Canadian businesses want next week's federal budget to stimulate economic growth, address multiple risks, and strengthen incentives that fuel innovation and global competitiveness, says KPMG in Canada.

"With the economy now in a stronger position, we are seeing governments shift from short-term, pandemic-related responses to longer-term strategies focused on boosting Canada's economic potential," says Lucy Iacovelli, Canadian Managing Partner, Tax, KPMG in Canada. "In this next phase of growth, Canada's commitment to transition to a greener and more inclusive economy will require close collaboration with the private sector to help ensure the effectiveness of investments in people, industries, and advanced technologies."

A fiscally sound approach needed

Currently, the Canadian economy faces higher-than-normal inflation, protectionism, ongoing supply chain disruptions and skilled labour shortages. "Global and domestic pressures continue to affect businesses and have made life less affordable for many Canadians. The government should look at measures that will strike a delicate balance by providing prudent, targeted stimulus and supports, while simultaneously avoiding further inflationary risks and tax measures that may impede growth," says Ms. Iacovelli.

A recent KPMG in Canada poll of 508 medium-sized businesses found that although many businesses are feeling somewhat more optimistic ahead of this year's budget, uncertainties remain. The survey found that 92 per cent of respondents are concerned that governments will hike personal and business taxes, negatively impacting consumer demand and putting further pressure on rebounding businesses. Ninety-two per cent of respondents agree that the cost of decarbonization is among the greatest barriers to achieving Canada's net-zero goals. Nine out of 10 respondents cite a lack of appropriate technology solutions, whereas 86 per cent identified shortages in the skills and expertise required to implement climate solutions.

Accelerating climate ambitions

On March 29, 2022, the federal government announced ambitious new plans and further funding to cut carbon emissions by 40 per cent by 2030, help industries adopt clean technologies and transition to net-zero. Among the measures announced are greater incentives for businesses to adopt clean fuels and technologies such as carbon capture, utilization and storage.

"Digitally transformed and climate-conscious businesses will help drive future growth in Canada," says Mary Jo Fedy, National Enterprise Leader, KPMG in Canada. "Many in the business community want to see further details in the budget on how these new tax incentives and investment credits in clean energy, technology and machinery can benefit their specific business or sector and provide practical support to achieve their decarbonization goals."

Budget commentary

KPMG's professionals are available to provide insight and commentary on the impact of the 2022 federal budget on businesses and Canadians. A listing of our spokespersons is below.

Topic

Spokespersons

Budget Overview

Dino Infanti, Partner, National Leader, Enterprise Tax
Greg Bell, Partner, Tax (Ottawa)

Deborah MacPherson, Partner, Business Unit Leader for Regions West (Edmonton)

Joseph Micallef, Partner, National Tax Leader, Financial Services
Joy Nott, Partner, Trade and Customs

Shane Onufrechuk, Partner, Tax (Vancouver)

Private Enterprises

(includes small and mid-sized businesses)

Mary Jo Fedy, National Enterprise Leader

Aaron Gillespie, Partner, Enterprise Tax

Personal Tax

Green tax measures/incentives

International/Global Minimum Tax

Family businesses

Aaron Gillespie, Partner, Enterprise Tax
Torran Jolly, Partner, Tax (Calgary)

Sabrina Wong, International Tax Partner, KPMG Law

Chris Gandhu, Partner, Family Office Leader, Calgary

Climate change, Decarbonization,

ESG

Roopa Davé, Partner, Sustainability Services

Katie Dunphy, Executive Director, ESG Advisory Leader

Electric Vehicles

Peter Hatges, National Sector Leader, Automotive

Digital, Innovation, Cyber security

Susie Cooke, National Leader, Tax Transformation

Imraan Bashir, Partner & National Public Sector Cyber Leader

Public sector & Covid relief measures

Leigh Harris, Partner, Management Consulting, Lead Partner, Federal Government

Barry Travers, Partner, National Tax Leader, Public Sector Tax

Budget and Quebec business

Pascal Martel, Partner in charge, Tax, Quebec Region

Pre-budget tax proposals

Earlier this year, draft legislative proposals were released for a number of outstanding and previously announced tax measures. Some of these measures include: new limitations on interest deductibility, the Digital Services Tax; a new luxury sales tax on cars, personal aircraft (over $100,000) and boats (over $250,000); a corporate tax rate reduction (50 per cent) for manufacturers of zero-emission technologies; changes to the capital cost allowance for clean energy equipment; an annual one per cent tax on the unproductive use of housing owned by non-residents; and changes to capital cost expensing of up to $1.5 million for certain Canadian-Controlled Private Corporations, sole proprietors and partnerships.

Examples of other possible tax measures in the budget include

Business

Innovation and green technologies:

  • An investment tax credit of up to 30 per cent for clean technologies
  • A carbon capture, utilization and storage (CCUS) investment tax credit
  • Increased tax incentives for renewable energy and battery storage solutions
  • A mineral exploration tax credit for minerals essential to clean technologies
  • Improvements to the Scientific Research & Experimental Development (SR&ED) program to increase eligible expenses for innovation
  • Modernize and/or enhance R&D incentive programs such as the Accelerated Investment incentive program, the Innovation Assistance Program and the Net Zero Accelerator
  • Introduce a tax credit to incentivize businesses to invest in cyber security.

International Tax: Begin the process to implement the Organization for Economic Cooperation and Development (OEDC)-endorsed 15 per cent global corporate minimum tax and the reallocation of a portion of the profits of large multinational enterprises where customers reside.

Family businesses and farms: Tighten the new intergenerational transfer rules set out in Bill C-208 granting a parent the same tax benefits when selling corporate shares to a child as if sold to an unrelated person.

Banks and insurance companies: Raise the corporate income tax rate to 18 per cent (from 15 per cent) on earnings over $1 billion and introduce a temporary Canada Recovery Dividend.

Real Estate: Review the tax treatment of real estate investment trusts and require landlords to disclose rent received pre- and post-renovation.

Personal

  • Establish a new federal minimum 15 per cent tax rule for top-bracket earners

Housing affordability

  • Create a tax-free First Home Savings Account and double the first-time home buyer's tax credit
  • Establish an "anti-flipping" tax on residential properties (e.g., no principal residence exemption unless the property is held for a minimum of 12 months, with certain exceptions)
  • Establish a multigenerational home renovation tax credit

Electric vehicles

Consistent with plans to achieve a 100 per cent zero-emission vehicle sales target by 2035, the federal government recently announced a $2.9 billion investment to improve charging infrastructure and other incentives to make it easier for Canadians to switch to electric vehicles, with new interim sales targets of at least 20 per cent by 2026 and at least 60 per cent by 2030.

Jobs and inclusive growth

  • Further initiatives and support for Women, Indigenous Peoples, Black Canadians, People of Colour, the LGBTQ2 community, People with Disabilities and others
  • Review and simplify access to the Disability Tax Credit, CPP and other federal benefits and programs for people with disabilities
  • Convert the Canada caregiver credit into a refundable tax-free benefit
  • Expand and reorient employment/education supports and training for the jobs of the future.

For further details on these measures, read KPMG's latest edition of TaxNewsFlash-Canada.

About KPMG in Canada

KPMG LLP, a limited liability partnership, is a full-service Audit, Tax and Advisory firm owned and operated by Canadians. For over 150 years, our professionals have provided consulting, accounting, auditing, and tax services to Canadians, inspiring confidence, empowering change, and driving innovation. Guided by our core values of Integrity, Excellence, Courage, Together, For Better, KPMG employs more than 10,000 people in over 40 locations across Canada, serving private- and public-sector clients. KPMG is consistently ranked one of Canada's top employers and one of the best places to work in the country.

The firm is established under the laws of Ontario and is a member of KPMG's global organization of independent member firms affiliated with KPMG International, a private English company limited by guarantee. Each KPMG firm is a legally distinct and separate entity and describes itself as such. For more information, see home.kpmg/ca.

To arrange an interview with a KPMG spokesperson, please contact:

Nancy White
National Communications & Media Relations
KPMG in Canada
(416) 777-3306
nancywhite@kpmg.ca