Federal Government Releases 2022 Budget
April 8, 2022
On April 7, 2022, Finance Minister Chrystia Freeland tabled the federal government’s (the “Government“) 2022 budget (the “2022 Budget“), entitled “A Plan to Grow Our Economy and Make Life More Affordable”. Of particular interest to unions and pension and benefit plan administrators are announcements concerning public dental and pharmacare programs, the loosening of borrowing rules for defined benefit pension plans, and new disclosure obligations with respect to climate change.
Labour and Employment
Support for Training in the Skilled Trades
The 2022 Budget introduces several initiatives to support training in the skilled trades. The first initiative is purely financial — it plans to double funding for the Union Training and Innovation Program to $84 million over four years, which would finance 3,500 apprenticeships in the Red Seal Trades each year. From a policy perspective, the 2022 Budget also provides $2.5 million to launch a union-led advisory table that will guide the government on supporting mid-career workers in at-risk sectors transition to new industries. The Government has also committed to working with unions to develop sustainable jobs for a low-carbon future.
Labour Mobility Deduction
In terms of tax relief, the 2022 Budget proposes to introduce a Labour Mobility Deduction. The Labour Mobility Deduction would allow certain skilled tradespeople and apprentices to deduct up to $4,000 per year in travel and temporary relocation expenses. Such measures will apply to the 2022 and subsequent taxation years.
To qualify as an “eligible temporary relocation”:
- Temporary lodging must be at least 150 kilometres closer than the ordinary residence of the individual to the particular work location;
- The particular work location must be located in Canada;
- The temporary relocation must be for a minimum duration of 36 hours; and
- The particular work location must not be in the locality in which the eligible individual principally works.
“Eligible expenses” in respect of an eligible temporary relocation would include:
- Temporary lodging for the eligible individual near the particular work location;
- Transportation for the individual for one round trip from the individual’s ordinary residence to the temporary lodging; and
- Meals for the individual in the course of travel.
An individual will not be permitted to claim lodging expenses if they do not maintain an ordinary residence elsewhere that remains available for their or their immediately family’s use or if they received financial assistance from an employer that is not included in their income.
The maximum eligible amount for expenses will be capped at 50% of the worker’s employment income from construction activities at the particular work location in the year.
Finally, individuals may claim expenses in a tax year before or after the year they were incurred if they were not deductible in a prior year.
Support for Federally Regulated Workers Experiencing a Miscarriage or Stillbirth
In addition, the Government plans to amend the Canada Labour Code to provide a leave of absence for federally regulated workers who suffer a miscarriage or stillbirth.
Amendments to the Employment Insurance Act
The 2022 Budget also commits to amending the Employment Insurance Act to cover more workers, and to incentivize employers to re-train their workers. In particular, the 2022 Budget aims to extend temporary support for seasonal workers until October 2023 and broaden eligibility and the types of interventions funded under the Labour Market Development Agreements with the provinces and territories.
The Government has promised to introduce public dental care through an initial investment of $5.3 billion over five years and $1.7 billion each year thereafter. The program will begin by covering children under 12. Next year, it will expand to include all minors, seniors and individuals with disabilities, and will expand to all Canadians in 2025. Only families with incomes less than $90,000 will be eligible. The 2022 Budget is silent on whether families already covered by private insurance will be included.
In terms of prescription drugs, the government intends to table a Canada Pharmacare Bill, which it hopes to have passed by the end of 2023. It will then have the Canadian Drug Agency develop a national formulary of essential medicines and a bulk purchasing plan. Again, there are no details on whether individuals covered by employment-based plans or other private insurance will be included.
The 2022 Budget also proposes extending the Medical Expense Tax Credit to various fertility procedures, including surrogacy-related expenses and fertility clinic fees.
Borrowing by Defined Benefit Pension Plans
The Income Tax Regulations restrict registered pension plans (“RPPs“) from borrowing money, except in certain limited circumstances. More specifically, RPPs are permitted to borrow money for the acquisition of income-producing real property where: (i) the aggregate borrowed amount (plus any indebtedness incurred as a consequence of the acquisition) does not exceed the cost of the property; and (ii) only the real property is used as security for the loan (and not other property held in connection with the plan).
Borrowing is also permitted by RPPs where: (i) the term of the loan does not exceed 90 days; (ii) the borrowing is not part of a series of loans or other transactions or repayments; and (iii) the property of the plan is not pledged as security for the loan (subject to certain limited exceptions).
The 2022 Budget proposes to provide more borrowing flexibility for administrators of DB pension plans by:
- Maintaining the borrowing rule for real property acquisitions; and
- Replacing the 90-day term limit with a limit on the total amount of additional borrowed money (for purposes other than acquiring real property), equal to the lesser of:
- 20% of the value of the plan’s assets (net of unpaid borrowed amounts); and
- The amount, if any, by which 125 per cent of the plan’s actuarial liabilities exceeds the value of the plan’s assets (net of unpaid borrowed amounts).
The new rules concerning borrowing by DB pension plans would apply to amounts borrowed after Budget Day.
The new borrowing limit would be re-determined on the first day of each fiscal year “based on the value of assets and unpaid borrowed amounts on that day and the actuarial liabilities on the effective date of the plan’s most recent actuarial valuation report.”
Despite these changes, the 2022 Budget makes clear that a plan administrator’s obligation to comply with federal or provincial pension benefit standards legislation remains unaffected.
Importantly, we note that the 2022 Budget does not amend the borrowing restrictions for money purchase pension plans, individual pension plans, master trusts or other pension investment entities.
Amendments to PBSA and PRPPA
The 2022 Budget proposes to amend the Pension Benefits Standards Act, 1985 and the Pooled Registered Pension Plan Acts to include “new frameworks for solvency reserve accounts and variable payment life annuities.”
The 2022 Budget announced that Office of the Superintended of Financial Institutions will consult with federal regulated financial institutions on climate disclosure guidelines in 2022 and will require financial institutions to publish climate disclosures according to the International Task Force on Climate-related Financial Disclosures framework, using a phased approach, starting in 2024.
The Government also plans to move forward with requirements for disclosure of environmental, social, and governance considerations for federally-regulated pension plans.
Employee Ownership Trusts
The 2022 Budget proposes to create the Employee Ownership Trust, a new type of trust under the Income Tax Act (the “Tax Act“). Employee Ownership Trusts are meant to “encourage ownership of a business, and facilitate the transition of privately-owned businesses, to employees.” The Government also commits to continue to engage with stakeholders to finalize the development of rules for such trusts, and to assess any remaining barriers to their creation. The 2022 Budget does not contain specific details about the features or implementation of Employee Ownership Trusts.
Public Sector Pension Governance
By amending the Public Sector Investment Board Act, the Government intends to expand the Public Sector Pension Investment Board from 11 to 13 members. The additional seats will be filled by federal public service bargaining agents. The Government will consult with all federal bargaining agents to determine an appropriate process for the selection of new members.
To combat the crisis relating to the affordability of homes in Canada, the 2022 Budget introduces a new registered account, the Tax-Free First Home Savings Account (“FHSA“). The Government’s aim is to ensure that a FHSAs may be opened and contributed to in 2023.
Canadian residents may open an FHSA if they are:
- 18 years of age; and
- Have not lived in a home that they owned either (i) at any time in the year the account is opened, or (ii) during the preceding four calendar years.
The FHSA would allow prospective first-time home buyers to save up to $40,000, with an annual contribution limit of $8,000. Unused annual contribution room will not be able to be carried forward to subsequent years.
Like an RRSP, contributions to a FHSA will be deductible, and income earned in an FHSA would not be subject to tax. Much like a TFSA, withdrawals from an FHSA made to purchase a first home will also not be taxable. However, individuals are limited to making non-taxable withdrawals in respect of a single property in their lifetime.
If an individual has not used the funds in their FHSA for a qualifying first home purchase within 15 years of first opening an FHSA, their FHSA would have to be closed. However, any unused savings may be transferred to an RRSP or RRIF.
CPP and OAS Changes
The Government proposed to amend Canada Pension Plan legislation to permit use of CRA data when performing policy analysis, and to ensure individuals who qualify for both the Post-Retirement Disability Benefit and the child-rearing and disability drop-ins receive correctly calculated benefits.
The Government also plans to amend the Old Age Security Act to clarify that the one-time payment made in August 2021 to seniors aged 75+ will be exempted from the income test for the Guaranteed Income Supplement and Allowances.
To help arts and culture organizations weather COVID-related disruptions, the Government plans to provide an additional $50 million to the industry through the Department of Canadian Heritage, Telefilm Canada, and the Canada Council for the Arts. It also plans to devote $22.5 million to the Canada Arts Training Fund over five years, and $12.1 million over two years to the National Arts Centre.
The 2022 Budget also includes many initiatives to increase the housing supply, thereby boosting the construction industry. These include investing:
- $4 billion over five years in a Housing Accelerator Fund to create 100,000 new housing units through municipalities;
- $1.5 billion over two years in the Rapid Housing Initiative to create 6,000 permanent affordable housing units, both new builds and renovating existing units;
- $2.9 billion in the National Housing Co-Investment Fund to build 4,300 and repair 17,800 homes for seniors and other vulnerable Canadians; and
- $500 million in a Co-operative Housing Development Program to build 6,000 new units.
 For the purposes of the deduction, an “eligible individual” would be a tradesperson or apprentice who (i) makes a temporary relocation that enables them to obtain or maintain employment under which the duties performed by the taxpayer are of a temporary nature in a construction activity at a particular work location; and (ii) ordinarily resident prior to the relocation at a residence in Canada, and during the period of relocation, at temporary lodging in Canada near that work location.
Pension and Benefits