Freeland Budget: A Few Thousand Wealthy Taxpayers Will Be Taxed More | Federal Budget 2023

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Freeland Budget: A Few Thousand Wealthy Taxpayers Will Be Taxed More | Federal Budget 2023

About 30,000 Canadian taxpayers are covered by these new rules.

Prime Minister Justin Trudeau and Deputy Prime Minister and Minister of Finance Chrystia Freeland before the budget presentation on Tuesday. The Canadian government estimates that it will be able to raise $3 billion in revenue over five years thanks to changes to the alternative minimum tax, which targets the most affluent.

So that “the wealthiest pay their fair share of taxes,” Justin Trudeau's government increased the Alternative Minimum Tax (AMT) rate from 15% to 20.5% in its recent budget. A measure that should bring 3 billion dollars over five years to the tax authorities, but hardly any inconvenience to the wealthiest, say experts.

In the budget tabled Tuesday by Finance Minister Chrystia Freeland, it is written that the IMR has not undergone major reform since its implementation in 1986, and thousands of Canadians Wealthier Canadians still pay very little income tax.

The alternative minimum tax, the budget says, is intended to ensure that those with the highest incomes cannot reduce their tax bill disproportionately by taking advantage of the benefits provided for in the tax system.

Ms. Freeland's changes to the AMT will increase the basic exemption amount of the AMT from $40,000 to $173,000.

However, this reform only targets a fraction of Canadian taxpayers, as explained by tax expert Luc Godbout on the show Economy Zone,at ICI RDI. Of the 30 million tax returns that are filed each year in Canada, we are talking about 31,000 people who will be subject to this alternative minimum tax, says Mr. Godbout, who holds the Chair in Taxation and Public Finance at the School of Management of the University of Sherbrooke. The very, very wealthy may be hit a little harder.

“You can get it back over seven years [the IMR]. So it's more of a prepaid tax than a real additional charge, in many cases.

— Luc Godbout, tax expert

Ottawa argues that, had it not reformed the IMR, a greater number – or 70,000 wealthy taxpayers – could have been exempt.

The Quebec IMR was introduced at the same time as the federal one and operates in much the same way. It is also intended to limit the tax advantages that an individual may derive during a particular year in order to reduce or eliminate his tax payable.

Source < em>: Chair in Taxation and Public Finance of the School of Management of the University of Sherbrooke

If your income is in the higher levels, you may go you might pay more, if your income is lower, you might not be subject to AMT, explained Bruce Ball, vice-president of taxation at Chartered Professional Accountants of Canada. (CPA Canada).

The Canadian government estimates $3 billion in revenue it will be able to raise over a five-year period as a result of these legislative changes.

These 3 billion in additional taxes will indeed fall into the government's coffers, says tax expert Stéphane Thibault, of the Center québécois de formation en taxation (CQFF). And what the taxman will get from this measure will go beyond the portion that can be recovered [by taxpayers] over the years, he says. And not all taxpayers who are affected by this tax will be able to recover it systematically in the famous seven-year period.

“Basically, it's a way of asking the more affluent to contribute more, then it allows more revenue to provide other measures to the whole community. population. »

— Stéphane Thibault, tax specialist

The federal budget emphasizes that almost all of the IMR is paid by those whose annual income exceeds $300,000, continues Mr. Thibault, and it even goes as far as point out that 80% of that tax would be paid by people who earn over $1 million a year.

For Brian Ernewein, Senior National Tax Advisor at KPMG, these changes are significant because they could have an impact on the taxation of capital gains.

Generally, a capital gain is taxable only at 50%, explains Stéphane Thibault, from the CQFF. Under the announced changes, for AMT purposes, 100% of the capital gain would be taken into account in calculating this minimum tax.

There may be an additional tax charge for very high earners who, year after year, are only compensated by capital gain.

With information from Bloomberg

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