Crowe MacKay’s tax experts share insight on Canadian tax changes announced by the Federal Government impacting individuals, families, and businesses.
There are new reporting requirements for trusts requiring most trusts to file a T3 return, regardless of income or activity levels (with some exceptions, see below). The new reporting requirements were first proposed in the 2018 Federal Budget and the implementation has been delayed to apply to trusts with taxation years that end on or after December 31, 2023, and will require disclosure of information about the settlor, trustees, and beneficiaries (including contingent beneficiaries), such as name, address, date of birth, jurisdiction of residence, and taxpayer identification number (e.g., SIN).
Certain trusts are excluded from these new rules including:
There are significant penalties for non-compliance so you should start gathering the required information if these rules apply to you.
The 2022 Budget proposes to target individuals who purchase a house (or any kind of residential property) and sell it for much more than they purchased it for if the sale occurs within 12 months of the original purchase. They intend to accomplish this by mandating that unless the home was sold in the 12 month period for the purposes of dealing with a major life event such as a death or disability of a family member, birth of a child, a new job, or a divorce, the sale would be required to be reported as business income with no ability to claim the property as either a capital property or a principal residence.
Canada is working with members of the OECD and G20 to bring a multilateral agreement into effect based on a two-pillar plan for international tax reform agreed on October 8, 2021. In the interim, the Federal Government is moving forward with legislation for a Digital Service Tax (DST), which will not be imposed earlier than January 1, 2024, and only if the treaty implementing the Pillar One tax regime under the multilateral approach has not come into force. The DST would be payable as of the year that it comes into force in respect of revenues earned as of January 1, 2022.
This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual tax needs. This publication is not a substitute for obtaining personalized advice.
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The 2021 Federal Budget proposed a tax on certain new luxury cars, aircrafts, and boats that is expected to come into force as of January 1, 2022. The new tax will apply on the following purchases:
GST/HST will still apply to applicable purchases and is applied to the final sale price, inclusive of the luxury tax. Therefore, GST/HST is being levied on the tax that is levied on the purchase cost.
As announced in the 2021 Federal Budget, starting in 2022, real estate that is vacant or underutilized will have a new national tax of 1% levied on the assessed value annually.
Under the proposed rules, an owner would be exempt from the tax if the residence in question is the primary place of residence of:
Additional exemptions being proposed for vacation/recreational properties would apply to properties:
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 CRA in respect of the residential property.
The Underused Housing Tax would be effective for the 2022 calendar year with the first filing required on or before April 30, 2023.
In the Federal Government’s 2021 Fall Economic Statement, they propose increasing the Educator School Supply tax credit to 25%. In addition to the tax credit increase they have also broadened the definition of eligible supplies, removing the requirement that teaching supplies must be used in a school or regulated child care facility. This measure would also expand the list of eligible durable goods to include certain electronic devices. The following items would be added to the list of prescribed durable goods:
Educators would be required to provide a certificate from their employer attesting to the purchase of supplies.
This measure would apply to the 2021 and subsequent tax years.
The Government proposes to introduce a temporary Small Businesses Air Quality Improvement Tax Credit to encourage small businesses to invest in upgrading ventilation and air filtration systems to improve indoor air quality. The refundable tax credit would apply to eligible entities’ incurred expenditures dedicated to improving air quality in qualifying locations between September 1, 2021, and December 31, 2022. The tax credit rate will be 25%.
An eligible entity would receive a maximum credit of $10,000 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. Credit amounts would be included in the taxable income of the business in the taxation year the credit is claimed.
The tax credit is available to Canadian-controlled private corporations and individuals (but not trusts), and members of a partnership that are qualifying corporations or individuals (other than trusts). Specific eligibility requirements will apply to each of these groups.
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 taxation year for which an eligible entity would claim the tax credit would depend on when the qualifying expenditure was incurred.
The Government has proposed to return fuel charge proceeds directly to farming businesses in backstop jurisdictions (i.e. those who do not meet federal stringency requirements – Ontario, Manitoba, Saskatchewan, and Alberta) through a refundable tax credit, starting for the 2021-22 fuel charge year.
The return of fuel charge proceeds would be available to corporations, individuals, and trusts that:
Businesses operating in a partnership are also eligible for this tax credit.
The credit amount would be equal to the eligible farming expenses attributable to backstop jurisdictions in the calendar year in which the fuel year starts, multiplied by a payment rate for the fuel charge year. The payment rate is per $1,000 in eligible expenses and has been set by the Minister of Finance; they are as follows:
Credit amounts would be included in the taxable income of the business in the taxation year the credit is claimed. Businesses can claim these refundable tax credits through their tax returns that include the 2021 and 2022 calendar years.
It should be noted that the Federal Government is still planning on moving forward with the implementation of a Digital Service Tax (DST) if an international agreement is not approved by January 1, 2024. If an agreement is not in effect, the DST would be payable as of 2024 in respect of revenues earned as of January 1, 2022.
The Federal Government announced new changes impacting employees with stocks and eligible families who receive the Canada Child Benefit. These changes come in effect in the 2021 calendar year.
The Government recently clarified the proposed changes to limit the benefit of the employee stock option deduction. These rules will be effective for stock options granted after June 30 , 2021. An employee is subject to a taxable benefit if they acquire shares of their employer under a stock option agreement and the fair market value of the shares at the time of excise exceeds the amount paid by the employee to acquire the shares. A stock option deduction equal to 50% of the taxable benefit is available to employees if certain conditions are met. Under the new rules, a $200,000 annual limit is proposed on the amount of employee stock option grants that can qualify for the 50% stock option deduction. This restriction will apply to stock options in non-CCPCs and mutual fund trusts.
Employee stock options in CCPCs would generally not be subject to this $200,000 limit. Also, non-CCPC employers with annual gross revenues of $500M or less should also not be subject to these measures. Individuals employed by non-CCPCs should keep in mind the limited tax benefit of stock options over the $200,000 annual limit when negotiating their compensation packages.
The Canada Child Benefit (CCB) is a non-taxable benefit paid monthly to eligible families with children under the age of 18. For 2021, there will be additional support provided to families based on the number of children under the age of six and family net income. In total, there will be four supplementary payments calculated per child under the age of six, of either:
The first additional payment will be made after the enabling legislation has passed, and the following three payments will be made in the months of April, July, and October 2021. The family net income used to determine the 2021 first quarter and April payments will be based on family net income for 2019 while the 2021 July and October payments will be based on the family net income for 2020.
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