Budget 2023: No heavy lifting needed for financial advisors

The federal government’s latest budget won’t have financial advisors swamped with calls from confused or panicked clients, predicts John Yanchus, director of tax and estate planning at Canada Life.

He said this year’s budget was relatively routine, if somewhat reactive in nature, tackling issues that have been on the minds of Canadian lately: inflation, healthcare and the environment.

“Overall, the 2023 federal budget was pretty light in content and complexity,” he said. “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.”

Yanchus said elements related to tax and investment in this year’s budget tended to be straightforward, with an eye to increased flexibility.

Parents saving for a child’s education, for example, may appreciate the proposed higher withdrawal limits for RESPs, as well as the ability to set up joint plans even if the parents are separated or divorced.

And siblings have been added to parents, spouses and common-law partners on the list of qualified family members who can set up RDSPs for an adult beneficiary whose contractual capacity is in doubt and who does not have a legal representative.

Intergenerational family business transfer

According to Yanchus, among the meatier topics for the financial industry were modifications to the intergenerational transfer of family businesses, initially set out in Bill C-208 and designed to benefit parents or grandparents selling their shares to an adult child’s corporation. The original intent was to give them access to the lifetime capital gain exemption, instead of receiving deemed dividend tax treatment under an anti-avoidance rule.

The 2023 budget seeks to ensure that only genuine intergenerational share transfers take place, Yanchus said.

“The government has proposed two options for obtaining a tax relief: one being an immediate option, and the second being a five- to 10-year gradual option,” he said. Various tests must be satisfied relating to the transfer of the voting control of the corporation, the economic interests in the business, management of the business, and the adult child’s involvement in the business and their corporation’s retention of the shares.

The adult child would be jointly and severally liable for additional taxes payable as a result of the transfer, in case these conditions aren’t met.

Alternative minimum tax

Budget 2023 also proposes to update the alternative minimum tax (AMT) regime, which has largely been untouched since its introduction in 1986.

“To target high-income individuals, the government proposes to increase the AMT exemption from $40,000 to approximately $173,000 for the 2024 taxation year,” he said. “The exemption amount would be indexed annually to inflation.”

The proposed changes to AMT will also broaden its application by:

• increasing the AMT capital gains inclusion rate from 80% to 100%;
• including 100% of the benefit associated with employee stock options;
• including 30% of capital gains on donations of publicly listed securities;
• disallowing various deductions from AMT;
• restricting certain non-refundable tax credits from being credited against AMT; and
• increasing the alternative minimum tax rate to 20.5% from 15%.

**

Read more from John Yanchus:

INSIGHTS: Canada’s 2023 Federal Budget

(Aussi disponible en français.)

**

This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.