From flood insurance to alcohol taxes, how the 2023 budget affects Canadians’ wallets

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The 2023 federal budget features a long list of modest measures aimed at softening the pinch of inflation for Canadians without putting much strain on government coffers. The expensive exception is a widely anticipated expansion of the government’s national dental care plan, now expected to benefit as many as nine million Canadians at a cost of $13-billion over five years.

To help low-income Canadians, Ottawa has promised an extra few hundred dollars for the 11 million taxpayers who receive the GST tax credit, a rebate on federal and provincial sales taxes.

The budget also endeavours to rein in borrowing costs for the most vulnerable by setting the maximum interest rate lenders are allowed to charge at 35 per cent.

In a nod to soaring living costs for students, Ottawa is increasing Canada Student Grant and Canada Student Loan limits, while making it easier to withdraw larger amounts from registered education savings plans.

The government confirmed that the much-anticipated Tax-Free First Time Home Savings Account, first announced in the 2022 budget, will become available April 1.

The budget also vows to boost affordability by strengthening consumer protection in a number of areas. But proposals to mandate universal chargers for handheld devices, crack down on excessive fees – from roaming charges to concert ticket surcharges – and make it easier to repair appliances and electronics seemed to be stuck at the idea stage for now.

A more concrete promise involves amending rules to force airlines to provide timely compensation for flight delays and cancellations. But the budget also proposes hiking a charge levied on air travellers to pay for services such as passenger screening.

And while the government largely shied away from tax increases, it is proposing to tweak the so-called alternative minimum tax, which may result in a steeper tax bill for the wealthy. On the other hand, Canadians across the income spectrum can look forward to a smaller-than-anticipated increase to the federal tax on beer, wine and spirits, which Ottawa temporarily capped at a rate below inflation.

The government also said it would move forward with plans to create a national flood insurance program for Canadians who live in high-risk areas.

Here’s a closer look at some of the key measures that will affect Canadians’ wallets.

Dental care plan

A national dental care plan for lower-income Canadians is a top priority for the New Democratic Party, which has agreed to a multiyear co-operation deal with the minority Liberal government in exchange for policy concessions.

The plan will become available by the end of this year, the budget promises. It will serve eligible, uninsured Canadians with an annual family income of less than $90,000, with no co-pays for those earning less than $70,000.

Ottawa has already rolled out a limited version of the program, which currently covers children under 12 who don’t have access to a private insurance plan. Parents can currently receive two tax-free payments of as much as $650 per child for eligible dental expenses.

The budget does not say what the expanded dental plan will cover, adding that more details will be released later this year.

GST tax credit boost

Whether or not they’ll spend the extra money on food, Canadians who currently receive the GST rebate will get an extra payment equivalent to twice the amount they received in January – as much as $467 for a couple with two children and up to $234 for a single Canadian without children.

Interest rate cap on expensive loans

The budget proposes capping interest rates at 35 per cent, in line with the limit in Quebec.

The government is also considering a proposal to require payday lenders to charge no more than $14 per $100 borrowed, in line with the cap adopted by Newfoundland and Labrador, which has the strictest rate ceiling for payday lending of any province.

Bigger grants and loans for students

For the school year starting Aug. 1, the budget proposes boosting the Canada Student Grant by 40 per cent and raising the Canada Student Loan limit from $210 to $300 per week of study.

More longer-term changes to student financial assistance will come in the next federal budget, the government said.

Larger RESP withdrawals

Money sitting in an RESP falls into two buckets: contributions to the plan and funds that reflect investment earnings and government grants. Making withdrawals from the second bucket involves lots of rules, including a cap of $5,000 for the first 13 weeks of full-time studies. The budget proposes raising that cap to $8,000. For part-time students, the limit would rise from $2,500 to $4,000.

The measure may help students pay for high tuition costs and record-setting rents. But there is no mention in the budget of raising the cap on how much families can put into an RESP – the lifetime contribution limit currently sits at $50,000 per child – or how much the government will chip in through the Canada Education Savings Grant, which has a current maximum of $500 per year and a lifetime limit of $7,200. Both of those caps have not changed since 2007.

Tax-Free First Time Home Savings Account

The Tax-Free First Home Savings Account will become available April 1, the budget confirms.

The new account blends the tax advantages of a registered retirement savings plan (RRSP) and those of a tax-free savings account (TFSA). It allows Canadians to save as much as $8,000 a year, up to a maximum of $40,000, with contributions that are tax-deductible, just like an RRSP. Withdrawals, on the other hand, are tax-free, as with a TFSA.

While the new account will help prospective homebuyers save up for a down payment, it does nothing to address high home prices and mortgage rates.

A rethink on air passenger rights

The government pledged to rejig the rules around air passenger rights to tighten airlines’ obligations to provide compensation for delayed and cancelled flights and make it easier for consumers to get their air travel complaints addressed. The government said the changes would “align Canada’s air passenger rights regime with those of leading international approaches,” a possible nod to European Union regulations, which critics of the current system often hail as the model Canada should follow.

The budget also vowed to empower the Minister of Transport to impose a charge on airlines to help cover the cost of resolving passenger complaints, a move that could give the industry an incentive to work toward a more efficient system.

Higher air travel fees

To help streamline airport operations and passenger screening, the budget proposes an increase of about 33 per cent on a charge paid by air passengers to help fund the Canadian Air Transport Security Authority. The charge, which will apply starting in May, 2024, means fees for a one-way domestic flight will rise to $9.94 from $7.48 and, for an international flight, from $25.91 to $34.42.

A revamped alternative minimum tax

Canada’s alternative minimum tax is, as the name implies, an alternative way of calculating taxes. It is designed to ensure that wealthy tax filers, who might otherwise owe little or no tax thanks to credits and deductions, pay at least the federal minimum rate of 15 per cent.

The budget proposes raising that minimum rate to 20.5 per cent next year. But the revamped minimum tax would also come with a much higher income exemption, raised to $173,000 from $40,000. “This would result in a tax cut for tens of thousands of middle-class Canadians, while the AMT will more precisely target the very wealthy,” the budget says.

Smaller alcohol tax increase

A federal tax on alcoholic beverages that is pegged to inflation was set for an outsized increase as of April 1, but the budget is capping that rate adjustment at 2 per cent. The changes amount to a reduction of mere cents per litre of beer or wine, but producers, who pay the tax, had been warning that an usually large increase would likely translate into higher retail prices.

National flood insurance plan

Only between 40 and 60 per cent of Canadians have home insurance policies that cover damages from flooding, according to a recent report by Public Safety Canada. Of those, the vast majority live in areas that are at low to medium risk of flooding. That’s because flood insurance is often unavailable or unaffordable in areas that face a high risk of water-related natural disasters.

To address the issue, Ottawa is considering a government insurance plan that would offer low-cost coverage to households in high-risk areas. Public Safety Canada, the Canada Mortgage and Housing Corporation and the Department of Finance will start hashing out a plan, the budget says, without providing a timeline for when such an insurance program might become available.