What's New this Canadian Tax Season

Insights
| 2/10/2021

The Federal Government has made changes to trust reporting requirements, the capital gains exemption, northern residents deductions, and employee stock options. Crowe MacKay’s tax advisors review how these changes may impact your 2021 taxes.

Trust Reporting Requirements

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 will apply to trusts with taxation years that end on or after December 31, 2021, 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:

  • Trusts that have been in existence for less than three months
  • Trusts that hold assets with a maximum of $50,000 in fair market value throughout the year (these assets are limited to deposits, government debt obligations, and listed securities)
  • Graduated rate estates
  • Qualified disability trusts

There are significant penalties for non-compliance so you should start gathering the required information if these rules apply to you.

Capital Gains Exemption

For 2021, the capital gains exemption for qualified small business corporation shares has risen from $883,384 to $892,218. This exemption will be indexed for inflation in subsequent years. The capital gains exemption for qualified farm or fishing property remains at $1,000,000.

Northern Residents Deductions

The 2021 Federal Budget proposed to expand the travel component of the Northern Residents Deductions for the 2021 and subsequent taxation years. An eligible individual will be able to claim, for each member of the household, a deduction up to the travel benefit provided by their employer. Alternatively, a $1,200 ($600 for Intermediate Zone) standard amount may be allocated across eligible trips taken by the individual. The Budget proposed 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.

Download our Northern Residents Travel Deduction Form

Employee Stock Options

The Government recently clarified the proposed changes to limit the benefit of the employee stock option deduction. These rules are 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.

Looking back: Tax changes in the 2020 Canadian tax season

The following was introduced in the 2020 Canadian tax season and is available for your reference.

The COVID-19 pandemic’s impact on individuals and businesses across the country led to the introduction of government-funded programs to support Canadians while ensuring their safety. Crowe MacKay’s tax advisors review how these programs may impact your 2020 taxes.

Capital gains exemption

For 2020, the capital gains exemption for qualified small business corporation shares has risen from $866,912 to $883,384. This exemption will be indexed for inflation in subsequent years. The capital gains exemption for qualified farm or fishing property remains at $1,000,000.

Relief Payments related to COVID-19

Individuals that received COVID-19 relief payments from the Government will be required to report these taxable benefits on their 2020 income tax return. These payments include the Canada Emergency Response Benefit, Canada Recovery Benefit, Canada Recovery Sickness Benefit, and Canada Recovery Caregiving Benefit. All individuals receiving benefits from the relief programs noted above should expect to receive a tax slip issued by the Government for 2020.

Registered Retirement Income Fund (RRIF) Minimum Withdrawals

Effective May 13, 2020, the minimum required withdrawal amount for RRIFs has been reduced by 25% for 2020 due to volatile market conditions from COVID-19. Those who have already withdrawn more than the reduced 2020 minimum amount will not be able to re-contribute the excess amount back into their RRIFs. Tax will only be withheld on withdrawals that exceed the unreduced minimum amount.

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.

If you are looking for Tax Services, Crowe MacKay provides personalized support. Our tax professionals will help you maximize tax-planning opportunities and ensure the minimum amount required by law is paid.

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