Federal budget 2021 (Canada)

With all the spending measures and no revenue raising measures, many in the tax community were taken off-guard by this budget. There were various rumors about how the government might pay for accumulating more national debt in 2 terms than all other governments in Canada’s history combined. We were expecting increases to corporate tax rates, an increase in the capital gains inclusion rate, a one-time wealth tax, or changes to the principal residence exemption, or a combination of these.

Good or bad, there were no such changes in the 2021 Budget. Instead, the government focused on showering borrowed (or printed) money across an impossibly wide swath of voters in this pre-election style budget. Well… not so impossible for this government, they are particularly good at spending money.

We’ve prepared this brief overview of what we believe are some of the most important announcements for our customers. The following is not a comprehensive listing of everything that was included in the 700+ page budget document. If you’d like to discuss how the 2021 budget impacts you or your business, please don’t hesitate to contact us.

No major income tax rate changes announced

The government knows that introducing new taxes on the eve of a potential election is not a good idea, and their silence on revenue generation speaks volumes in the 2021 budget. It came as a bit of a surprise to us to learn that there have been:

• No personal or corporate tax rate changes for 2021, notwithstanding a rate reduction for “Zero Emission” technology manufacturers.
• No changes to the capital gains inclusion rate.
• No new wealth taxes.
• No changes to the principal residence exemption.

Canada Recovery Hiring Program (CRHP)

Budget 2021 is encouraging Canadian Controlled Private Companies to hire back their employees by launching a new Canada Recovery Hiring Program that will run between June 6 and November 20, 2021. We have prepared a separate blog about the CRHP that you can view here.

CEWS and CERS have been extended until September

The Canadian Emergency Wage Subsidy (“CEWS”) and Canadian Emergency Rent Subsidy (“CERS”) have both been extended until September 2021. We have prepared a separate blog about the CEWS and CERS extensions that you can view here.

Full expensing of certain capital properties

The government is encouraging Canadian Controlled Private Companies to make investments in their business by allowing them to expense, in full, certain capital properties that cost up to $1.5M / year that are available for use before January 1, 2024. Exclusions from this treatment include buildings, goodwill and other intangible properties that fall into capital cost allowance classes 1-6, 14.1, 17, 47, 49, and 51.

If you were planning to purchase equipment (furniture, manufacturing equipment, automobiles, etc..) for your business, this should help you accelerate that decision.

Increases to OAS

The budget proposes to send every senior citizen over 75 years old as of June 2022 a one-time payment of $500 in August 2021. It also targets a permanent 10% raise to OAS for Seniors over 75 years old starting in July 2022.

Luxury tax

The government is targeting the ‘wealthy’ (read as ‘the bad people’ in most Liberal government documents) in a new luxury tax on cars, airplanes, and boats. Specifically, cars and aircraft that cost more than $100,000 and boats that cost more than $250,000 are subject to a luxury tax equal to the lesser of a) 20% of the value exceeding the above thresholds, or b) 10% of the value of the car, plane, or boat. These changes are set to take effect on January 1, 2022 – so if you’re considering a purchase, consider getting it done during 2021.

Other highlights

• Even though it does not relate to tax, a good number of our customers are parents and as such they might be interested to learn about the federal government’s $101Billion plan to help lower the cost of daycare. This isn’t our area of expertise, so we’ll direct you to the government’s backgrounder on the topic here. Note that there are still significant hurdles to overcome before this plan might become a reality, not the least of which is getting the provinces to agree to pay for half of the program.

• A new 50% tax rate reduction for qualifying zero-emission technology manufacturing and processing activities, including manufacturing of wind, hydroelectric, solar, geothermal etc. 

• Following many other countries’ leads, particularly in the EU, the government has proposed a 3% digital Service Tax that will apply to certain large technology companies that derive business from Canadians (think Amazon, Google, Facebook, etc.…). 

• The budget announced improvements to accessing the Disability Tax credit, including widening the list of mental functions used in assessing a taxpayer’s eligibility to the DTC as well as expanding the components and requirements for “life-sustaining therapy”, and lowering the amount of time spent accessing them in order to be eligible. 

• A new National vacancy tax has been proposed to charge a 1% tax on the value of non-resident, non-Canadian owned residential real estate that is considered to be Vacant or Underutilized. Reporting on this by non-residents, and payment of the tax, will start on January 1, 2022.

• The government has proposed to allow COVID supports that were repaid by the recipient to be deducted in the year they were received rather than the year they were repaid. The government programs to which this applies are:
  • Canada Emergency Response Benefit
  • Canada Recovery Benefits
  • Canada Recovery Sickness Benefits
  • Employment Insurance Emergency Response Benefits
  • Canada Emergency Student Benefits
  • Canada Recovery Caregiving Benefits.

• The government has proposed to force individual taxpayers to receive their Notices of Assessment and Re-Assessment online where their return has been filed electronically. The two ways that taxpayers can receive their notices of assessment are directly through CRA’s My Account, or through their tax preparer. While only 6-7% of Canadians paper-filed their returns this year, this proposal is rife with legal, privacy and logistical problems as many who E-file still prefer to receive correspondence in paper from the CRA.

• Similarly, where businesses have a My Business account with the CRA, the budget proposes to limit CRA communication to within that portal only.

For complete details on the announcements in budget 2021, you can visit the government’s announcement here. If you would like to discuss how these changes will impact you or your private company, please reach out to us today!