On Monday, April 19, Deputy Prime Minister and Minister of Finance, Chrystia Freeland, delivered the federal budget for 2021.
Below are select highlights of Budget 2021:
Personal Income Tax Measures
Tax treatment of COVID-19 benefit amounts
Budget 2021 proposes more options for those who received and subsequently had to repay COVID-19 benefits (e.g., Canadian Emergency Response Benefit (CERB), Canadian Emergency Student Benefit (CESB), Canada Recovery Benefit (CRB), etc.). With a proposed amendment to the Income Tax Act, individuals would be allowed to claim a deduction for the year the benefit was received rather than the year the repayment was made. This option would be available for benefit amounts repaid at any time before 2023.
Old Age Security
Proposal to increase Old Age Security (OAS) for Canadians 75 and older in two steps:
- To meet immediate needs, a one-time payment of $500 in August 2021 to OAS pensioners who will be 75 or over as of June 2022.
- Proposed legislation to increase regular OAS payments for pensioners 75 and over by 10% on an ongoing basis as of July 2022.
Disability Tax Credit
The Disability Tax Credit (DTC) is a non-refundable tax credit that is intended to recognize the impact of non-itemizable disability-related costs on the ability to pay tax. For 2021, the value of the credit is $1,299. To ensure that the eligibility criteria for the DTC better articulate the range of mental functions necessary for everyday life, Budget 2021 proposes expanding the eligibility criteria for the purposes of the DTC.
Defined contribution pension plans
The budget also proposes to permit employers to correct certain under-contribution errors made in the prior five years via additional contributions to an employee’s account under a defined contribution pension plan, subject to a dollar limit. The proposals would also permit plan administrators to correct for employee pension over-contribution errors for any of the five years prior to the year in which the excess amount is refunded to the employee or employer, as the case may be, who made the contribution.
New tax on unproductive use of Canadian housing by foreign non-resident owners
Proposal to introduce a new national 1% tax, levied annually beginning in 2022, on the value of non-resident, non-Canadian owned residential real estate considered to be vacant or underused. Beginning in 2023, all non-Canadian or non-permanent resident owners of residential property in Canada would be required to file an annual declaration for each Canadian residential property they own.
GST New Housing Rebate
The GST* new housing rebate entitles homebuyers to recover 36% of the GST (or the federal component of the HST) paid on the purchase of a new home priced up to $350,000. The maximum rebate is $6,300. The GST new housing rebate is phased out for new homes priced between $350,000 and $450,000. There is no GST New Housing Rebate for new homes priced at $450,000 or more.
In addition to the above price thresholds, several other conditions must be met in order for a purchaser to qualify for the GST new housing rebate. In particular, the purchaser must be acquiring the new home for use as their primary place of residence or as the primary place of residence of a relation (i.e., an individual related by blood, marriage, common-law partnership or adoption, or a former spouse or former common-law partner).
There is also a proposed tax on the retail sale of new luxury cars and personal aircraft priced over $100,000 and boats priced over $250,000 effective January 1, 2022. For vehicles, aircrafts and boats sold in or imported into Canada, the tax would apply at the point of purchase if the final sale price paid by a consumer (not including the GST/HST or provincial sales tax) is above the $100,000 or $250,000 price threshold.
Business Income Tax Measures
Emergency business supports
Budget 2021 proposes to extend the Canada Emergency Wage Subsidy (CEWS), the Canada Emergency Rent Subsidy (CERS) and the Lockdown Support until September 2021. The subsidy rates would gradually decline over the July to September period.
Budget 2021 also proposes to provide the government with the legislative authority to add additional qualifying period or the wage subsidy, the rent subsidy, and the Lockdown Support until November 20, 2021, should the economic and public health situation warrant it.
Canada Recovery Hiring Program
Proposal to introduce the new Canada Recovery Hiring Program to provide eligible employers with a subsidy of up to 50% on the incremental remuneration paid to eligible employees between June 6, 2021 and November 20, 2021.
An eligible employer would be permitted to claim either the hiring subsidy or the Canada Emergency Wage Subsidy for a particular qualifying period, but not both.
Budget 2021 proposes to provide temporary and immediate expensing in respect of certain property acquired by a Canadian-Controlled Private Corporation (CCPC). This immediate expensing would be available for “eligible property” (generally assets with a shorter lifespan subject to Capital Cost Allowance (CCA) rules) acquired by a CCPC on or after Budget Day and that becomes available for use before January 1, 2024, up to a maximum amount. The immediate expensing would only be available for the year in which the property becomes available for use.
There are also new accelerated CCA rates for eligible clean energy equipment as the government is supporting investment in clean technologies.
Avoidance of tax debts
A new provision has been introduced in Budget 2021 that addresses aggressive planning intended to circumvent the tax debt avoidance rule. New penalties and related provisions have been introduced on transfers of property effective April 19, 2021.
Application of the GST/HST to e-commerce
In the Fall Economic Statement 2020, the Government of Canada proposed a number of changes to the Goods and Services Tax/Harmonized Sales Tax (GST/HST) system to ensure that the GST/HST applies in a fair and effective manner to the growing digital economy. Budget 2021 proposes amendments to these proposals and the associated draft legislation to come into force July 1, 2021.
To read the government’s full proposed budget, go to the Government of Canada’s website.
Budget 2021 as released is in draft form and subject to parliamentary approval. To read the government’s full proposed budget, go to the Government of Canada’s website.
Commentary from Edward Jones does not consider your specific situation, but provides a general summary of the 2021 federal budget release. Commentary is provided in relation to the released information available on the date of publishing.
Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. Please consult a qualified tax specialist or lawyer for professional advice regarding your specific situation.