There is a change in respect of GST New Housing Rebates when a property is sold to two or more individuals. Previously, all individuals purchasing the household needed to satisfy the condition that the property was acquired as a primary place of residence for the individual or a primary place of residence for a relation of the individual. Budget 2021 proposes that only one individual purchasing the property needs to meet the condition of the property being a primary place of residence for the individual or a relation of that individual.
Budget 2021 proposes to provide $4.4 billion on a cash basis ($778.7 million on an accrual basis over five years, starting in 2021-22, with $414.1 million in future years) to the Canada Mortgage and Housing Corporation (CMHC) to help homeowners complete deep home retrofits through interest-free loans worth up to $40,000. This is supplementary to the one million free energy audits and 700,000 grants, valued up to $5,000, made available to Canadians to complete energy efficient home improvements announced in the 2020 Fall Economic Statement.
Loans would be available to homeowners and landlords who undertake retrofits identified through an authorized EnerGuide energy assessment. The program would be available by summer 2021.
Examples of deep retrofits include:
The Budget proposes an immediate one-time payment of $500 in August 2021 to Old Age Security (OAS) pensioners who will be 75 or over as of June 2022, and to increase regular OAS payments for pensioners 75 and over by 10% on an ongoing basis as of July 2022, indexed for inflation going forward.
For 2021, the value of the Federal Disability Tax Credit (DTC) is $1,299. To be eligible for the DTC, an individual must have a certificate confirming that they have a severe and prolonged impairment in physical or mental functions for everyday life.
For the purpose of the DTC, the Budget proposes to define “mental functions for everyday life” as: attention, concentration, memory, judgment, perception of reality, problem solving, goal-setting, regulation of behavior and emotions, verbal and non-verbal comprehension, and adaptive functioning.
Individuals may also qualify for the DTC if they are undergoing life-sustaining therapies that have a significant impact on everyday living. The Budget adjusts the list of eligible activities used to determine time spent on life-sustaining therapies, and where an individual is incapable of performing their therapy on their own, the Budget proposes to allow individuals to include the time reasonably required by another person to assist in performing and supervising the therapy.
The Budget further proposes the requirement that the therapy be administered at least three times each week be reduced to two times each week, however an individual must still receive therapy for a duration averaging not less than 14 hours a week.
These proposed changes would apply to the 2021 and subsequent taxation years with regards to DTC certificates filed with the Minister of National Revenue on or after Royal Assent.
The Canada Workers Benefit (CWB) is a refundable tax credit that offers tax relief to low-income workers and increases their work incentives. Under the Budget, the CWB increases from 26% to 27% for income in excess of $3,000, up to a maximum entitlement of $1,395 for single individuals without dependents, or $2,403 for families (couples and single parents). The Budget also increases the income phase-out threshold from $13,194 to $22,944 for single individuals without dependents, and from $17,522 to $26,177 for families. The phase out rate is also increased from 12% to 15%.
A secondary earner exemption to the CWB in order to improve work incentives for secondary earners in a couple was also proposed. This rule allows the spouse or common-law partner with the lower income to exclude up to $14,000 of their working income to compute their adjusted net income for the purpose of the phase-out.
The CWB is also available to individuals who are eligible for the Disability Tax Credit. Corresponding changes would be made to the disability supplement’s phase-in and reduction rates as well as the reduction threshold. The Budget increases the threshold to $32,244 from $24,815 for single individuals without children, and $42,197 from $37,548 for families, and states that the phase out rate for the supplement is 7.5% for each individual in a couple where both individuals receive the supplement, and 15% otherwise.
These measures would apply to the 2021 and subsequent taxation years.
The Northern Residents Deductions consists of a residency deduction and a travel benefits component. To be able to claim the deductions, the individual has to live in one or more prescribed zones for a continuous period of at least six months. The travel component allows the taxpayer to deduct the benefit provided by the employer.
The Budget proposes to expand the travel component of the Northern Residents Deductions. A taxpayer would have the option to claim, in respect of each taxpayer and each eligible family member up to the travel benefit provided by the employer. Alternatively, a $1,200 ($600 for Intermediate Zone) standard amount may be allocated across eligible trips taken by the individual. The Budget proposes a maximum of two trips taken by the individual for non-medical purposes would be allowed to be claimed in total and any number of trips for medical purposes in a household.
This measure would apply to the 2021 and subsequent taxation years.
Certain luxury goods will have a Federal tax levied upon their purchase beginning January 1, 2022.
For the purchase of new luxury vehicles and personal aircraft, the tax will apply on items priced over $100,000. For boats, the tax will apply on items priced over $250,000.
Details and legislation (including any defined terms) will be announced in the coming months, but for now broad points include:
The Budget proposes an earnings-stripping rule that would limit the amount of net interest expense that a corporation may deduct in computing its taxable income. This is in accordance with recommendations from the Organization for Economic Co-operation and Development and its aim to limit base erosion and profit shifting by multinational enterprises through the use of interest deductions.
Under the new rule, the interest deduction would be limited to a fixed ratio of “tax EBITDA,” which would be the corporation’s taxable income before accounting for interest expense, interest income, income tax, and deductions for depreciation and amortization as determined for tax purposes. Further details about the earnings-stripping rule are provided below:
This new rule would also apply to trusts, partnerships, and Canadian branches of non-resident taxpayers. Exemptions from the rule would be available for:
Interest denied under the earnings-stripping rule would be available for carry forward for up to twenty years or for carry back for up to three years. There will be mechanisms in place for Canadian members of a group to transfer unused capacity to deduct interest to other Canadian members of the group. There will also be a “group ratio rule” which may allow entities to deduct more interest expense depending on the relative net interest/EBITDA ratio of the worldwide group. Consistent with the rationale of the group ratio rule, the Department of Finance has indicated that standalone Canadian corporations and Canadian corporations that are members of a group none of whose members is a non-resident would, in most cases, not have their interest expense deductions limited under this new rule.
This measure would apply to taxation years that begin on or after January 1, 2023, and would be phased in, with a fixed ratio of 40% for taxation years beginning on or after January 1, 2023, but before January 1, 2024, and 30% for taxation years beginning on or after January 1, 2024, and would apply with respect to existing as well as new borrowings. There would be an anti-avoidance rule to prevent taxpayers from deferring the application of the measure, or of the 30% fixed ratio.
The Budget proposes a temporary measure to reduce the general corporate income tax rate to 7.5% (from 15%), and the small business tax rate to 4.5% (from 9%) for qualifying zero-emission technology manufacturers. The reduced tax rates would apply to taxation years that begin after 2021 and would be gradually phased out starting in taxation years that begin in 2029 and fully phased out for taxation years that begin after 2031.
This measure would apply in respect of income from the following zero-emission technology manufacturing or processing activities:
Budget 2021 proposes to provide $105 million over three years, starting in 2021-22, for Telefilm Canada to modernize its current suite of programs to provide better access to a diverse range of creators and producers, support green practices, and respond to increasing digitization in the audiovisual industry.
To provide opportunities for equity deserving creators to build skills and experience, and to support greater diversity in top-tier productions, it is also proposed to provide $60 million over three years, starting in 2021-22, to the Canada Media Fund to increase support for productions led by people from equity deserving groups working in the Canadian audiovisual industry.
The Budget proposes to extend the Canadian Film or Video Production Tax Credit (CPTC) and the Film or Video Production Services Tax Credit (PSTC) by 12 months on certain qualified labour expenditures.
Taxpayers would be required to file a waiver with the Canada Revenue Agency and the Canadian Audiovisual Certification Office in order to extend the assessment limitation period in respect of the relevant years to take into account this 12-month extension.
The government announced a consultation on proposals to enhance Canada’s mandatory disclosure rules. The consultation will address:
The Income Tax Act has an anti-avoidance rule (the “tax debt avoidance rule”) that prevents taxpayers from avoiding their tax liabilities by transferring their assets to non-arm’s length persons for insufficient consideration. Some taxpayers are engaging in complex transactions that attempt to circumvent the tax debt avoidance rule, and the Budget introduces new measures to address this type of planning.
The Budget also introduces a new penalty for planners and promoters of tax debt avoidance schemes equal to the lesser of:
These new measures would apply in respect of transfers of property that occur on or after April 19, 2021.
The Budget proposes a temporary immediate expensing of up to $1.5 million per taxation year of eligible investments by Canadian-controlled private corporations (CCPC).
The immediate expensing is available for eligible properties acquired on or after the Budget day that are available for use before January 1, 2024. CCPCs are allowed to expense up to $1.5 million per taxation year and this $1.5 million limit is prorated for short taxation years. The $1.5 million would be shared among associated members of a group of CCPCs. Any unused portion of the limit cannot be carried forward.
Eligible property includes capital properties subject to the capital cost allowance (CCA) rules other than assets that would be included in CCA classes 1 to 6, 14.1, 17, 47, 49 and 51.
CCPCs may decide which CCA class the immediate expensing applies to, and any capital cost in excess of $1.5 million would be subject to the existing CCA rules. Assets that are eligible for enhanced deductions under the existing rules, such as the accelerated investment incentive rules, will not reduce the maximum deduction under the immediate expensing Budget proposal, such that a CCPC may expense up to $1.5 million in addition to all other CCA claims under the existing rules. This is provided that the total CCA deduction does not exceed the capital cost of the property.
Immediate expensing would only be available for the year in which the property becomes available for use.
Immediate expensing is restricted by any existing rules that would otherwise restrict a CCA deduction, such as rules related to limited partners, specified leasing properties, specified energy properties and rental properties. Also a property that has been used, or acquired for use, for any purpose before being acquired by the taxpayer would be eligible for immediate expensing only if both of the following conditions are met:
The Government of Canada is announcing its intention to introduce legislation that will establish a federal minimum wage of $15 per hour, rising with inflation, with provisions to ensure that where provincial or territorial minimum wages are higher, that wage will prevail.
Budget 2021 proposes to provide $101 million over two years, starting in 2022-23, to Agriculture and Agri-Food Canada, to implement a program for the wine sector that will support wineries in adapting to ongoing and emerging challenges, in line with Canada’s trade obligations.
Starting in 2022, real estate that is vacant or underutilized will have a new national tax levied on the assessed value annually.
Details and legislation (including any defined terms) will be addressed in the coming months. The government will be consulting with various parties to discuss special rules for tourism and resort communities.
At a high level, the points include:
Expanding on the 2020 Fall Economic Statement, whereby the government is aiming to increase GST/HST revenues from non-resident companies providing digital services and who may not normally be required to register for GST/HST, a new tax is also being implemented and levied against them. The Digital Services Tax (“DST”) is intended to target large foreign business groups (including those organized in various forms such as corporations, trusts, partnerships) that earn certain “in-scope” revenue from Canadian-sourced data or users.
Essentially, current or traditional tax systems were generally designed for an economy where physical presence was assumed critical in creating value in a particular jurisdiction. Given the growth of e-commerce, that is no longer the case and multinational companies especially are able to effectively conduct business in many countries without always paying income tax. Countries are now aiming to coordinate tax systems to amicably levy tax in these digital situations, and so share in lost tax revenues. The DST is a temporary measure being implemented until a multilateral agreement can be put into place.
Large businesses subject to the DST include those who have global revenue from all source of 750 million Euros (~$1.125B CAD) or more in the previous calendar year and have “in-scope” revenue associated with Canadian users of more than $20 million in the particular calendar year. Rules will include looking at businesses within their relevant groups of entities for applying thresholds. User location may be determined in a number of ways depending on the service and may include IP address, billing address, or real time location tracking.
“In-scope” revenues generally are those from online business models in which user participation, provision of data, and contributions of content are key value drivers. General examples include certain online marketplaces, social media sites, and certain data-based online advertising.
The DST would be a 3% tax against “in-scope” revenues, in excess of $20 million, associated with Canadian users. Revenues would not include any applicable value-added or sales tax associated with the revenue generating transaction. Parties subject to the DST would likely file a separate return for it and pay annually. The DST cannot be used as a credit against Canadian income taxes payable.
The DST would be effective January 1, 2022 onwards until a multilateral agreement is reached with other countries.
A simplified GST/HST registration will be introduced for non-resident entities making taxable supplies of services, digital products, and/or tangible goods in excess of the $30,000 threshold.
Non-resident registrants under the simplified rules will not generally be able to claim Input Tax Credits and most rebates, other than for bad debts and certain HST point of sale rebates. The CRA has the authority to register non-resident entities if it feels the entity meets the simplified registration requirements.
CRA will determine the application of the new simplified registration rules over a twelve month period beginning July 1, 2021.
Changes to the thresholds for documentary support criteria under the Input Tax Credit Information (GST/HST) Regulations are as follows:
Billing agents can now be considered intermediaries for the purposes of this Regulation.
In continuing to support businesses impacted by the COVID-19 pandemic, Budget 2021 proposes to:
The subsidy rates will decline over the period starting July 4, 2021 and only employers with a revenue decline of more than 10% will be eligible for a wage subsidy. The rate structure for these periods is summarized below:
Base: 40% + Top-up: 35%
Base: 35% + Top-up: 25%
Base: 25% + Top-up:15%
Base: 10% + Top-up:10%
Publicly listed corporations will be required to repay wage subsidy amounts received after June 5, 2021 to the extent of the lesser of the wages subsidies paid after June 5, 2021, and the increased compensation paid to specified executives for 2021 over 2019.
Support for furloughed employees will continue from June 6, 2021 to August 28, 2021 at the lesser of:
Similar to CEWS, the subsidy rates will decline over the period starting July 4, 2021 and only employers with a revenue decline of more than 10% will be eligible for a rent subsidy. The rate structure for these periods is summarized below:
Budget 2021 proposes to extend the additional 25% rate added to the base rent subsidy provided via CERS for locations that must cease operations or significantly limit their activities under a public health order.
The Federal Government proposed to introduce a new program known as the Canada Recovery Hiring Program (“CRHP”) that will provide eligible employers with a subsidy of up to 50% of incremental eligible remuneration paid to eligible employees between June 6, 2021 and November 20, 2021.
An eligible employer can claim either the CRHP or a CEWS amount for a particular period, but not both.
Eligible employers generally include those eligible for CEWS, such as individuals, not-for-profit organizations, registered charities and certain partnerships, however a for profit corporation must be a Canadian controlled private corporation to be able to claim the hiring subsidy. Eligible employers are required to have had a payroll account on March 15, 2020.
The same revenue decline thresholds that apply to the CEWS program will apply to the CRHP so at least a 10% decline is required.
Note: Although the CRHP has many similarities to the CEWS program, review of the program details is advised as there are definitions and terms that are specific to the CRHP.
Incremental eligible remuneration is the difference between an employer’s total eligible remuneration for a qualifying period and the total eligible remuneration for a baseline period. The baseline period that will apply for the qualifying periods from June 6 to November 20, 2021 will be the period March 14 to April 10, 2021. For both periods, qualifying and baseline, eligible remuneration will be subject to a maximum of $1,129 per week for each eligible employee.
The claim for a period will be the equal to the incremental remuneration multiplied by the applicable subsidy rate as noted in the table below.
The government announced its commitment to create one million jobs and restore employment to pre-covid levels through government investment. Budget 2021 proposes a number of programs to help make this commitment a reality.
Entrepreneurs, especially those from equity deserving groups such as racialized Canadians, young people, LGBTQ2 people, and more, face barriers to starting and growing a business. Budget 2021 proposes to provide:
The federal government will work with provincial, territorial, and indigenous partners to build a Canada-wide, community-based system of quality child care. The government’s goal is to ensure all families have access to high-quality, affordable, and flexible early learning and child care, no matter where they live, improving flexibility for working parents.
The Budget proposes to invest up to $30 billion over the next five years and $8.3 billion ongoing for Early Learning and Child Care and Indigenous Early Learning and Child Care.
An additional $29.2 million over two years, starting 2021-22, will be allocated to Employment and Social Development Canada through the enabling Accessibility Fund to support child care centres as they improve their physical accessibility.
A proposed $2.5 billion investment over the next five years will be invested in Indigenous Early Learning and Child Care to build on their existing Framework to strengthen high quality, culturally appropriate child care for Indigenous children guided by Indigenous priorities.
In an effort to ensure all persons with disabilities have the support they need, $11.9 million over three years, starting in 2021-22, to Employment and Social Development Canada has been allocated to reform the eligibility process for federal disability programs and benefits. This work will lead directly into the design of a new disability benefit.
To make workplaces more accessible, Budget 2021 also proposes an additional $100 million to Employment and Social Development Canada to triple funding for the Enabling Accessibility Fund, helping to offset costs of renovations, retrofits, and accessible technologies in the workplace.
Budget 2021 proposes to provide $45 million over two years, starting in 2021-22, to Health Canada, the Public Health Agency of Canada, and the Canadian Institutes of Health Research to help develop national mental health service standards, in collaboration with provinces and territories, health organizations, and key stakeholders.
An additional $150 million will be invested starting in the 2021-22 year to support populations disproportionally impacted by COVID-19, including health care workers, front-line workers, youth, seniors, Indigenous people, racialized and Black Canadians, and those exposed to various trauma brought about by COVID-19.
To facilitate the safe restart of air travel that limits transmission of COVID-19 and protects travellers, Budget 2021 proposes:
To ensure that the cost of post-secondary education in Canada remains predictable and affordable for everyone, the government proposes to:
To ensure youth and students can access valuable job skills and experience, Budget 2021 is proposing to invest $721 million in the next two years to help connect them with employers and provide them with quality job opportunities through the investment of:
To improve the administration of, and compliance with, the tax system, Budget 2021 proposes various measures to improve the CRA’s ability to operate digitally, resulting in faster, more convenient and accurate services, while also enhancing security.
Budget 2021 proposes to provide the CRA with the ability to send certain notices of assessment electronically without the taxpayer having to authorize the CRA to do so. This proposal would apply in respect of individuals who file their income tax return electronically and those who employ the services of a tax preparer that files their income tax return electronically.
The Budget proposes to change the default method of correspondence for businesses that use the CRA’s My Business Account portal to electronic only. However, businesses could still choose to also receive paper correspondence.
Budget 2021 also proposes to allow issuers of T4A and T5 information returns to provide them electronically without having to also issue a paper copy and without the taxpayer having to authorize the issuer to do so.
Budget 2021 proposes to require professional preparers where they prepare more than 5 corporate income tax returns or 5 personal income tax returns to be required to file electronically. It’s also proposed to limit the number of paper-filed returns to be filed by a tax preparer to a maximum of five income tax returns for corporations and five income tax returns for individuals.
Budget 2021 proposes to eliminate the requirement that signatures be in writing on certain prescribed forms, as follows: