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Federal budget 2022 – What DIY investors need to know

Hello, DividendStrategy.ca community!  As I write this, the sun is shining through my window, the branches of our big pine tree are bouncing in the warm breeze, and robins fat with eggs are hopping over the wet ground looking for nesting material.  Spring has arrived and so has the federal budget announcement.  

It can be hard sifting through the news for the bits and pieces relevant to your situation, so I thought I’d do that work for you.  Here is what Canadian DIY investors need to know about the 2022 budget.

We were all a little worried . . .

Just like the robins, most of us are also concerned with our nest eggs.  Given the pandemic spending and uncertain state of affairs, there was a lot of worry that high-income earners and investors would be hit with additional taxes.  For the most part, that does not seem to be the case.

Perhaps even more important than new measures is what is staying the same.

What has NOT changed

Capital gains inclusion rate

Twenty-two years ago, in the year 2000, the capital gains inclusion rate was lowered from 75% to 50% – i.e. only half of realized capital gains are taxable.  An increase in this rate has been rumoured for years, but with the massive deficits that have been run up during the pandemic, it was widely speculated that this would be the year.  Good news – no change in capital gains tax.

Principal residence exemption

It’s no secret Canada’s housing market is on fire. Unlike other investments where your profits (capital gains) are taxable, if you sell your principal residence for a profit, all those gains are yours to keep.  That has not changed with this budget: the principal residence exclusion remains.

However, as promised, the federal government is cracking down on home flippers.  Anyone buying and selling the same property in the same year, “would be considered to be flipping properties and would be subject to full taxation on their profits.”  They are also introducing a two-year ban on foreign buyers.

Personal tax rates

Personal tax rates for the common folk will remain unchanged for now – phew!  Instead, the feds are going after the big fish with things like beefing up general anti-avoidance rules, reigning in non-CCPC tax avoidance, and imposing a one-time 15% “Canada Recovery Dividend” (i.e. tax) on banks and insurance groups with taxable income over $1 billion.  As I write this, bank stocks are only down about 1% since the announcement.  They’re a resilient bunch.  Or maybe they already found a loophole.

What HAS changed

Introducing: The tax-free first home savings account (TFFHSA) . . . the “tifisa”?  That’s a little clunky.  Let’s just go with FHSA (first home savings account).

This new account was a platform promise by the Liberals during their last campaign and it will be going live next year in 2023.  Details will be announced later this year.  Here’s a summary of what we know:

  • For first time homebuyers only who are over 18 years old
  • $8000 per year contribution room
  • $40 000 maximum contributions
  • Contributions are tax-deductible
  • Contribution room can not be carried forward
  • Investments grow tax-free
  • Funds can be removed tax-free if used to purchase a first home
  • Cannot be combined with the Home Buyer’s Plan (HBP)

Combining the best of both RRSPs and TFSAs, these FHSAs will be the go-to vehicle for first-time homebuyers to save for their first home.  $40 000 isn’t much of a downpayment these days, but it will certainly help. 

That’s it . . . 

Of course, there’s much more in the budget than this, but a concise summary of the relevant changes and non-changes is always useful.  Please comment below if there are additional aspects you think deserve discussion.

For all the details of the budget, go HERE.

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This Post Has 9 Comments

  1. RICARDO

    I’ll agree with you that the FHSA is a drop in the bucket, if even that!
    Takes five years to put in the $40K. By that time the house price will have increased way above that.
    Of course unless there is a drastic drop in housing pricing or you are an astute investor and grow that $40K to something like $200K.
    I wouldn’t hold my breath on those two though.

    RICARDO

    1. Matt

      A drop in the bucket is better than a dry bucket. 40k is not insignificant, in my opinion.

  2. Benj

    thank you Matt once again for the concise summary…saves me the effort of sifting thru the chaff and the CGE not being manipulating is relieving

    1. Matt

      My pleasure, Benj. Hope you’re well.

  3. Tom

    Thanks Matt, I appreciate your article.

    Isn’t the tax on banks actually a tax on the shareholders of banks?

    1. Matt

      Yes, shareholders own the banks, hence the dip in stock price.

  4. Gus

    Thank you Matt! great article that sums up the key points in the new budget.
    Bank stocks went down a bit couple days before but like you said they’re resilient so it would be interested to see how far up they’ll go for me personaly I loaded more of BNS shares last week, also there was lots of talks about taxing reits or something like that but most reits rebounded as well I guess it was a dark cloud that passed by quickly:)

    1. Christopher Howes

      So accumulate more Canadian Bank stocks ?

  5. James R

    Thanks for the summary. There was a lot of needless consternation about exclusion rates and primary residence exemption.