This article was written by Brad Berry, CPA,
MOWBREY GIL
in the Canadian News Quarterly, a newsletter published by the Canadian member firms of
Moore North America
. This article on the deductions that can be made from the letter to Canada’s Minister of Finance, is part of our
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One of the most common questions asked of tax professionals is, “What’s next?” Typically, this question is answered with a crystal ball quip or general theories about the current government’s goals and the tools it might use to achieve them. However, on December 16, 2021, Prime Minister Justin Trudeau constructively outlined his expectations (and presumably those of the current government) of Canada’s Finance Minister Freeland and the Department of Finance. The full letter can be found here.
Excerpts from the letter to the Minister of Finance
The other tax experts in the room will join me in turning immediately to the tax policies described in the letter.
- Increase the corporate income tax payable by banks and insurance companies earning more than $1 billion, and require them to pay a Canadian adjustment dividend;
- Establish a minimum tax of 15% on the highest incomes;
- Tax luxury cars, boats and planes;
- Invest in the Canada Revenue Agency to pursue aggressive tax planning and avoidance;
- Modernize the General Anti-Avoidance Rule to focus on economic substance;
- Allow immediate amortization of $1.5 million in annual capital expenditures for certain asset categories.
The bill published belatedly on Friday February 4, 2022 contains several changes that relate directly to these stated objectives. These measures include :
- Enhanced mandatory disclosure rules to capture more transactions and, if not reported, extend the normal revaluation period, and automatically apply the General Anti-Avoidance Rule;
- Improved beneficial ownership reporting for trusts for year-ends after December 30, 2022;
- Restrictions on interest deductibility aimed primarily at cross-border corporate structures, capping interest deductions at 30% of earnings before interest, taxes, depreciation and amortization (EBITDA);
- Immediate depreciation of capital goods up to $1.5 million per year.
In addition to tax measures per se, much of the letter focuses on ways in which Finance could use a combination of tax credits and spending policies to advance the government’s social policies and initiatives, for example:
- Increase diversity by incorporating “…the diverse perspectives of Canadians” into the work of Finance Canada, including changes to the diversity requirements of the Canada Business Corporations Act;
- Fight climate change by expanding tax credits and deductions for “green” energy, appliance manufacturing and repair;
- Support a “Real Estate Fairness Action Plan”, including mandatory reporting of pre- and post-renovation rents to discourage “renovations”, an “anti-flipping” tax (renovating homes for quick resale), a tax on vacant or under-utilized housing, and a ban on blind bids and foreign investment capital in non-recreational residential property for the next two years;
- Several proposals concerning federally regulated financial institutions, including mandatory six-month deferral of mortgage payments in the event of stressful life events, lowering the criminal threshold for predatory interest rates, as well as reviewing bank fees and making adjustments if they are deemed excessive.
Without being a crystal ball, this letter gives an interesting insight into the mindset of our current government and how it intends to use tax policy to advance its economic and social agenda.
Deputy Prime Minister of Canada
The Honourable Chrystia Freeland is Canada’s Deputy Prime Minister and Minister of Finance. In July 2013, Ms. Freeland was elected Member of Parliament for Toronto Centre for the first time. She was then elected MP in University-Rosedale in October 2015 and re-elected in October 2019 and September 2021. Chrystian Freeland is Canada’s first female Finance Minister.
