2020 Fall Economic Statement

Support Canadians and Fighting COVID-19

Silvia Jacinto, Frédéric Pansieri
Article
| 11/30/2020
2020 fall economic statement

On Monday, November 30, 2020, Deputy Prime Minister and Finance Minister Chrystia Freeland unveiled, Supporting Canadians and Fighting COVID-19, the federal government’s fiscal update in response to the second-wave of the pandemic in Canada. The national deficit is projected to hit an all-time high of $381.6 billion this fiscal year.

This fiscal update is expected to be followed by a full federal budget sometime in 2021, after the postponement of the March 30, 2020 budget due to COVID-19. All of the proposed new measures will be voted on by MPs in the coming weeks.

Investing in our Health
  • Canadian-made Vaccine Advancements - To date, Canada has invested more than $1-billion in vaccine agreements to secure a domestic supply of seven promising vaccine candidates. InInvesting in Health fact, Canada has secured the most diverse and extensive vaccine portfolio of any country in the world. Every Canadian can be confident that a safe and effective vaccine will be available to them and their family, free of charge.

    The federal government is investing $126 million in its capacity to manufacture vaccines by establishing a new bio-manufacturing facility at the National Research Council’s Human Health Therapeutics Research Centre in Montréal. They are also investing in bio-manufacturing capacity in Canada’s private sector, including at AbCellera and Medicago.

    As a commitment to Canadian COVID-19 vaccine and therapeutics initiatives, the government is also providing $23 million to the National Research Council to provide support for research and development. In addition, they will be securing equipment and supplies for packaging vaccines once they are manufactured through a $150 million investment in 2020-21. 
  • PPE and Medical Equipment - The Government of Canada is allocating an additional $1.5 billion in order to continue to procure PPE and provide warehousing and logistics support to rapidly deliver critical PPE and medical supplies to provinces, territories and Indigenous communities, as well as to maintain the readiness of the National Emergency Strategic Stockpile (NESS).
  • Health Care in Indigenous Communities - While Indigenous communities were successful in controlling the spread of COVID-19 during the spring outbreak, they are reporting alarming surges in COVID-19 cases in this second wave. To help ensure that First Nations, Inuit and Métis Nation communities can manage and control the virus during the second wave, as well as the flu season, the Government of Canada is proposing to commit over $900 million to support the continued health response in Indigenous communities including:
  • $631.6 million over two years, starting in 2020-21, in additional support for the ongoing public health response to COVID-19 in Indigenous communities. This brings the total COVID-19 emergency health funding to $926.7 million.
  • $186.8 million over two years, starting in 2020-21, to address needs and gaps in supportive care facilities and provide additional home care in Indigenous communities, to protect elders and other vulnerable community members from COVID-19.
Supporting Canadians Working from Home
Under current rules, employees working from home can claim certain home office expenses that are not reimbursed by the employer. However, to do so, the employee requires a Form T2200 – Declaration of Conditions of Employment signed by their employer, as well as a tracking of these expenses. The government is proposing to simply the process for employees to claim modest home office expenses. Under this proposal, employees would be able to deduct up to $400 of reasonable home office expenses without a detailed tracking of these expenses and without the need to obtain Form T2200 from their employer.  Further details will be released in the coming weeks.
Support for Industries Hit Hardest by COVID-19
  • Highly Affected Sectors Credit Availability Program (HASCAP) – This is a new program targeted at the hardest hit air travelbusinesses, including those in sectors, like tourism and hospitality, hotels, arts and entertainment. This program will offer 100 per cent government-guaranteed financing for heavily impacted businesses and provide low-interest loans of up to $1 million over extended terms, up to ten years. Rates will be lower than those offered in Business Credit Availability Program (BCAP) and beneath typical market rates for hard hit sectors. More details to be announced soon.
  • Regional Relief and Recovery Fund - In addition to the already announced $1.5 billion of support, the government is proposing a top-up of up to $500 million, on a cash basis to Regional Development Agencies and the Community Futures Network of Canada, bringing total funding to over $2.0 billion.

    The government is also proposing to provide up to $3 million to the Canadian Northern Economic Development Agency for foundational economic development projects that will support small businesses in Canada’s Territories. In addition, the government intends to introduce a new approach to better tailor support to Western Canada by creating separate regional development agencies for British Columbia and the Prairies and adding a new, seventh Regional Development Agency in British Columbia. Additional details and investments will follow.
  • Tourism and Hospitality - Recognizing the importance of the Regional Relief and Recovery Fund in supporting local tourism businesses, the government will earmark a minimum of 25 per cent of all the Fund’s resources to support local tourism businesses, providing more than $500 million in program support through June 2021.
  • Live Arts, Entertainment, and Events - The government will provide $181.5 million in 2021-22 to the Department of Canadian Heritage and the Canada Council for the Arts to expand funding programs for COVID-19-safe events and the arts in general.
    The government will also provide additional COVID-19 relief to local television and radio stations by supporting the waiving of broadcasting Part II licence fees in 2020-21, which are collected annually by the Canadian Radio-television and Telecommunications Commission.
  • Regional Air Transportation and Carriers - The government proposes to provide up to $206 million over two years, starting in 2020-21, to the Regional Development Agencies for a new Regional Air Transportation Initiative. To support small and regional airports in making critical investments in health and safety infrastructure, the government proposes to provide additional funding of $186 million over two years, starting in 2021-22, for the Airports Capital Assistance Program (ACAP). Small federally-owned airports, which are not currently eligible for ACAP, would also be eligible to access the program for 2021-22 and 2022-23.

    To continue supporting the operations of Canada's major airports, the government proposes to extend $229 million in additional rent relief to the 21 airport authorities that pay rent to the federal government, with comparable treatment for Ports Toronto, which operates Billy Bishop Toronto City Airport. This support to airports would be made up of repayable and non-repayable rent relief, with non-repayable support costing $29 million over four years, starting in 2020-21. Rent relief would be provided as follows:
  • Waiving rent payments for small airports (i.e., those with passenger volumes of less than one million passengers in 2019) for 2021, 2022 and 2023;
  • Waiving rent payments for medium airports (i.e., those with passenger volumes between one million and ten million in 2019) for 2021; and,
  • Deferring rent payments for the largest airports for 2021, with repayment to occur over ten years, starting in 2024.

To further assist airports in managing the financial implications of reduced air travel, the government proposes to provide $65 million in additional financial support to airport authorities in 2021-22.

  • Innovative Businesses - To ensure that innovative, intellectual property-rich firms have the support they need to face the challenges presented by COVID-19, it is proposed that $250 million over five years, beginning in 2021-22, be provided to the Strategic Innovation Fund. Through its continued support of large-scale transformative projects, the Strategic Innovation Fund will help Canada’s most innovative firms and industries weather the pandemic and grow into world leaders that will help drive growth and create jobs in the Canadian economy.
Protecting Vulnerable Canadians

The government is proposing an additional $600,000 to top up the Veterans Emergency Fund to provide financial support for veterans whose well-being is at risk.Vulnerable Canadians

In addition, to further bolster training support for those hardest hit by the pandemic, including marginalized and racialized women, Indigenous Peoples, persons with disabilities and recent newcomers to Canada, the government proposes to invest an additional $274.2 million over two years, starting in 2021-22. This funding will support the Indigenous Skills and Employment Training Program, the Foreign Credential Recognition Program, the Opportunities Fund for Persons with Disabilities, and the Women’s Employment Readiness Canada pilot project.


Helping Canadian Families

Many families have been struggling with a wide range of expenses during the pandemic – from providing alternative child care to buying tools for at-home learning like books and technology.Families

In order to provide immediate relief for families with young children, the government proposes to introduce temporary support totaling up to $1,200 in 2021 for each child under the age of six for low- and middle income families who are entitled to the Canada Child Benefit (CCB). Details are provided in the Income Tax Measures section below.

The Canadian government is also proposing to provide $20 million over five years, starting in 2021-22, with $4.3 million per year ongoing for a Federal Secretariat on Early Learning and Child Care. The Secretariat will build capacity within the government and engage stakeholders to provide childcare policy analysis in support of the much anticipated Canada-wide child care system.


Economic Opportunity and Diversity in Procurement

COVID-19 has highlighted and exacerbated existing systemic barriers faced by Black entrepreneurs and owners of small and medium-sized businesses in Canada. On September 9, the governmentEconomic Opportunity announced $221 million over the next four years to launch Canada’s first-ever Black Entrepreneurship Program to ensure equitable access to support and opportunities for Black business owners and entrepreneurs.

The program will help thousands of Black business owners and entrepreneurs across the country recover from this crisis and grow their businesses. The program will be delivered with up to $93 million, including:

  • Up to $53 million to develop and implement a new National Ecosystem Fund to help Black business owners and entrepreneurs access funding and capital, mentorship, financial planning services, and business training;
  • Up to $33.3 million in support through the new Black Entrepreneurship Loan Fund that will provide loans of between $25,000 and $250,000 for Black business owners and entrepreneurs. The Government of Canada is also partnering with financial institutions to make up to $128 million available in additional lending support; and
  • Up to $6.5 million to create and sustain a new Black Entrepreneurship Knowledge Hub that will collect data on the state of Black entrepreneurship in Canada and help identify Black entrepreneurs’ barriers to success as well as opportunities for growth. The Hub will be run by Black-led community and business organizations, in partnership with educational institutions.
Supporting Diversity and Fairness in the Workplace

Building a Corporate Canada that Looks Like Canada - In Canada’s business community, women, racialized Canadians, LGBTQ2 Canadians, people with disabilities, and Indigenous people areDisability underrepresented in positions of influence. The 50-30 Challenge is a call to action to businesses across Canada to increase diverse representation on corporate boards and in senior management positions. The 50-30 Challenge asks participating organizations to make two commitments and report regularly on progress towards:

  • Gender parity (“50 per cent”) on boards and in senior management, and;
  • Significant representation (“30 per cent”) on boards and in senior management of other underrepresented groups, including racialized Canadians, Indigenous people, people with disabilities, and members of LGBTQ2+ communities.

The government proposes to provide $33 million over 3 years, starting in 2021-22, to support the Challenge in collaboration with diversity-seeking groups and business stakeholders. This funding will assist diversity-serving organizations to support private and public sector organizations – including small and medium-sized businesses, not-for-profits and academic institutions – with the development of tools to help them achieve the program’s goals.

Supporting Skilled Newcomers
Attracting talented workers from around the world is an essential part of the government’s plan to help grow our economy and support the economy’s recovery from the COVID-19 recession. TheSkilled newcomers Foreign Credential Recognition Program helps address specific barriers faced by skilled newcomers, such as the length and cost of credential recognition, and has recently expanded its scope to provide direct employment support.

To scale up and expand existing support for the labour market integration of skilled newcomers with a focus on in-demand sectors, such as health, IT, and skilled trades, the government proposes to invest $15 million in 2021-22 in the Foreign Credential Recognition Program. Up to 15,000 skilled newcomers are expected to benefit from this investment.
Addressing Affordable Housing and Homelessness
  • Expanding the Rental Construction Financing Initiative - Finding an affordable place to rent is a challenge across Canada. To address this, the government launched the Rental ConstructionAffordable housing Financing Initiative in 2017 to provide low-interest loans and mortgage insurance to support the construction of purpose-built rental housing.

    In order to expand this initiative, the government will provide new resources to the Canada Mortgage and Housing Corporation to enable the Rental Construction Financing Initiative to provide an additional $12 billion in new lending over seven years, starting in 2021-22. This funding will increase the Rental Construction Financing Initiative’s total lending capacity from $13.75 billion to $25.75 billion in low-interest loans, and enable the construction of an additional 28,500 rental units.

  • Increasing The First-Time Home Buyer Incentive - The government is expanding the First-Time Home Buyer Incentive to enhance eligibility in the higher priced markets of Toronto, Vancouver and Victoria by allowing eligible buyers to purchase a home up to 4.5 times their household income, an increase from the current limit of 4 times household income. Additionally, the eligible buyer’s income threshold is being raised from $120,000 to $150,000 for Toronto, Vancouver and Victoria. These changes will come into effect in spring 2021.
Creating a Competitive, Green Economy
  • Home Energy Retrofits - The government proposes to provide $2.6 billion over seven years, starting in 2020-21, to Natural Resources Canada to help homeowners improve their home energyGreen Economy efficiency by providing up to 700,000 grants of up to $5,000 to help homeowners make energy-efficient improvements to their homes, up to one million free EnerGuide energy assessments, and support to recruit and train EnerGuide energy auditors to meet increased demand. Additional information on home energy efficiency grants will be provided in a future announcement, and eligibility for these grants will be retroactive to December 1, 2020.

    The government also recognizes that homeowners and landlords need to be able to access simple and affordable financing to make deeper home energy retrofits. Over the coming months the government will outline details of a low-cost loan program that integrates and builds on available energy audits and grants, and which can be easily accessed by Canadians.
  • Zero-emission Vehicle Infrastructure - The government is taking action to help more Canadians choose zero-emission vehicles to support Canada’s transition to a low-carbon economy. Since 2016, the government has invested $226.4 million to build new recharging and refuelling infrastructure along highways and in places where people live and work.

    The government proposes to accelerate this work by providing $150 million over three years to Natural Resources Canada, starting in 2021-22.

  • Nature-based Climate Solutions - To fight climate change, protect forests and create good jobs, the government proposes to provide up to $3.16 billion, over ten years, starting in 2021-22, with $2 million in remaining amortization, to Natural Resources Canada to partner with provinces, territories, non-governmental organizations, Indigenous communities, municipalities, and others to plant 2 billion trees.

    To restore degraded wetland ecosystems, protect wildlife, and improve land and resource management practices, the government also proposes to provide up to $631 million over ten years, starting in 2021-22, with $0.1 million in remaining amortization, to Environment and Climate Change Canada.

    Canada’s farms have significant potential to increase carbon sequestration and realize other environmental benefits through the adoption of beneficial management practices. The Government proposes to provide $98.4 million over ten years, starting in 2021-22, with $1.6 million in remaining amortization, to Agriculture and AgriFood Canada to establish a new Natural Climate Solutions for Agriculture Fund. This fund will leverage $85 million in existing programming and will be guided by a new Canadian Agri-Environmental Strategy to be developed in collaboration with partners to support the sector’s actions on climate change and other environmental priorities towards 2030 and 2050.

  • Strategic Interties - Canada has immense clean energy resources but many regions of this country still rely on coal power. Getting clean power to more communities remains a challenge as traditional financing models make it difficult for electricity providers to build large-scale transmission projects while keeping rates affordable for customers.

    To bring clean power to more Canadians and accelerate Canada’s coal phase-out, the government is committed to working with the provinces and territories to help build new electricity transmission infrastructure with support from the Canada Infrastructure Bank (CIB). In addition, to further support necessary project pre-development work, the government proposes to provide $25 million in 2021-22 to help some proponents complete engineering assessments, community engagement, and environmental and regulatory studies.
Reconciliation
  • Supporting Infrastructure in Indigenous Communities - There is a significant gap in infrastructure in Indigenous communities when compared with non-Indigenous communities in Canada.Reconciliation This can affect overall quality of life, widen socio-economic gaps and reduce Indigenous peoples’ participation in the economy. To keep building strong communities together, the government proposes to invest:

    • $1.5 billion starting in 2020-21, and $114.1 million per year ongoing thereafter to accelerate work to lift all long-term drinking water advisories and stabilize funding for water and wastewater infrastructure, including operation and maintenance costs, in First Nations communities.
    • $25.9 million in 2020-21 to accelerate the government’s 10 year commitment to close the infrastructure gap in Indigenous communities by supporting the co-development of infrastructure plans with Indigenous partners, which will help pave the way to address critical needs in First Nations, Inuit and Métis Nation communities. To support early action, $1.8 billion over seven years, starting in 2021-22, will be directed to support community infrastructure priorities.

  • Supporting Health and Well-being in Indigenous Communities - To move forward with the government’s commitment to providing high quality health care designed to meet the unique needs of Indigenous communities, the government proposes an initial investment of $15.6 million over 2 years, starting in 2021-22, to support the co-development of distinctions-based health legislation with First Nations, Inuit and Métis Nation partners. This will begin the process of transforming health care delivery in Indigenous communities by ensuring Indigenous control over the development and delivery of health services.
  • Mercury Treatment Centres - In order to address the long-standing mercury-related health issues facing Indigenous communities of the English-Wabigoon river system, the government proposes to provide $200.1 million over 5 years, starting in 2021-22, and $0.3 million ongoing to support the construction and operations of a mercury treatment centre in each community. These centres will offer specialized care for residents to address their unique health care needs, as well as supported living for those who require it. As a result, residents in both Asubpeeschoseewagong and Wabaseemoong will receive the care they need while staying closer to home, community and family.
  • National Inquiry into Missing and Murdered Indigenous Women and Girls - Building on initial investments, the government proposes to invest an additional $781.5 million over 5 years starting in 2021–22, and $106.3 million ongoing to combat systemic discrimination against Indigenous peoples and expand efforts to combat violence against Indigenous women, girls and LGBTQ and two-spirit people. This includes:

    • $49.3 million to support the implementation of Gladue Principles in the mainstream justice system and Indigenous-led responses in order to help reduce the overrepresentation of Indigenous Peoples in the criminal justice and correctional systems.
    • $8.1 million to develop Administration of Justice Agreements with Indigenous communities to strengthen community-based justice systems and support self-determination.
    • $724.1 million to launch a comprehensive Violence Prevention Strategy to expand access to a continuum of culturally relevant support for Indigenous women, children and LGBTQ and two-spirit people facing gender-based violence.
Immediate Support for Families with Young Children

The Canada Child Benefit (CCB) is a non-taxable benefit paid to eligible families with children under the age of 18. The CCB is based on adjusted family net income and is phased out depending on theFamilies number of children and family income level. For the 2020-21 benefit year (July 1, 2020 to June 30, 2021), the CCB provides a maximum benefit of $6,765 per child under the age of six and $5,708 per child aged six through 17. Families with less than $31,711 in adjusted net income in 2019 receive the maximum benefit for the 2020-21 benefit year. The phase-out rates and income thresholds are indexed to inflation annually.

The government is proposing to provide four additional payments to eligible families in 2021, as follows:

  • $300 per child under the age of six to families entitled to the CCB with family net income equal to or less than $120,000, and
  • $150 per child under the age of six to families entitled to the CCB with family net income above $120,000.

The first of these amounts would be payable after the enabling legislation is passed, with subsequent amounts payable in the first month of each remaining quarter (i.e., at the end of April, July and October 2021). These amounts would be paid to the primary caregiver of the child for a particular month, i.e., in January, April, July or October 2021. The rules that apply to the CCB would generally also apply to these additional quarterly amounts.

Shared-Custody Parents
If an individual is entitled to the CCB as a shared-custody parent in a month for which a quarterly amount would be payable, this individual would receive half of the applicable quarterly amount in respect of each shared-custody child.

Retroactive Payments
Currently, an individual can apply to receive retroactive payments of the CCB, looking back 10 years. However, in order to qualify for the additional quarterly amounts proposed today, an individual must be entitled to the CCB by the end of 2023.

Employee Stock Options

The government is proposing a change to the way non Canadian-controlled private corporation (“CCPC”) employee stock options are taxed. Under the current regime, a non-CCPC employee stockEmployee Stock Options option plan is subject to the following tax treatment:

  • There is no tax event when the option is granted.
  • When an employee exercises his/her option to buy the underlying non-CCPC shares, he/she will have a taxable employment stock option benefit equal to the difference between the fair market value of the shares at the time of exercise and the exercise price paid by the employee to acquire those shares.
  • The employee is entitled to a 50 per cent deduction in respect of the employment benefit to the extent that the exercise price paid by the employee to acquire the shares is equal to or greater than the fair market value of the shares at the time the options were granted. 

The 2019 Budget announced the Government’s intention to move forward with changes to limit the 50 per cent employee stock option deduction for high-income individuals employed at large, long-established, mature firms. The Government announced today that it proposes to introduce these new tax rules. The new tax rules would apply to employee stock options granted after June 2021. The existing rules would continue to apply to options granted before July 2021 (including qualifying options granted after June 2021 that replace options granted before July 2021).

New Tax Rules
  • $200,000 Limit - The government is proposing a $200,000 limit on the amount of employee stock options that may vest in an employee in a calendar year in order to continue to qualify for theTax Rules stock option deduction. For the purpose of the $200,000 limit, the amount of employee stock options that may vest in any calendar year would be considered to be equal to the fair market value of the underlying shares at the time the options are granted. An option vests when it first becomes exercisable. The determination of when an option vests would be made at the time the option is granted. If the year in which the option vests is not clear, the option would be considered to vest on a pro-rata basis over the term of the agreement, up to a five-year period.

    Generally, the $200,000 limit on the amount of employee stock options that may vest in any calendar year and qualify for the stock option deduction would apply to all stock option agreements between the employee and the employer or any corporation that does not deal at arm's length with the employer. If an individual has two or more employers that deal at arm's length with each other, the individual would have a separate $200,000 limit for each of those employers. If the amount of stock options that may vest in a year exceeds $200,000, those employee stock options granted first would be the first to qualify for the stock option deduction. Where an employee has a number of identical stock options and some qualify for the existing tax treatment while others are subject to the new tax treatment, the employee would be considered to first exercise the stock options qualifying for the existing tax treatment.

  • Employee Tax Treatment - Where an employee exercises an employee stock option that is in excess of the $200,000 limit, he/she would have a taxable employment benefit equal to the difference between the fair market value of the share at the time the option is exercised and the amount paid by the employee to acquire the shares (no change to existing rules). The employee would not, however, be entitled to the 50 per cent stock option deduction in respect of this employment benefit given that the $200,000 threshold is exceeded.
  • Charitable Donations - Under the current tax rules, if an employee donates a publicly listed share (or the cash proceeds from the sale of a publicly listed share) acquired under an employee stock option agreement within 30 days of the exercise of the option, the employee may be eligible for an additional deduction equal to 50 per cent of the employee stock option benefit. As a result, where both the stock option deduction and the additional deduction in respect of the donation are available, the entire employee stock option benefit is excluded from income.

    Under the new rules, if an employee donates a publicly listed share acquired under a stock option that is in excess of the $200,000 limit, the employee could be eligible for the charitable donation tax credit but would not be eligible for any deduction on any associated employee stock option benefit. Any capital gain that has accrued since the share was acquired under the stock option agreement would continue to be eligible for the full exemption from capital gains tax, subject to the existing rules.
  • Employer Tax Treatment - Under the new rules, for employee stock options in excess of the $200,000 limit, the employer would be entitled to an income tax deduction in respect of the stock option benefit included in the employee’s income. The deduction may be claimed in the taxation year of the employer that includes the day the employee exercised the stock option. The conditions that must be met by the employee in order to get the 50 per cent deduction under the existing rules, would be required to be met for an employer to be entitled to a deduction under the new rules.

    Employers subject to the new rules would be able to choose whether to grant employee stock options under the existing tax treatment, up to the $200,000 limit per employee, or whether to grant employee stock options under the new tax treatment (i.e., ineligible for the employee stock option deduction, and instead eligible for a deduction for corporate income tax purposes).

    Employers subject to the new rules would need to ensure compliance with respect to the $200,000 limit. This would include a requirement that an employer notify its employees in writing whether options granted are subject to the new tax treatment. In addition, employers would be required to notify the Canada Revenue Agency if the options granted are subject to the new tax treatment.
  • Employers Subject to the New Tax Rules - The new tax rules would apply to employers that are non-CCPC corporations or mutual fund trusts. However, in recognition of the fact that some non-CCPCs could be start-ups, emerging or scale-up companies, non-CCPC employers whose annual gross revenue does not exceed $500 million would generally not be subject to the new rules.

    For an employer that is a member of a corporate group that prepares consolidated financial statements, gross revenue would be as reported in the most recent consolidated annual financial statements of the group presented to shareholders, or unitholders, prior to the date that the stock option is granted, at the highest level of consolidation.

    For an employer that is not a member of a corporate group, gross revenue would be as reported in the employer’s most recent annual financial statements prepared in accordance with generally accepted accounting principles and presented to shareholders, or unitholders, prior to the date that the stock option is granted (or that would have been reported if such financial statements had been prepared in accordance with generally accepted accounting principles).

    Where employee stock options to acquire shares or units of an entity that is not the employer are granted to an employee, the new rules would apply in respect of those options if that entity does not deal at arm’s length with the employer and either the entity or the employer is subject to the new rules.

    Employers that are not subject to the new rules would not be permitted to opt in to the new rules.
Emergency Business Supports

The Government announced extensions to the Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Rent Subsidy (CERS) until June 2021.

  • CEWS - The CEWS provides a maximum combined base subsidy and top-up wage subsidy rate of 65% for the current qualifying period, which ends on December 19, 2020.

    The Government proposes to increase the maximum wage subsidy to 75 per cent for the eleventh to thirteenth qualifying periods, which run from December 20, 2020 to January 16, 2021, from January 17, 2021 to February 13, 2021 and from February 14, 2021 to March 13, 2021, respectively. The maximum base subsidy would remain at 40 per cent and the maximum top-up wage subsidy rate would increase to 35 per cent, as set out in the table below.

CEWS Rate Structure Periods 11 to 13

  • Support for Furloughed Employees - A separate wage subsidy rate structure applies in respect of furloughed employees. The wage subsidy for furloughed employees is aligned with the benefits provided under Employment Insurance (EI) through December 19, 2020.

    To ensure that the wage subsidy for furloughed employees remains aligned with benefits available under EI, the Government proposes that the weekly wage subsidy for a furloughed employee from December 20, 2020 to March 13, 2021 be the lesser of:
    • the amount of eligible remuneration paid in respect of the week; and
    • the greater of:
      • $500, and
      • 55 per cent of pre-crisis remuneration for the employee, up to a maximum subsidy amount of $595

Employers will also continue to be eligible to claim their portion of contributions in respect of the Canada Pension Plan, EI, the Quebec Pension Plan and the Quebec Parental Insurance Plan in respect of furloughed employees. 

  • Reference Periods - For the purposes of the wage subsidy (and the rent subsidy, as discussed below), an employer’s decline in revenues is generally determined by comparing the change in the employer's monthly revenues, year-over-year. An employer may also elect to use an alternative approach, which compares the change in the employer's monthly revenues relative to the average of its January 2020 and February 2020 revenues. A deeming rule provides that an employer’s decline in revenues for any particular qualifying period is the greater of its decline in revenues for the particular qualifying period and the immediately preceding qualifying period. 

    The table below outlines the proposed reference periods for determining an eligible employer’s decline in revenues from December 20, 2020 to March 13, 2021.

Reference Periods

Employers that had chosen to use the general approach for prior periods would continue to use that approach. Similarly, employers that had chosen to use the alternative approach would continue to use the alternative approach. All the other parameters of the program would remain unchanged. Details for the wage subsidy for any periods beyond March 13, 2021 will be proposed at a later date. 

 

  • CERS - The Government proposes to extend, until March 13, 2021, the current rate structure for the base rent subsidy (which applies until December 19, 2020), as shown in the table below.

CERS Rate Structure

  • Revenue Decline Calculation - Both the CERS and the CEWS use the same calculation and reference periods to determine an organization’s revenue decline. Likewise, if an entity elects to use an alternative method for computing its revenue decline under the CEWS, it must use that alternate method for the CERS.

    The Government also confirms its intention to proceed with the proposed change to the CERS, details of which were announced on November 19, 2020, that would allow amounts to be considered to have been paid when they become due, provided certain conditions are met. Details for the CERS for any period beyond March 13, 2021 will be proposed at a later date.
  • Lockdown Support Extension - For locations that must cease operations or significantly limit their activities under a public health order issued under the laws of Canada, a province or territory, the Government introduced the Lockdown Support through the CERS program to provide additional help. In order to qualify for the Lockdown Support, an applicant must qualify for the base rent subsidy.

    The Government proposes to extend, until March 13, 2021, the current 25-per-cent rate for the Lockdown Support. Details for the Lockdown Support for any period beyond March 13, 2021 will be proposed at a later date.
Sales Tax Measures

GST/HST Relief on Face Masks and Face Shields

The Government proposes to temporarily relieve (i.e., zero rate) supplies of certain face masks (medical and non-medical) and face shields designed for human use that meet certain specificationsTax Relief on Face masks from the Goods and Services Tax/Harmonized Sales Tax (GST/HST). This measure would apply to supplies of these items made after December 6, 2020, and is proposed to only be in effect until their use is no longer broadly recommended by public health officials for the COVID-19 pandemic.

GST/HST on Cross-Border Digital Products and Cross-Border Services

The Government proposes a number of changes to the GST/HST system to ensure that the GST/HST applies in a fair and effective manner to the growing digital economy.

The Government proposes that non-resident vendors supplying digital products or services (including traditional services) to consumers in Canada be required to register for the GST/HST and to collect and remit the tax to the CRA on their taxable supplies to Canadian consumers.

In many instances, digital products or services may also be supplied to consumers in Canada through digital platforms that facilitate sales of third-party vendors (hereinafter referred to as a “distribution platform”). To ensure that the GST/HST applies equally to these supplies, it is also proposed that distribution platform operators be generally required to register for the GST/HST and to collect and remit the tax on the supplies that these platforms facilitate of digital products or services of non-resident vendors to Canadians.

The proposed new simplified system is intended to apply to non-resident vendors and non-resident distribution platform operators that are not carrying on business in Canada and have not registered under the normal GST/HST rules and would include the following key features:
  • Simplified online registration and remittances: An online portal would be available for simplified GST/HST registration and remittances by non-resident vendors of digital products or services and non-resident distribution platform operators that facilitate the supply of a non-resident vendor’s digital products or services to consumers in Canada.
  • Business-to-consumer supplies only: Non-resident vendors and non-resident distribution platform operators using the simplified registration system would be required to collect and remit the GST/HST only on the supply of digital products and services made to Canadian consumers (as distinct from supplies made to businesses).
  • General Rule Tax based on consumer’s residence: With certain exceptions, non-resident vendors and non-resident distribution platform operators would be required to collect the GST/HST on their supplies of digital products or services if the consumer’s usual place of residence is in Canada at the rate applicable in the province of residence. Exceptions would apply where a consumer’s usual place of residence is not an appropriate basis for determining where, or whether, the place of consumption is in Canada and if the GST/HST would apply.
  • No input tax credits: Non-resident vendors and non-resident distribution platform operators using the simplified registration system would not be able to claim input tax credits to recover any GST/HST paid on their business inputs. Those non-resident vendors and non-resident distribution platform operators that wish to claim input tax credits for the GST/HST paid may register under the normal GST/HST registration process.
  • Registration threshold: Non-resident vendors and non-resident distribution platform operators making supplies of digital products or services to Canadians would be required to register for GST/HST purposes under the following circumstances:

    • For a non-resident vendor, if their total taxable supplies of digital products or services made to consumers in Canada exceed, or are expected to exceed, $30,000 over a 12-month period (excluding supplies that are facilitated by a distribution platform operator that is registered for the GST/HST and that is deemed to have made the supply).
    • For a non-resident distribution platform operator, if their total taxable supplies of digital products or services made to consumers in Canada, including the supplies of digital products or services of non-resident vendors to consumers in Canada that the operator facilitates, exceed, or are expected to exceed, $30,000 over a 12-month period). 

The proposed new rules would apply to supplies of cross-border digital products or services to the extent that the consideration for the supply becomes due on or after July 1, 2021, or is paid on or after that day without having become due.

GST/HST on Goods Supplied through Fulfillment Warehouses

Digital TaxNon-resident vendors are increasingly selling goods to Canadians through digital platforms and online marketplaces, that facilitate sales of third-party vendors (hereinafter referred to as a “distribution platform”). These distribution platforms may also store the goods of third-party vendors in fulfillment warehouses in Canada and ship these goods to purchasers in Canada on a timely basis after the goods have been sold through the platforms.

There is generally no requirement under the current rules for the non-resident vendor, or distribution platform operator facilitating the sale, to collect or remit the GST/HST when the goods are sold to a purchaser in Canada. In order to level the playing field between resident and non-resident vendors, the Government proposes, among other things, to:
  • Require distribution platform operators to register under the normal GST/HST rules and to collect and remit the GST/HST in respect of sales of goods that are located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada), when those sales are made by non-registered vendors through distribution platforms; and
  • Require non-resident vendors to register under the normal GST/HST rules and to collect and remit the GST/HST in respect of sales of goods that are located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada), when those sales are made by the non-resident vendors on their own (i.e., they are not made through a distribution platform).

Distribution platform operators (whether resident or not) would be required to register under the normal GST/HST rules and to collect and remit the GST/HST if their total qualifying supplies (i.e., sales of goods that are located in fulfillment warehouses in Canada or shipped from a place in Canada to a purchaser in Canada), including those made through their platforms by non-registered third-party vendors, to purchasers in Canada that are not registered for the GST/HST (e.g., consumers) exceed or are expected to exceed $30,000 over a 12-month period.

Non-resident vendors that make sales of goods without the use of a distribution platform (e.g., by offering and selling the goods through their own website directly to Canadians) would also be required to register under the normal GST/HST rules if their total qualifying supplies to purchasers in Canada that are not registered for the GST/HST (e.g., consumers) exceed or are expected to exceed $30,000 over a 12-month period.

The proposed new rules would generally apply to supplies made on or after July 1, 2021 and supplies made before July 1, 2021 if all of the consideration is payable on or after July 1, 2021.

GST/HST on Platform-based Short-Term Accommodation

The GST/HST applies to supplies of short-term accommodation. For GST/HST purposes, short-term accommodation generally includes a residential complex or a residential unit that is rented to aTaxing of Airbnb person for a period of less than one month.

In order to ensure that the GST/HST applies consistently and effectively with respect to supplies of short-term accommodation in Canada facilitated by platforms, the Government proposes to apply the GST/HST on all supplies of short-term accommodation in Canada facilitated through a digital platform (hereinafter referred to as an “accommodation platform”).

Under the proposal, the GST/HST would be required to be collected and remitted on short-term accommodations supplied in Canada through an accommodation platform by either the property owner or the accommodation platform operator as follows:
  • The property owner (or person responsible for providing the accommodation – responsible person), where the owner (or responsible person) is registered for the GST/HST.
  • The accommodation platform operator, where the property owner (or responsible person) is not registered for the GST/HST. In these circumstances, the accommodation platform operator would be deemed to be the supplier of the short-term accommodation.

An accommodation platform operator that facilitates or expects to facilitate over a 12-month period more than $30,000 in taxable supplies of short-term accommodation in Canada where the underlying third-party suppliers of the accommodation are not registered for the GST/HST would be required to register for and collect and remit the GST/HST on such supplies.

The proposed new simplified system would include the following key features:

  • Simplified online registration and remittances: An online portal would be available for simplified GST/HST registration and remittances by non-resident accommodation platform operators that facilitate taxable supplies of short-term accommodation in Canada where the underlying third-party property owners/suppliers of the accommodation are not registered for the GST/HST. 
  • Business-to-consumer supplies only: Non-resident accommodation platform operators using the simplified registration system would be required to collect and remit the GST/HST on supplies of taxable short-term accommodation in Canada made to consumers.
  • No input tax credits: Non-resident accommodation platform operators using the simplified registration system would not be able to claim input tax credits to recover any GST/HST paid on their business inputs. Those non-resident platform operators that wish to claim input tax credits for the GST/HST paid may register under the normal GST/HST registration process.

The proposed new rules would apply to supplies of short-term accommodation in Canada to the extent that the consideration for the supply becomes due on or after July 1, 2021, or is paid on or after that day without having become due.

This article has been prepared for the general information of our clients. Please note that this publication should not be considered a substitute for personalized advice related to your situation.

We are in this together.

Stay up to date with relevant client tools, news items and guidelines. 

Contact Us

Silvia Jacinto
Silvia Jacinto
Partner, Tax
Frederic Pansieri
Frédéric Pansieri
Partner, Commodity Tax
Frédéric Pansieri Professional Corporation