2023 Canadian federal, provincial and territorial budgets

With inflation at its highest level in decades, rising interest rates and fears of an economic recession, this year’s federal budget (Budget 2023) is expected to focus on delivering incentives that spur sustainable and long-term growth, while reassuring Canadians that their interests are being prioritized.

At a high level, Canadian businesses are expected to see further details — beyond those provided in the 2022 Fall Economic Statement (FES) — on the government’s response to the US Inflation Reduction Act (IRA), which offers generous US tax incentives for clean technology investments and threatens to pull capital and related skilled talent away from projects in Canada if new measures to keep pace are not introduced here.

The provinces are expected to be looking to secure a significant increase in federal funding under the Canada Health Transfer to address growing concern over the capacity of Canada’s health care system to provide adequate levels of care to its citizens. On the international front, additional investments in national defence and humanitarian relief may be expected as the ongoing war in Ukraine enters its second year and other global geopolitical concerns mount.

EY business and tax subject matter experts are available to provide insights on the federal budget and its impact on Canadian businesses and taxpayers.

The 2023 federal budget is expected to be tabled in the first quarter of 2023 and may include:

• Investment Tax Credit for Clean Technologies: First announced in Budget 2022, a few more specifics concerning this refundable tax credit were included in the 2022 FES as a first response to the US IRA, with further details promised in Budget 2023.
• Investment Tax Credit for Clean Hydrogen: The 2022 FES announced the government would proceed with a commitment in the 2023 Budget to establish an ITC to support investments in clean hydrogen. The Department of Finance launched a consultation that ran from December 1, 2022 to January 6, 2023, stating that details of its design will be announced “in due course”.
• Investment Tax Credit for Carbon Capture, Utilization and Storage (CCUS): This tax credit was initially promised in Budget 2021 with further details contained in Budget 2022. Draft legislative proposals released for comment in August 2022 were not included in Bill C-32, the Fall Economic Statement Implementation Act 2022, which contained other tax measures first proposed in the 2021 and 2022 Budgets and received Royal Assent in December 2022.
• Canada Growth Fund: The government’s intention to establish a multi-billion-dollar Canada Growth Fund to attract private capital investments was announced in Budget 2022. Further details were announced in the 2022 FES, including that it will be operated by a team of professional investors reporting to an expert board of directors independently from government and promising that a permanent structure will be put in place “in the first half of 2023.”
• Scientific Research & Experimental Development (SR&ED) Tax Credit: The 2022 Budget announced that the government would review the existing program (the cornerstone of its innovation strategy) and examine the suitability of adopting a patent box regime. The 2022 FES stated that work on the review is underway and further details will follow in Budget 2023.
• Creation of a Canadian Innovation and Investment Agency: The 2022 Budget announced the government’s intention to establish a Canadian Innovation and Investment Agency that would operate independently from government but be accountable to Parliament, committing $1 billion in funding over five years to support its initial operations. The 2022 FES shared that “further details on the new agency will be released in a blueprint in the coming weeks.”
• Investing in Canada’s Advanced Manufacturing Competitiveness: The 2022 FES stated that the government will work with industry experts and unions to make Canada the premier destination for investment in clean technology manufacturing and, following these consultations, will announce new measures as part of Budget 2023.
• Tax on Share Buybacks: The 2022 FES announced the government’s intention to introduce a 2% corporate-level tax that will apply on the net value of share buybacks by public corporations, stating they will announce details in Budget 2023.
• International Tax Reform: The 2022 FES reconfirmed Canada’s commitment to Pillar One (Reallocation of Taxing Rights) and Pillar Two (Global Minimum Tax) of the OECD/G20 Base Erosion and Profit Shifting (BEPS) initiative but provided no further details on Canada’s proposed 3% Digital Services Tax that is scheduled to come into effect on January 1, 2024 unless a consensus is reached on a multilateral approach before then pursuant to the BEPS Pillar One proposals. Budget 2023 may provide further details.
• Changes to Canada’s International Transfer Pricing Rules: The 2021 budget promised a consultation paper would be released “in the coming months” but one has not yet been released.