Federal Economic Update — Fall 2021

The Federal economic update was presented on December 14, 2021, by the Minister of Finance, Chrystia Freeland. Various new measures, including tax and Covid-19 measures, were announced.

Support for Workers

Extending the Canada Recovery Caregiving Benefit and the Canada Recovery Sickness Benefit

The Canada Recovery Caregiving Benefit and the Canada Recovery Sickness Benefit provided income support to over one million Canadians who found themselves unable to work because they either had to care for a family member, were sick or needed to self-isolate due to COVID-19.

The government has introduced legislation to extend the caregiving and sickness benefit until May 7, 2022, and increase the maximum duration of benefits by two weeks. This would extend the caregiving benefit from 42 weeks to 44 weeks and the sickness benefit from four weeks to six weeks.

Tabled legislation also provides authority for additional extensions of the Canada Recovery Caregiving Benefit and the Canada Recovery Sickness Benefit until July 2, 2022, should public health considerations warrant it.

The Canada Worker Lockdown Benefit

On November 24, 2021, the government tabled the necessary legislation to create the new Canada Worker Lockdown Benefit.

This proposed benefit will provide income support at a rate of $300 per week to workers whose employment is interrupted as a result of a specific government-imposed public health lockdown and who are unable to work due to such restrictions.

The benefit would be available until May 7, 2022, with retroactive application to October 24, 2021, should the situation warrant it. If needed, tabled legislation also provides authority for the government to extend the Canada Worker Lockdown Benefit until July 2, 2022.

Help for Guaranteed Income Supplement (GIS) Recipients and Students Affected by CERB Payments

The government proposes to make one-time payments to alleviate the financial hardship of GIS and to the persons who received CERB or the Canada Recovery Benefit (CRB) in 2020.

Additionally, the government proposes to provide debt relief to students who received, but were ineligible for, the CERB but were eligible for the Canada Emergency Student Benefit (CESB) by allowing their CERB-related debt to be offset by the amount they would have received from CESB during the same benefit period.

Enhancing the Home Office Expense Deduction

In 2020, the government authorized workers to rely on a temporary method to calculate their deduction for home office expenses.

The government will extend the simplified rules for deducting home office expenses and increase the temporary flat rate to $500 annually. These rules will apply to the 2021 and 2022 tax years.

Teachers and Live Performance Workers

The 2021 Fall Economic statement proposed various measures relating to enhanced support for teachers and workers in the live performance sector. These measures notably provide teachers with a 25% refundable tax credit based on an amount of up to $1,000 in expenditures made in a taxation year for eligible supplies. With respect to the live performance sector, the government established the new Canada Performing Arts Workers Resilience fund, which is a temporary program to aid or fund new initiatives in the live performance sector.

Support for Businesses

Extending Credit Support for Businesses and Extending the Canada Recovery Hiring Program

The government is extending the Highly Affected Sectors Credit Availability Program to March 31, 2022.

Additionally, on October 21, 2021, the government proposed extending the Canada Recovery Hiring Program until May 7, 2022, for eligible employers with current revenue losses above 10 per cent, and to increase the subsidy rate to 50 per cent. On November 24, 2021, the government introduced the necessary legislation for this extension at the first opportunity after parliament resumed.

Additional Measures of Support

The government has introduced legislation to adapt pandemic support programs and target them to organizations that have been deeply affected by the pandemic:

• The Tourism and Hospitality Recovery Program would provide support through wage and rent subsidies to organizations in the tourism and hospitality sectors such as hotels, tour operators, travel agencies, restaurants and organizations that plan and host festivals or live performances, with a subsidy rate of up to 75 per cent.
• The Hardest-Hit Business Recovery Program would provide support through wage and rent subsidies to organizations that have faced deep losses, with a subsidy rate of up to 50 per cent.
• The Local Lockdown Program would provide organizations that face new local COVID-19-related lockdowns with up to the maximum amount available through the wage and rent subsidy programs.

These programs would be available until May 7, 2022, with the proposed subsidy rates available until March 12, 2022. From March 13 to May 7, 2022, the support would decrease by half, in anticipation that the virus will be even more fully under control and our recovery will be firmly taking hold in all areas of the economy.

Lockdown Support would continue to provide additional rent support of 25 per cent and be pro-rated based on the number of days a particular location was affected by a lockdown until May 7, 2022.

Small Businesses Air Quality Improvement Tax Credit

The Government proposes to introduce a temporary Small Businesses Air Quality Improvement Tax Credit. The refundable tax credit would be available to eligible entities in respect of qualifying expenditures attributable to air quality improvements in qualifying locations incurred between September 1, 2021 and December 31, 2022.

Tax Credit Rate and Limits

The tax credit would be refundable and have a credit rate of 25 per cent that would apply to an eligible entity’s qualifying expenditures. An eligible entity would be limited to a maximum of $10,000 in qualifying expenditures per qualifying location and a maximum of $50,000 across all qualifying locations. The limits on qualifying expenditures would need to be shared among affiliated businesses. Consistent with the general treatment of business tax credits, credit amounts would be included in the taxable income of the business in the taxation year the credit is claimed.

Eligible Entities

Eligible entities for a taxation year would include unincorporated sole proprietors and Canadian-controlled private corporations with taxable capital employed in Canada of less than $15 million in the taxation year immediately preceding the taxation year in which the qualifying expenditure is incurred. For this purpose, the taxable capital of associated corporations is also counted. The credit would also be available where qualified expenses are incurred by a partnership. The credit could only be claimed by members of the partnership that are qualifying corporations or individuals (other than trusts), and would be based on their proportionate interest in the partnership. Special rules would apply to calculate a partner’s credit entitlement where a partnership interest is held indirectly through one or more partnerships.

Qualifying Expenditures

Qualifying expenditures would include expenses directly attributable to the purchase, installation, upgrade, or conversion of mechanical heating, ventilation and air conditioning (HVAC) systems, as well as the purchase of devices designed to filter air using high efficiency particulate air (HEPA) filters, the primary purpose of which is to increase outdoor air intake or to improve air cleaning or air filtration.

Qualifying Locations

Qualifying locations would include properties used by an eligible entity primarily in the course of its ordinary commercial activities in Canada (including rental activities), excluding self-contained domestic establishments (i.e., a place of residence in which a person generally sleeps or eats).

Timing

The tax credit would be available in respect of qualifying expenditures incurred between September 1, 2021 and December 31, 2022. The taxation year for which an eligible entity would claim the tax credit would depend on when the qualifying expenditure was incurred. Qualifying expenditures incurred before January 1, 2022 would be claimed by an eligible entity for its first taxation year that ends on or after January 1, 2022. Qualifying expenditures incurred on or after January 1, 2022 would be claimed by an eligible entity for the taxation year in which the expenditure was incurred.

Underused Housing Tax

In Budget 2021, the Government announced its intention to implement a national, annual 1-per-cent tax on the value of non-resident, non-Canadian owned residential real estate in Canada that is considered to be vacant or underused (the “Underused Housing Tax”). The Economic statement proposes that an owner’s interest in a residential property would be exempt from the Underused Housing Tax for a calendar year if a residence that is part of the residential property is, in respect of the calendar year, the primary place of residence of: (1) the owner; (2) the owner’s spouse or common-law partner; or (3) an individual that is the child of the owner or of the owner’s spouse or common-law partner, but only if the child is in Canada for the purposes of authorized study and the occupancy relates to that purpose.

Furthermore, the government plans to bring forward an exemption for vacation/recreational properties, which would apply to an owner’s interest in a residential property for a calendar year if the property: (1) is located in an area of Canada that is not an urban area within either a census metropolitan area or a census agglomeration having 30,000 or more residents; and (2) is personally used by the owner (or the owner’s spouse or common-law partner) for at least four weeks in the calendar year.

An owner eligible for either of the above exemptions would claim the exemption in the annual return that they would be required to file with the Canada Revenue Agency in respect of the residential property.

It is proposed that the Underused Housing Tax be effective for the 2022 calendar year.

The initial Underused Housing Tax returns, for the 2022 calendar year, would be required to be filed with the Canada Revenue Agency on or before April 30, 2023 and any tax payable would be required to be remitted on or before that date.

If you have any questions regarding the new measures, please contact your Crowe BGK advisor.