2023 Federal budget analysis: smooth sailing for advisors

This is article was provided by Canada Life Investment Management.

The federal government’s 2023 budget should be straightforward for advisors. Widely expected measures that could have been trickier to navigate with clients were not addressed, such as a wealth tax, an increase in the capital gains inclusion rate or those that could target capital gains planning more broadly.

The budget didn’t directly impact life insurance or living benefits. And while there’s a minor impact on wealth products, those measures are likely to be appreciated by clients for their increased flexibility. “Overall, the 2023 federal budget was pretty light in content and complexity,” says John Yanchus, Director of Tax and Estate Planning at Canada Life. “There will not be any heavy lifting to do by financial advisors, and I don’t think they will have their clients overly concerned by the content.”

The headline items in the budget include a national dental care plan, numerous funding and tax credit initiatives for promoting a green economy and a “grocery rebate,” which is a one-time cash payment to the approximately 11 million people who receive the GST tax credit. The benefit is expected to provide roughly $2.5 billion in inflation relief to those who need it most. The budget projects a $40.1 billion deficit for the fiscal year that begins April 1, which is forecasted to drop to $14 billion by 2027-28.

Changes to the intergenerational transfer of family businesses

Transferring family businesses across generations can be complex. The 2023 budget is focused on ensuring that only genuine intergenerational share transfers take place, says Yanchus, and these measures are among the more complicated ones affecting the financial industry.  

Overhauling the alternative minimum tax

Also included are updates to the alternative minimum tax (AMT) system that was first introduced in 1986. These updates broaden how AMT is applied, increase its rate and focus on high-income earners. To target those with higher incomes, the government proposes to increase the AMT exemption from $40,000 to approximately $173,000 for the 2024 taxation year. The exemption amount would be indexed annually to inflation.

New rules for employee ownership trusts 

Budget 2023 proposes new rules to enable the use of an employee ownership trust (EOT) to purchase and hold shares of a business. Where employees are interested in acquiring a business, this type of trust provides them with an option to do so without having to buy the shares directly. The new rules outline the conditions for a qualifying business transfer and change the existing rules to allow the use of an EOT to purchase shares.

Changes to certain registered accounts

There are a few changes to two types of registered accounts, the registered education savings plan (RESP) and registered disability savings plan (RDSP). For RESPs, the budget proposes increased withdrawal limits for educational assistance payments and allows for divorced or separated parents to open joint RESPs. For RDSPs, the budget proposes to extend a temporary measure already in law that allows a qualifying family member to open an RDSP and be the plan holder on behalf of another. The measures also propose a broadening of the definition of which family members qualify. 

Read the full analysis and other insights on tax and wealth planning on canadalifeinvest.ca

_Disclaimer:

_{This material is for information purposes only and should not be construed as providing legal or tax advice. Reasonable efforts have been made to ensure its accuracy, but errors and omissions are possible. All comments related to taxation are general in nature and are based on current Canadian tax legislation and interpretations for Canadian residents, which is subject to change. For individual circumstances, consult with your legal or tax professional. This information is provided by The Canada Life Assurance Company and is current as of March 28, 2023.}

_{Canada Life Investment Management Ltd. is a wholly owned subsidiary of The Canada Life Assurance Company.}