On April 19, 2021, Canadian Deputy Prime Minister and Minister of Finance Chrystia Freeland delivered the government’s 2021 Federal Budget, forecasting a deficit of $354.2 billion for the 2020-2021 fiscal year1 and $154.7 billion for 2021-2022. Here is a brief overview of some of the notable proposals.
Budget 2021 includes a five-year commitment of $30 billion to help establish affordable child-care and early-learning programs with provinces and territories outside of Quebec. Personal and corporate tax rates are unchanged, as is the capital gains inclusion rate. Several COVID-19 benefits have also been extended.
Personal Tax and Benefit Measures
Extensions to Canada Recovery Benefits
Three types of federal benefits were introduced effective September 27, 2020, to replace the Canada Emergency Response Benefit (CERB) to assist workers ineligible for Employment Insurance who had their income reduced by at least 50% due to COVID-19. The government proposes extending these benefits to September 25, 2021:
- The Canada Recovery Benefit would offer benefits at a lower weekly rate ($300 versus $500) to new claimants after July 17, 2021, or to claimants who have already received 42 weeks of benefits.
- The Canada Recovery Sickness Benefit offers up to four weeks of benefits to eligible workers.
- The Canada Recovery Caregiving Benefit would offer up to 42 weeks at $500 per week, per eligible household.
Tax treatment of COVID-19 benefit repayments
While the 2020 tax filing deadlines are not extended, automatic interest relief on outstanding tax is offered until April 30, 2022, to qualifying individuals with taxable income of $75,000 or less in 2020, after filing a 2020 income tax and benefit return. Individuals must have received an eligible COVID-19 benefit to be eligible. Individuals who repay a federal COVID-19 benefit before 2023 will have the option to claim a tax deduction for the repaid amount for either the year of repayment or the year in which the benefit was received.
Canada Workers Benefit (CWB)
The CWB is a federal refundable tax credit for employees earning low and modest income. Changes in the CWB’s phase-in rate, phase-out income thresholds and income exclusions will help low-income Canadian workers to access higher benefits.
Increased Old Age Security benefits for Canadians aged 75 and older
For Old Age Security (OAS) pensioners who will be age 75 or over as of June 2022, the budget proposes to provide a one-time payment of $500, payable August 2021, followed by a 10% increase to OAS benefits effective July 1, 2022. The enhanced benefits will be indexed to inflation for future years.
Student loan relief
The one-year interest accrual moratorium on the federal portion of Canada Student Loans and Canada Apprentice Loans that was introduced in the government’s 2020 COVID-19 financial package is proposed to be extended until March 31, 2023. Additionally, the budget proposes to increase repayment assistance for single individuals earning $40,000 or less. The current income support threshold is $25,000 per year or less.
Luxury tax on cars, boats and planes
Budget 2021 proposes a luxury tax on sales of select new cars and personal aircraft priced at over $100,000 and on boats over $250,000. The luxury tax will be calculated at 20% of the value in excess of the thresholds, or 10% of the full price, whichever is less. It will apply to both leasing contracts entered into and purchases made on or after January 1, 2022. GST/HST will apply to the final sales price of the property, including the proposed tax.
Disability Tax Credit (DTC)
Currently, the DTC is a non-refundable tax credit available to individuals with severe and prolonged physical and/or mental impairments, as well as individuals on life-sustaining therapy. The DTC has come under scrutiny in recent years for being too restrictive in its eligibility requirements. Budget 2021 proposes to enhance eligibility for the DTC by expanding the list of mental impairments considered for qualifying applicants. Furthermore, the budget proposes to reduce the minimum frequency of life-sustaining therapy from three times per week to two.
Unproductive use of Canadian housing by foreign non-resident owners
Budget 2021 proposes a new 1% tax on the value of non-Canadian-citizen, non-resident owned vacant or “underused” residential real estate. While not expressly defined, the government is considering “underused” residential properties as those which are not leased to one or more qualified tenants for a minimum period in any calendar year. Reporting will be incumbent on the non-resident beginning in 2023. The government will be accepting comments from stakeholders on the application and administration of this tax in the coming months. It is unknown at this time how such a tax would interact with BC’s Speculation and Vacancy Tax.
Charities and Foundations
Annually, a registered charity is required to disburse a minimum amount on charitable programs and gifts to qualified donees. The purpose of this “disbursement quota” is to ensure charities and foundations are using assets for their intended purpose. Budget 2021 proposes initiating public consultations with charities in hopes of increasing the disbursement quota for 2022 and future years.
Business Tax and Other Measures
Extensions to COVID-19 measures for businesses
Two federal subsidy programs for businesses would be extended until September 25, 2021, and a new Canada Recovery Hiring Program (CRHP) would be introduced:
- The Canada Emergency Wage Subsidy (CEWS) supports employers of all sizes across all sectors. For claim periods between December 20, 2020, and July 4, 2021, the maximum subsidy rate of 75% of an employee’s eligible pay (with limits per employee) is available if revenue dropped 70% or more. Budget 2021 extends CEWS at reduced subsidy levels beginning July 4, 2021, and would require public corporations to repay amounts for periods starting after June 5, 2021, if their 2021 executive compensation exceeds 2019 levels.
- The Canada Emergency Rent Subsidy (CERS) assists eligible Canadian businesses, non-profits and charities who have seen a drop in revenue due to the COVID-19 pandemic with a subsidy of up to 65% of eligible expenses (such as commercial rent, mortgage interest or property expenses). The base support would be gradually reduced starting July 4, 2021, to September 25, 2021. The additional 25% Lockdown Support top-up to organizations that are significantly restricted by a mandatory public health order would remain.
- The Canada Recovery Hiring Benefit (CRHB) is a newly proposed subsidy of up to $1,129 per employee per week to help hire new workers. Individuals, eligible partnerships, non-profits, registered charities and Canadian-controlled private corporations can claim up to 50% of the incremental remuneration paid to eligible employees from June 6 to November 20, 2021, if eligibility criteria such as reduced revenue are met.
Administration and Implementation
The budget proposes a change in rules for electronic filing and certification of tax and information returns and includes additional funding to support CRA’s audit and tax collecting activities.
Budget 2021 can be viewed online in its entirety on the Department of Finance Canada’s website2 and is subject to parliamentary approval.
1 Ending March 31, 2021
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