* The corporate income tax rate for zero-emission technology manufacturers is reduced to 7.5% for eligible income otherwise subject to the 15% general corporate income tax rate or 4.5% for eligible income otherwise subject to the 9% small-business corporate income tax rate, applicable for taxation years beginning after 2021. The reduced tax rates will be gradually phased out beginning in 2029 and fully phased out for taxation years beginning after 2031.
** The government released draft legislative proposals on 9 August 2022 to implement a Canada recovery dividend in the form of a one-time 15% tax on bank and life insurer groups, applicable to 2021 taxable income (subject to a $1 billion exemption to be shared by group members), to be imposed for the 2022 taxation year and payable over a five-year period, as well as an additional tax on banks and life insurers at a rate of 1.5% on taxable income (subject to a $100 million exemption to be shared by group members), applicable for taxation years ending after 7 April 2022 (prorated for taxation years straddling this effective date). These proposals, which were first announced in Budget 2022, are not yet substantively enacted for financial reporting purposes.
Other business income tax measures
The minister also proposed the following business income tax measures:
Investment tax credit for clean technologies — Introduction of a refundable tax credit of either 30% or 20% on the capital cost of eligible equipment, effective for eligible equipment that is acquired and becomes available for use on or after the date of the 2023 federal budget (Budget 2023). The 30% rate will apply if certain labour conditions are met. Otherwise, a 20% rate will apply. Although the government noted the labour conditions would include the payment of prevailing wages based on local labour market conditions and the creation of apprenticeship training opportunities, additional details will be announced in Budget 2023. The credit will be phased out beginning with eligible equipment that becomes available for use in 2032, and will be completely phased out by 2035.
Eligible equipment will include the following:
- Electricity generation systems, including solar photovoltaic, small modular nuclear reactors, concentrated solar, wind and water (small hydro, run-of-river, wave and tidal);
- Stationary electricity storage systems that do not use fossil fuels in their operation, including, but not limited to, batteries, flywheels, supercapacitors, magnetic energy storage, compressed air energy storage, pumped hydroelectric energy storage, gravity energy storage and thermal energy storage;
- Low-carbon heat equipment, including active solar heating, air-source heat pumps and ground-source heat pumps; and
- Industrial zero-emission vehicles and related charging or refueling equipment, such as hydrogen or electric heavy duty equipment used in mining or construction.
Investment tax credit for clean hydrogen — Establishment of a refundable tax credit of at least 40% on eligible investments in clean hydrogen production, made on or after the date of Budget 2023 and based on the lifecycle carbon intensity of hydrogen. The level of the credit will also depend on whether certain labour conditions are met and, if certain of these conditions are not met, the maximum tax credit rate will be reduced by 10 percentage points. The credit will be phased out after 2030.
In the coming weeks, the Department of Finance will launch a consultation on how best to implement the credit. In particular, input will be sought on: an appropriate carbon intensity-based system in the Canadian context, the level of support needed for different production pathways in Canada, and how best to attach labour conditions to the credit to ensure a prevailing level of wages in the local labour market is paid and apprenticeship training opportunities are created.
Tax on share buybacks — Introduction of a 2% corporate tax on the net value of share buybacks by public corporations in Canada, similar to a measure introduced in the United States. The stated intention of this measure is to encourage corporations to reinvest their profits in their workers and businesses. The tax will be effective on 1 January 2024, with additional details to be announced in Budget 2023.
Review of Scientific Research and Experimental Development (SR&ED) tax incentive program — Originally announced in Budget 2022, the EFU confirms that the review of the SR&ED program, with the stated intention of ensuring that it is efficient and providing adequate support for taxpayers, is underway. An update will be provided in Budget 2023.
Tax measures for individuals
Personal income tax rates
There are no individual income tax rate or tax bracket changes in this EFU. The brackets will continue to be indexed for inflation.
See Table C for the 2022 federal rates.
Table C: Federal personal income tax rates