Resources

2021 Federal Budget Commentary

image of CanadaOn April 19, 2021, the Federal Government and Finance Minister Chrystia Freeland presented their fifth full budget:  A Recovery Plan for Jobs, Growth, and Resilience.

This commentary summarizes the highlights of the new budget focusing on tax changes and other measures affecting businesses and not-for-profit organizations. The full budget document is available on this link.

Overview

This year’s budget announces significant new spending to:

  • shoulder Canada’s economic recovery from the COVID-19 pandemic;
  • promote a greener economy; and
  • drive Canadian innovation.

It extends the Canada Emergency Wage Subsidy (CEWS), the Canada Emergency Rent Subsidy (CERS) and the Lockdown Support until September 25, 2021 and introduces a new Canada Recovery Hiring Program (CRHP).

The budget does not increase personal or corporate income tax rates. It does take action against tax evasion schemes. Contrary to some speculation, the budget did not change the principal residence exemption, the capital gains inclusion rate, introduce a wealth tax, or address intergenerational transfers of businesses.

As our current government is a minority government, budget measures require the support of another political party before becoming law.

Federal Spending and Deficit

For detail on the impact of pandemic relief spending over the last year, here’s a comparison between the federal government’s projected deficit from the vantage point in 2019 and now, post-pandemic, in 2021:

  • In the 2019 budget, the government expected the federal deficit to reach nearly $20 billion in 2020–21 and then decline to $9.8 billion at the end of the next five years.
  • The 2021 budget’s new deficit projection is $354.2 billion for 2020-21 with a forecast of a deficit of $154.7 billion for 2021-2022.

COVID-19 Support and Economic Recovery Measures

The following changes, extensions and phase-outs are proposed for pandemic economic support programs.

Canada Emergency Wage Subsidy (CEWS)

Canada introduced the CEWS as a temporary subsidy available from March 15, 2020 to June 5, 2021. Currently, the subsidy rate is up to a maximum of 75% of eligible wages until June 5, 2021.

The budget makes the following changes to extend and then start phasing out the CEWS:

  • extending the program to September 25, 2021 (from June 5, 2021)
  • as of July 4, 2021, to qualify, employers must have a revenue decrease of greater than 10%
  • the maximum weekly benefit per employee for a qualifying period will gradually decrease from $847 for the period from June 6 to July 3, 2021 to $226 for the period from August 20 to September 25, 2021
  • a separate wage subsidy structure will continue to apply to furloughed employees for the period from June 6 to August 28, 2021
  • the budget also introduces alternative baseline remuneration periods for furloughed and non-arm’s length employees for the qualifying periods starting June 6, 2021

Canada Emergency Rent Subsidy (CERS) and Lockdown Support Subsidy

Canada introduced the CERS for qualifying tenants and property owners in October 2020.

The budget makes the following changes to extend and then start phasing out this program:

  • CERS will be extended to September 25, 2021, but will start phasing out after July 3, 2021
  • as of July 4, 2021, to qualify, employers must have a revenue decrease of greater than 10%
  • CERS subsidy rates decrease starting July 4, 2021 (from the current maximum of 65%)
  • Lockdown support will be extended to September 25, 2021 at a 25% rate (unchanged)

NEW – Canada Recovery Hiring Program (CRHP)

The new Canada Recovery Hiring Program (CRHP) is a proposed alternative to the CEWS meant to encourage hiring. CRHP provides employers with a subsidy (up to 50%) on incremental remuneration paid to employees between June 6 and November 20, 2021. Key features are outlined below.

  • Canadian-controlled private corporations (CCPCs), individuals, not-for-profit organizations, registered charities, and certain partnerships are eligible employers
  • The subsidy starts at the rate of 50 per cent for the first three periods, declining for the final three periods to 40 per cent, 30 per cent and 20 per cent
  • Eligible weekly remuneration is limited to $1,129 per eligible employee
  • Conditions apply, including the same revenue decline test as CEWS
  • An employer can claim CHRP or CEWS but not both

Highlights of Corporate and Business Tax Changes

  • Immediate expensing of most capital expenditure (most notably excludes buildings) for Canadian-controlled private corporations (CCPCs) up to $1.5 million per taxation year. Effective for property acquired after April 19, 2021 and put into use before 2024.
  • Corporate income tax rate reduction (equal to half the current federal rate) for zero-emission technology manufacturers
  • Expansion to definition of clean energy equipment that will receive accelerated Capital Cost Allowance (CCA) (i.e., tax depreciation)

Tax on digital services

  • Application of GST to e-commerce — The federal government confirmed previous announcements to ensure GST/HST applies on certain e-commerce transactions by non-residents starting on July 1, 2021
  • Digital services tax — The government reaffirmed its intention to implement a three per cent digital services tax for large businesses on January 1, 2022

Highlights for Charities and Non-Profit Organizations

See the COVID-19 Support and Economic Recovery Measures section above, in addition to the following:

Community Services Recovery Fund

  • $400 million provided to Employment and Social Development Canada to create a new temporary fund to assist charities and non-profits to adapt and modernize by transitioning to remote work and online programming.

Black-led Philanthropic Endowment Fund and funding for the Supporting Black Canadian Communities Initiative

  • $200 million and $100 million respectively via Employment and Social Development Canada.

Charitable Registration Status Abuse Prevention

  • Measures to prevent and revoke charitable registration status for terrorist entities, ineligible individuals or culpable conduct.

Highlights of Personal and Other Tax Changes

Old Age Security

  • Provides pensioners who will be age 75 and older as of June 2022 with a one-time additional payment of $500 in August 2021.
  • Increases regular Old Age Security payments for pensioners 75 and over by 10% on an ongoing basis as of July 2022.

Tax on vacant resident properties held by non-residents

  • An annual one per cent tax on the value of non-Canadian owned residential real estate that is considered to be vacant or underused, effective January 1, 2022.
  • All owners of residential property in Canada (other than Canadian citizens or permanent resident of Canada) must file an annual declaration for the prior calendar with CRA for each Canadian residential property they own starting in 2023.

Disability tax credit (DTC)

  • Expands the DTC by updating the list of mental functions used to assess the credit.
  • Reduces the minimum required frequency of therapy to two times a week
  • Changes to apply to 2021 and subsequent tax years

Luxury tax on automobiles, aircrafts, and boats

  • Luxury tax on new vehicle and personal aircrafts greater than $100,000 in value or boats over $250,000
  • For vehicles and aircrafts over $100,000, tax is lesser of 10% of the full value of the vehicle or aircraft or 20% of the value above $100,000
  • For boats over $250,000, the tax is equal to the lesser of 10% of the full value of the boat or 20% of the value above $250,000
  • GST/HST will apply on top of the luxury tax
  • Luxury tax applies as of January 1, 2022

Electronic filing and e-signatures

  • Eliminates the requirement for handwritten signatures on certain forms
  • Allows issuers of information returns, such as T4As and T5s, to issue income slips electronically without a paper form
  • Requires most corporations and GST registrants to file GST/HST returns electronically

Increased CRA funding

  • Provides the CRA with more resources to combat aggressive tax planning, protecting taxpayers’ privacy and modernizing its services. Budget 2021 estimates that their measures to combat tax evasion will recover $810 million in revenues over five years.

Disclaimer: This summary is intended to inform readers in general terms. It is not intended to provide any tax or business advice. Please consult your Stern Cohen advisor if you have any questions about your unique situation and how these proposed changes might impact you or your business or not-for-profit organization.

 

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