“These Canadians make heavy use of tax deductions and credits, and generally find ways to have much of their income taxed at lower rates,” the budget document says.
The federal tax rate on income over $221,708, the top bracket in 2022, is 33%. Those earning less than $50,197 pay 15% personal income tax.
Canada had an alternative minimum tax (AMT) since 1986, which limits the tax deduction offered by certain incentives. However, the Liberals have suggested that the existing rules need to be updated.
Details on a new approach “that will go further to ensure that all wealthy Canadians pay their fair share of taxes” will not be known until the fall economic and fiscal update.
A 15% minimum tax was part of the Liberals’ 2021 election platform, which stated that the measure would raise $1.7 billion over five years. The budget did not include an estimate of revenue for the measure.
Keith MacIntyre, tax partner at Grant Thornton LLP in Halifax, said the new minimum tax would likely increase the tax rate for those using certain types of deductions.
The AMT is “an inherently complex tax calculation and it can catch eligible dividends and other factors,” he said, such as capital gains from the sale of a small business.
A business owner who sells his qualifying corporation and retires — and therefore has no income for the year — could be subject to minimum tax, he said. Under current rules, the business owner has seven years to recover the amount based on income tax in those years.
“I’ll be curious to see how this one is and if they’ll continue to allow the seven-year payback period to apply,” MacIntyre said.