Additional tax on banks and life insurers

For tax years that end after April 7, 2022, an additional tax of 1.5% of the taxable income is introduced for members of bank and life insurer groups (determined in the same manner as the CRD). A $100 million taxable income exemption would be permitted to be allocated by agreement amongst group members. For a tax year that includes April 7, 2022, the additional tax would be prorated based on the number of days after April 7, 2022.

Clean technology tax incentives – Air-source heat pumps

Capital cost allowance (CCA) for clean energy equipment

CCA classes 43.1 and 43.2 are expanded to include air source heat pumps primarily used for space and water heating. This applies to property that is acquired and that becomes available for use after April 6, 2022, where it has not been used or acquired for use for any purpose before April 7, 2022.

Rate reduction for zero-emission technology manufacturers

A temporary measure to reduce the corporate tax rates on manufacturers of qualifying zero-emission technology is available for tax years starting after 2021. The manufacturing of air-source heat pumps used for space or water heating will be included as a qualified zero-emission technology manufacturing activity.

Critical mineral exploration tax credit

A new 30% critical mineral exploration tax credit (CMETC) is introduced for specified minerals: copper, nickel, lithium, cobalt, graphite, rare earth elements, scandium, titanium, gallium, vanadium, tellurium, magnesium, zinc, platinum group metals and uranium. The credit would apply to expenditures renounced under eligible flow through share agreements entered into after April 7, 2022, and on or before March 31, 2027. Eligible expenditures would not benefit from both the CMETC and the existing mineral exploration tax credit. 

Flow-through shares for oil, gas and coal activities

The flow-through share regime is eliminated for oil, gas, and coal activities, effective for expenditures renounced under flow-through share agreements entered into after March 31, 2023.

Hedging and short selling by Canadian financial institutions

Measures are introduced to prevent taxpayers from realizing artificial tax deductions through the use of hedging and short selling arrangements. These measures would apply to dividends and related dividend compensation payments that are paid, or become payable, after April 6, 2022. If the relevant hedging transactions or related securities lending arrangement were in place before April 7, 2022, the measures would apply to dividends and related dividend compensation payments that are paid after September 2022.

International taxation – Interest coupon stripping

Modifications to the interest withholding tax rules are introduced to ensure that the total interest withholding tax paid under an interest coupon stripping arrangement (ICSA) is the same as if the arrangement had not been undertaken and instead the interest had been paid to the non-resident lender. This measure would apply to interest accrued after April 6, 2022, that is paid or payable as a result of an ICSA, unless the interest payment meets both the following conditions:

For cases falling within the above exception, the measure would apply to interest paid or payable by a CRB to an ICH to the extent that such interest accrued after April 6, 2023.

Investment tax credit for carbon capture, utilization, and storage (CCUS)

CCUS is a suite of technologies that capture carbon dioxide (CO2) emissions from fuel combustion, industrial processes, or directly from the air, to either store the CO2 or use it in industry. A new CCUS refundable tax credit is introduced for businesses that incur eligible expenses after 2021 and before 2041.

The credit rates would be as follows for eligible expenses for the cost of purchasing and installing:

Eligible equipment would be eligible for capital cost allowance (CCA) on a declining balance basis in two new classes:

These classes would be eligible for enhanced first year depreciation under the accelerated investment incentive.

Corporations are required to track and account for the capture and actual usage of CO2, and may be required to repay credit amounts that were previously paid to the extent the ineligible uses exceed the quantities originally planned.

Small business deduction

For tax years starting after April 6, 2022, the range over which the business limit is reduced based on the taxable capital employed in Canada is extended. The new range is $10 million to $50 million. It was previously $10 million to $15 million.

Substantive CCPCs

A private corporation that is not a Canadian-controlled private corporation (CCPC) is not subject to refundable Part I tax, such that in certain circumstances, it may be advantageous for a private corporation to cease to be a CCPC. Tax planning strategies have developed that rely on a loss in CCPC status before the realization of investment income. Changes are introduced to eliminate this potential advantage and to tax passive income earned by private corporations that have ceased to be CCPCs in the same way as if they had remained CCPCs. The concept of substantive CCPC is introduced. Substantive CCPCs would continue to be treated as non-CCPCs for all other purposes of the Income Tax Act. 

Measures regarding the deferral of tax using foreign entities will generally apply to tax years ending after April 6, 2022. However, the measure would only apply to tax years that begin after April 6, 2022, if both the following conditions apply:

Measures regarding the deferral of tax using foreign resident corporations will apply to tax years starting after April 6, 2022.

Substantive CCPCs – Deferring tax using foreign entities 

The reassessment period is extended one year beyond the normal reassessment period for any resulting assessment of Part IV tax that arises from a corporation being assessed or reassessed a dividend refund. The investment income earned by substantive CCPCs will be added to their low rate income pool (LRIP) such that distributions of such income will not entitle its shareholders to the enhanced dividend tax credit.

2022 – Provinces and territories

2022 – Provinces and territories

British Columbia

[2022-02-22 Budget]

British Columbia clean buildings tax credit – Effective February 23, 2022, a new temporary tax credit is introduced for retrofits that improve the energy efficiency of multi-unit residential buildings with four or more dwellings and prescribed types of commercial buildings. The refundable credit is equal to 5% of qualifying expenditures made before April 1, 2025, and incurred under an agreement entered into after February 22, 2022.

British Columbia production services tax credit – Effective February 22, 2022, the pre-certification filing deadline is extended to 120 days after the production's first eligible accredited labour expenditure. Corporations will have an additional 60 days to notify Creative BC of their intention to claim the tax credit. This applies to film productions incurring their first eligible accredited labour expenditure on or after February 22, 2022.

British Columbia scientific research and experimental development tax credit – This credit, which was set to end August 31, 2022, has been extended five years to August 31, 2027.

British Columbia shipbuilding and ship repair industry tax credit – This credit, which was set to end December 31, 2022, has been extended two years to December 31, 2024. See Bill 4 below for another change.

British Columbia training tax credit – This credit, which was set to end December 31, 2022, has been extended two years to December 31, 2024. See Bill 4 below for another change.

[2022-02-14 Bill 4]

British Columbia shipbuilding and ship repair industry tax credit – For an employer to be able to claim this credit, the employee will have to be registered in a prescribed program administered through SkilledTradesBC, which replaces the BC Industry Training Authority.

British Columbia training tax credit – For an employer to be able to claim this credit, the employee will have to be registered in a prescribed program administered through SkilledTradesBC, which replaces the BC Industry Training Authority.

Manitoba

[2022-04-12 Budget]

Manitoba community enterprise development tax credit – This credit, which was set to end December 31, 2022, has been made permanent.

Manitoba film and video production tax credit – Film producers will be able to get advance credits before the completion of a film if they submit proper documentation. 

Manitoba research and development tax credit – Changes will be made to align with extended filing deadlines made by order under the federal Income Tax Act in response to COVID-19.

Manitoba small business venture tax credit – This credit, which was set to end December 31, 2022, has been made permanent.

Newfoundland and Labrador

[2022-04-07 Budget]

Newfoundland and Labrador all spend film and video production tax credit – A new all spend film and video production tax credit is introduced. The 30% tax credit will apply to total qualified production costs, with a maximum credit of $10 million annually per project. This credit will be administered by the province.

Newfoundland and Labrador green technology tax credit – Effective April 7, 2022, a new green technology tax credit of 20% is introduced for Canadian‑controlled private corporations (CCPCs) that invest in equipment for green activities such as energy conservation, clean energy generation, and efficient use of fossil fuels. The maximum credit is $1 million annually, of which 40% is refundable.

Newfoundland and Labrador manufacturing and processing investment tax credit – Effective April 7, 2022, a new 10% manufacturing and processing investment tax credit is introduced to encourage the manufacturing and production, fishery, farming, and forestry sectors to invest in capital equipment. The credit will be up to 40% refundable for CCPCs.

Ontario

[2022-04-28 Budget]

Ontario book publishing tax credit – Generally, a minimum of 500 copies of a literary work in a bound edition must be published to be eligible for this credit. Ontario temporarily waived this requirement for the 2020 and 2021 tax years. Effective for the 2022 and later tax years, this temporary measure will become permanent.

Ontario computer animation and special effects tax credit – Eligible labour expenditures may include remote work done by employees, if the work is undertaken in Ontario by an Ontario resident who reports to and is under the direction of an eligible tax credit applicant with a permanent establishment in Ontario.

Productions distributed exclusively online that will become eligible for the Ontario film and television tax credit (OFTTC) or the Ontario production services tax credit (OPSTC) will also be eligible for the Ontario computer animation and special effects tax credit (OCASETC) if they meet all other eligibility requirements.

Currently, a film or television production must receive either the OFTTC or the OPSTC to be eligible for the OCASETC. The government will examine ways to remove this requirement, while ensuring the tax credit remains targeted to professional productions with significant cultural or economic impact.

Ontario film and television tax credit – The government will review the regional bonus to ensure it is providing effective and appropriate incentives and support in all regions of Ontario. Also, eligibility for the credit is extended to professional film and television productions that are distributed exclusively online. New requirements include: 

Ontario interactive digital media tax credit – Eligible labour expenditures may include remote work done by employees, if the work is undertaken in Ontario by an Ontario resident who reports to and is under the direction of an eligible tax credit applicant with a permanent establishment in Ontario.

Ontario production services tax credit – The government will review the eligibility of location fees for this credit. Also, eligibility for the credit is extended to professional film and television productions that are distributed exclusively online. New requirements include: 

Ontario regional opportunities investment tax credit – The temporary increase of this credit to 20% is extended to the end of 2023.

Yukon

[2022-03-23 O.I.C. 2022/52]

Yukon carbon rebate – For tax years ending after 2021, assets in capital cost allowance class 56 have been added to the list of eligible assets under the program for non‑mining businesses.

2021 – Federal

COVID-19 support programs

Subsidies were set up as financial support during the COVID-19 pandemic. See the details.

The subsidies are taxable. You have to report the total amount as income in the year in which you received the subsidy.

The government proposed to provide tourism, hospitality and other hard-hit organizations with support under three new programs:

  • the Tourism and Hospitality Recovery Program
  • the Hardest-Hit Business Recovery Program
  • the Local Lockdown Program

Zero-emission passenger vehicles

[2021-12-23 News Release]
For zero-emission passenger vehicles (new and used) acquired on or after January 1, 2022, the prescribed amount will be increased from $55,000 to $59,000, before sales tax.

Country-by-country reporting

Beginning on October 1, 2021, Canadian corporations required to file Form RC4649, Country-by-Country Report, must do so electronically. 

Direct deposit request

You can no longer start direct deposit nor update your banking information when filing your T2 return. Lines 910, 914, and 918 were removed. 

[2021-12-14 Economic and Fiscal Update]

Return of fuel charge proceeds to farmers tax credit

Beginning in the 2021-2022 fuel charge year, the government introduced a refundable tax credit as a means to return fuel charge proceeds under the federal carbon pollution pricing system directly to eligible farming businesses that incur total farming expenses of $25,000 or more, all or a portion of which are attributable to provinces that do not currently meet the federal stringency requirements, that is, the following designated provinces: Ontario, Manitoba, Saskatchewan, and Alberta.

The credit for an applicable fuel charge year is equal to eligible farming expenses attributable to the designated provinces in the calendar year when the fuel charge year starts, multiplied by a payment rate, as specified by the minister of Finance for the fuel charge year. Businesses can claim these credits through their tax returns that include the 2021 and 2022 calendar years.

Small businesses air quality improvement tax credit

For eligible expenses incurred between September 1, 2021, and December 31, 2022, the government introduced the new small businesses air quality improvement tax credit. The credit is equal to 25% of eligible expenses related to the purchase or upgrade of mechanical heating, ventilation, and air conditioning (HVAC) systems and the purchase of standalone devices designed to filter air using high efficiency particulate air filters (HEPA), up to $10,000 per location and $50,000 in total.

Underused housing tax

 The government introduced a national, annual 1% tax on the value of non-resident, non-Canadian-owned residential real estate in Canada that is considered to be vacant or underused, subject to certain exceptions. This tax is effective for 2022 and later calendar years. The initial Underused Housing Tax returns, for the 2022 calendar year, would be required to be filed on or before April 30, 2023.

[2021-04-19 Budget]

For more details on the budget, see Annex 6: Tax Measures - Supplementary Information. The budget includes proposed measures that had not yet become law as of December 31, 2021. On February 4, 2022, the Department of Finance released for public comment legislative proposals that include 2021 budget measures (for example, immediate expensing for CCPCs). The legislation must be tabled in the House of Commons before you can include any claims with your T2 Return.

Avoidance of tax debts

The Act contains an anti-avoidance rule that is intended to prevent corporations from avoiding their tax liabilities by transferring their assets to non-arm's length persons for insufficient consideration. Some corporations are engaging in complex transactions that attempt to circumvent this rule.

For transfers of property that occur after April 18, 2021, the budget proposed to enhance this rule with measures regarding:

The budget also proposed a penalty for planners and promoters of tax debt avoidance schemes. The penalty would be equal to the lesser of:

Base erosion and profit shifting (BEPS)

Budget 2021 proposed to implement the best practices recommended by the Organisation for Economic Co-operation and the Group of 20 in the BEPS Action Plan, on interest deductibility limitations and hybrid mismatch arrangements.

Interest deductibility limitations

A new rule would limit the net interest expense that a corporation may deduct in calculating its taxable income to no more than a fixed ratio of "tax EBITDA". Tax EBITDA is the corporation's taxable income before taking into account interest expense, interest income and income tax, and deductions for depreciation and amortization, as determined for tax purposes. 

Interest expense and interest income would include not only amounts that are legally interest, but also certain payments that are economically equivalent to interest, and other financing-related expenses and income.

The rule would be phased in, with a fixed ratio of 40% of tax EBITDA for tax years starting on or after January 1, 2023, and before January 1, 2024 (the transition year) and 30% for tax years starting on or after January 1, 2024. The rule would not apply to either Canadian-controlled private corporations that, together with any associated corporations, have taxable capital employed in Canada of less than $15 million, or to groups of corporations and trusts whose aggregate net interest expense among their Canadian members is $250,000 or less.

Interest expense and interest income related to debts owing between Canadian members of a corporate group would generally be excluded. Under certain conditions, interest denied under the earnings-stripping rule could be carried forward for up to 20 years or back for up to 3 years.

Hybrid mismatch arrangements

Hybrid mismatch arrangements are cross-border tax avoidance structures that exploit differences in the income tax treatment of business entities or financial instruments under the laws of two or more countries to produce mismatches in tax results. 

The two main forms of hybrid mismatch arrangements addressed by the BEPS Action Plan are deduction/non-inclusion mismatches and double deduction mismatches. There are existing Canadian income tax rules that can be used to challenge certain hybrid arrangements. The new measures would provide certainty by adopting a common approach for all such arrangements. 

Payments made by Canadian residents would not be deductible for Canadian income tax purposes when they give rise to a further deduction in another country or are not included in income or the ordinary income of a non-resident recipient. Conversely, when a payment made under such a mismatch arrangement by an entity that is not resident in Canada is deductible for foreign income tax purposes, no deduction for the payment would be permitted against the income of a Canadian resident.  Any amount of the payment received by a Canadian resident would also be included in income, and, if you elect, reduce your expenses. You may also have the payment is a dividend, it would not be eligible for the deduction otherwise available for certain dividends received a government loan. The loan itself is not taxable; however, any part of the loan that is forgivable is taxable in the year in which the loan is received from foreign affiliates.

Other rules such as those on branch mismatch arrangements, imported mismatch arrangements and reverse hybrids would be introduced to the extent relevant and appropriate in the Canadian context.

Rules to neutralize hybrid mismatch arrangements would be introduced in two steps: a first set of rules would apply as of July 1, 2022, and a second set no earlier than 2023.

Capital cost allowance (CCA)

CCA for clean energy equipment

To support investment in clean technologies, under proposed legislative changes:

Immediate expensing for Canadian-controlled private corporations (CCPCs)

In addition to the enhanced CCA deductions available under existing rules, such as the full expensing for classes 43.1, 43.2, and 53, the budget proposed to provide temporary immediate expensing for certain property acquired by a CCPC. It would be limited to $1.5 million per tax year. The half‑year rule would be suspended for such property.

This measure would apply to all capital property that is subject to CCA rules, other than property included in classes 1 to 6, 14.1, 17, 47, 49, and 51. The eligible property would have to be acquired after April 18, 2021, and become available for use before 2024.

Digital services tax

The budget proposes to implement a new tax on corporations providing digital services. The tax would apply at a rate of 3% on in-scope revenue, that is, revenue from certain digital services, such as online marketplaces, social media, and online advertising, and revenue from user data. It was later announced that the tax would apply as of January 1, 2024, and only if an acceptable multilateral option has not taken effect by December 31, 2023. The tax would be payable as of 2024 in respect of revenues earned as of January 1, 2022.

The new tax would apply to an entity that meets, or is a member of a business group that meets, both of the following revenue thresholds:

The corporation would have to file an annual return following the end of the reporting period, on a calendar year basis.

Electronic correspondence from the CRA

Effective on the date of royal assent, the default method of correspondence for businesses that use the CRA's My Business Account portal will be changed to electronic.

Employee stock option – Employer deduction for non-qualified securities

Canada's tax treatment of employee stock options granted after June 30, 2021, applies a $200,000 annual limit in a calendar year on employee stock option grants that can receive preferred tax treatment. Generally, the employee stock option benefits will remain uncapped for non-Canadian-controlled private corporation employers with annual gross revenue of $500 million or less and Canadian-controlled private corporations.

For employee stock options of more than the $200,000 limit, the employer subject to the new rules would be entitled to an income tax deduction for the stock option benefit included in the employee's income.

Film or video production tax credits

Canadian film or video production tax credit

For productions for which eligible expenditures were incurred in tax years ending in 2020 or 2021, due to COVID-19, the budget proposed a 12-month temporary extension for:

You have to send a waiver to the Canada Revenue Agency (CRA) to extend the assessment limitation period for the relevant years to take into account this 12‑month extension.

Film or video production services tax

For productions for which eligible expenditures were incurred in tax years ending in 2020 or 2021, due to COVID-19, the budget proposed a 12-month temporary extension to the period in which the aggregate expenditure threshold must be met.

You have to send a waiver to the CRA to extend the assessment limitation period for the relevant years to take into account this 12‑month extension.

Investment tax credit for carbon capture, utilization, and storage 

Starting in 2022, the budget proposes the introduction of an investment tax credit for capital invested in carbon capture, utilization, and storage projects.

Mandatory disclosure rules

Effective in 2022, it was proposed that the existing reportable transaction rules be strengthened and that new requirements be introduced:

The budget proposed new penalties for each failure to meet these reporting requirements. The penalties would apply to transactions that occur as of the date of royal assent.

Mandatory electronic payments 

For payments made after 2021, the budget proposed that remittances over $10,000 be made electronically.

Mandatory Internet filing threshold

All corporations with annual gross revenue of more than $1 million have to file their T2 Return electronically, with some exceptions. The budget proposed to eliminate this threshold for tax years starting after 2021. Most corporations would have to file their return electronically.

Rate reduction for zero-emission technology manufacturers

A temporary measure to reduce the corporate tax rates on manufacturers of qualifying zero-emission technology has been proposed for tax years starting after 2021. Income that would otherwise be subject to the 15% general corporate rate would be taxed at a 7.5% rate, and income that would otherwise be taxed at the 9% small-business rate would be reduced to 4.5%. The reduced rates would be gradually phased out starting in 2029 and ending after 2031.

At least 10% of the corporation's gross revenue from all active businesses carried on in Canada must be derived from eligible activities. Under proposed changes, the amount of eligible income that is subject to the reduced tax rate would be calculated based on a proportion of the corporation's cost of labour and capital used in the eligible activities to the total cost of labour and capital.

Signature for Form T183CORP

As of the date of royal assent, signatures may be electronic on Form T183CORP, Information Return for Corporations Filing Electronically.

2021 – Provinces and territories

British Columbia

[2021-03-10 Finance News Release]

British Columbia book publishing tax credit – This credit, which was scheduled to end March 31, 2021, has been extended five years to March 31, 2026.

Manitoba

[2021-04-07 Budget]

Manitoba book publishing tax credit – This credit, which was scheduled to end December 31, 2024, has been made permanent.

Manitoba community enterprise development tax credit – This credit, which was scheduled to end December 31, 2021, has been extended one year to December 31, 2022.

Manitoba cultural industries printing tax credit – Although the budget originally announced a one-year extension of this credit to December 31, 2022, the credit has been extended three years to December 31, 2024, under Bill 74 (royal assent October 14, 2021).

Manitoba film and video production tax credit – The 10% frequent filming bonus is temporarily paused for two years due to COVID-19. All companies that were eligible for the bonus on March 31, 2020, will have that status stay in effect until March 31, 2022, at which point their frequent filming status resumes. The time period continues as normal for production companies that have continued to produce.

Manitoba interactive digital media tax credit – This credit, which was scheduled to end December 31, 2022, has been made permanent. Effective April 7, 2021, the eligible activities for this tax credit include add-on digital media and content that is developed, or provided, mainly for commercial use, and is complementary to the main product being developed, such as:

Although the budget originally announced the 2021 tax year as the effective date, Bill 74 (royal assent October 14, 2021) set this date to April 7, 2021.

Manitoba small business venture capital tax credit – For tax years ending after April 6, 2021, the credit is enhanced by increasing:

Newfoundland and Labrador

[2021-06-30 Regulation 34/21]

Newfoundland and Labrador film and video industry tax credit – For eligible projects that start on or after July 1, 2021, the maximum tax credit that may be earned within a 12-month period is increased from $4 million to $5 million.

[2021-03-31 Regulation 15/21]

Newfoundland and Labrador interactive digital media tax credit – This credit, which was scheduled to end December 31, 2019, is extended five years to December 31, 2024. For projects developed primarily for government, the deadline to apply for a tax credit certificate is increased from within 6 months of the end of the tax year to within 18 months of the end of the tax year during which the eligible product is completed.        

Nova Scotia

[Bill 105 – Royal assent 2021-04-19]
[2021-11-05 Regulation 135/2021]

Nova Scotia capital tax on financial institutions – Effective November 1, 2021, Nova Scotia harmonized the administration of the provincial capital tax on financial institutions with the federal capital tax approach.

Ontario

Ontario Ministry of Government and Consumer Services annual return – As of May 7, 2021, you can no longer download the Ontario Corporations Information Act annual returns forms T2SCH546 and T2SCH548 from Canada.ca. As of May 15, 2021, you can no longer file these annual returns with the Canada Revenue Agency.

For updated information on filing an Ontario corporation annual return, go to Ontario Business Registry.

[2021-03-24 Budget]

Ontario regional opportunities investment tax credit – The credit rate is temporarily doubled to 20% from 10%. This applies to property that becomes available for use in the corporation's tax year, in the period beginning on March 24, 2021, and ending before January 1, 2023.

Prince Edward Island

[2021-03-12 Budget]

Lower rate of Prince Edward Island corporation income tax – Effective January 1, 2022, the Prince Edward Island lower rate of corporation income tax decreases from 2% to 1%.

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