On March 28, Deputy Prime Minister and Finance Minister Chrystia Freeland released Canada's 2023 budget and fiscal plan, A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future.
The Budget focuses heavily on affordability for Canadians, public healthcare, a clean economy and energy, building on last year's themes of affordability, jobs and growth, the transition to a green economy and strengthening Canada's healthcare system. All budget documents can be downloaded on the federal government's website.
The Budget contains a number of incentives for businesses to develop and adopt clean technologies, as the federal government continues to pursue its laudable climate goals. It is yet to be seen how much of this will benefit B.C. businesses, but Budget 2023 is a helpful start. The Budget also contains a number of measures to strengthen Canada's trade corridors and supply chain resiliency, which are major priorities for the Vancouver region as a major gateway.
We would have liked to have seen more specific measures to benefit B.C. businesses, support the revitalization of Canadian downtowns, and help small- and medium-sized businesses recover from the pandemic and inflationary pressures. Our recent policy paper, Solving B.C.'s Workforce Challenges, contained a number of recommendations for the federal government to do its part in addressing the ongoing labour shortages across Canada, and we would have liked to have seen more action outlined in Budget 2023 for this challenge.
Key Budget Forecasts
- Total Revenue for 2023-24: $456.8 billion
- Total Expenditure for 2023-24: $490.5 billion
- Deficit for 2023-24: $40.1 billion
- Projected GDP Growth in 2023: 0.3%
Debt and Spending
- The government is much deeper in the red—a cumulative $69 billion deeper—than its fall statement indicated, with no balanced budget in sight.
- Deficits will total nearly $118 billion over the next four years.
- Budget 2023 does not hold back on spending with an additional $70 billion allocated, and this is from a much higher base of spending following the pandemic spending spree.
Below, we provide a high-level overview of how Budget 2023 will impact the business community in Vancouver:
Key Business and B.C.-Related Measures
- Strengthening Canada's Trade Corridors: We were pleased to see Budget 2023 propose a number of initiatives to strengthen Canada's transportation systems and supply chain infrastructure, including a commitment to developing a long-term roadmap for Canada's transportation infrastructure and the establishment of a Transportation Supply Chain Office to work with industry.
- Lowering Credit Card Transaction Fees for Small Businesses: The Federal Government has secured commitments from Visa and Mastercard to lower fees for small businesses, while also protecting reward points for Canadian consumers offered by Canada's large banks.
- Upcoming Plan to Expedite Major Projects: Government will develop a plan by the end of 2023 to "improve the efficiency of the impact assessment and permitting processes for major projects."
- Budget 2023 also proposes a modest investment of $11.4 million over three years, starting in 2023-24, to update the federal guidelines for federal officials to consult Indigenous peoples and accommodate impacts on their rights.
Labour Updates
- Prohibiting the Use of Replacement Workers: Budget 2023 proposes amendments to the Canada Labour Code, before the end of 2023, that would prohibit the use of replacement workers during a strike or lockout, and "improve the process to review activities that must be maintained to ensure the health and safety of the public during a work stoppage." Depending on how the specifics of the legislation are defined, this could have a significant and negative effect on the operations of major industries in B.C.
- Federally Regulated Gig Workers: Budget 2023 proposes to amend the Canada Labour Code for federally regulated gig workers by introducing prohibitions against employee misclassification.
Sector Specific Supports
- Ports: $165.4 million over seven years, starting in 2023-24, for Transport Canada to establish a Green Shipping Corridor Program.
- Tourism: $108 million over 3 years, on a cash basis, starting in 2023-24, for the Regional Development Agencies to support communities, small businesses, and non-profit organizations in developing local projects and events.
Summary of Tax Measures
See the KPMG website for a comprehensive analysis of tax measures in the federal budget. The government also released an accompanying document with the Budget called "Tax Measures: Supplementary Information."
Summary of Clean Technology Tax Measures
The Budget contains a number of tax measures related to the development and implementation of clean technologies, including:
- Expanding Eligibility for the Clean Technology Investment Tax Credit: Expanding eligibility for the Clean Technology Investment Tax Credit to include geothermal energy systems that are eligible for capital cost allowance Classes 43.1 and 43.2.
- New Refundable Clean Hydrogen Investment Tax Credit: A new tax credit for clean hydrogen investment up to a maximum rate of 40%.
- Investment Tax Credit for Clean Technology Manufacturing: A refundable tax credit equal to 30% of the cost of investments in new machinery and equipment used to manufacture or process key clean technologies and extract, process or recycle key critical minerals.
- New investment tax credit for clean electricity: A 15% refundable tax credit for eligible investments in specific clean electricity generation systems.
Other tax measures include:
- International Tax Reform - Pillar One and Pillar Two: Canada will work with international counterparts to develop model Pillar One rules and a multilateral convention to implement these rules, hoping to have the treaty to implement Pillar One signed by mid-2023. In addition, the Budget notes the government's intention to release a revised draft of the Digital Services Tax (DST) legislation.
- The budget also confirms the government's intention to introduce legislation to implement the Income Inclusion Rule (IIR) and a domestic minimum top-up tax on Canadian businesses of multinational enterprises (MNEs) covered under Pillar Two.
- The budget also confirms the government's intention to introduce legislation to implement the Income Inclusion Rule (IIR) and a domestic minimum top-up tax on Canadian businesses of multinational enterprises (MNEs) covered under Pillar Two.
- Review of the SR&ED Tax Incentive: The Budget indicates that the government will engage with stakeholders for a review of the Scientific Research and Experimental Development (SR&ED) program.
- Support for Employee Ownership Trusts: Introduce tax changes to facilitate the creation of Employee Ownership Trusts.
- AMT Rate Increase: The Budget proposes legislative amendments to raise the AMT rate from 15% to 20.5% and further limit the excessive use of tax preferences.
- Income Tax Amendments: Budget 2023 proposes to amend the Income Tax Act to treat dividends received on Canadian shares held by financial institutions in the ordinary course of their business as business income.
Housing Measures
- Increasing Housing Supply: Budget 2023 announced the government's intention to support the reallocation of funding from the National Housing Co-Investment Fund's repair stream to its new construction stream, as needed, to construct more homes.
- Indigenous Housing: $4 billion, over seven years, starting in 2024-25, to implement a co-developed Urban, Rural, and Northern Indigenous Housing Strategy.
- Addressing Regulatory Barriers: Government will consult on changes required to remove regulatory barriers for homebuyers seeking access to alternative financing products.
- Tax-Free First Home Savings Account: Launching April 1, 2023, financial institutions will offer the Tax-Free First Home Savings Account to Canadians.