This year’s budget announces significant new spending as part of Canada’s post-pandemic economic recovery, including changes to transition to a greener economy. Although the budget does not change the federal personal or corporate tax rates, it does extend 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. As Canada has a minority government, these measures will require the support of another political party before they pass into law, meaning that everything here is proposed and needs to be passed in the House of Commons before it becomes official.
Disclaimer: Get comfortable, it’s a long one!
Business Income Tax Measures:
- Corporate Tax Rate
- Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) and Lockdown Support
- Canada Recovery Hiring Program
- Immediate Expensing of Capital Assets
- Rate Reduction for Zero-Emission Technology Manufacturers
- Film or Video Production Tax Credits
- Audit Authorities
- Support for small and medium-size business innovation
Personal Tax Measures:
- Personal Income Tax Rates
- Canada Workers Benefit
- Old Age Security
- Employment Insurance
- Canada Recovery Benefits
- Tax on unproductive use of Canadian housing by foreign non-resident owners
- Disability Tax Credit
- Northern Resident Deductions
- Postdoctoral Fellowship Income
- Repayment of COVID-19 Benefits
Sales & Excise Tax Measures:
- Application of the GST/HST to Non-Resident Suppliers and Platform Operators
- Input Tax Credit (ITC) Information Requirements
- GST New Housing Rebate
- Excise Duty on Tobacco & Vaping Products
- Tax on Select Luxury Goods
International Tax Measures:
Other Tax Measures:
BUSINESS INCOME TAX MEASURES
No change to the corporate income tax rate was proposed.
Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) and Lockdown Support:
Extension of the CEWS, the CERS and the Lockdown Support until September 2021 and legislative authority to extend the programs until November 20, 2021, should the economic and public health situation warrant it.
The maximum amount per employee and subsidy rates will gradually decline over the July-to-September periods
Beginning with the July 4th period, organizations with declines of less than 10% will no longer be eligible for the CEWS or CERS programs.
Additional adjustments have been made to the program with respect to furloughed employees, the lockdown support and repayments by publicly listed corporations. There are no changes to the reference period calculations for revenues.
The tables below show the subsidy amounts for the CEWS and CERS programs from July 4, 2021 through September 25, 2021:
CEWS Base and Top-up Rates, Periods 17 to 20
Jun. 6 – Jul. 3
Jul. 4 – Jul. 31
Aug. 1 – Aug. 28
Aug. 29 – Sep. 25
|Maximum weekly benefit per employee*||$847||$677||$452||$226|
|70% and over||75%||60%||40%||20%|
|50-69%||40% + 1.75 x (revenue decline – 50%)||35% + 1.25 x
(revenue decline – 50%)
|25% + 0.75 x
(revenue decline – 50%)
|10% + 0.5 x (revenue decline – 50%)|
|>10-50%||0.8 x revenue decline||0.875 x (revenue decline – 10%)||0.625 x (revenue decline – 10%)||0.25 x (revenue decline – 10%)|
|0-10%||0.8 x revenue decline||0%|
|* The maximum weekly benefit per employee is reached when eligible remuneration paid to the employee for the qualifying period is at least $1,129 per week.|
CERS Base Rate Structure*, Periods 17** to 20 (June 6, 2021, to September 25, 2021)
Jun. 6 – Jul. 3
Jul. 4 – Jul. 31
Aug. 1 – Aug. 28
Aug. 29 – Sep. 25
|70% and over||65%||60%||40%||20%|
|50-69%||40% + (revenue decline – 50%) x 1.25 (e.g., 40% + (60% revenue decline – 50%) x 1.25 = 52.5% subsidy rate)||35% + (revenue decline – 50%) x 1.25 (e.g., 35% + (60% revenue decline – 50%) x 1.25 = 47.5% subsidy rate)||25% + (revenue decline – 50%) x 0.75 (e.g., 25% + (60% revenue decline – 50%) x 0.75 = 32.5% subsidy rate)||10% + (revenue decline – 50%) x 0.5 (e.g., 10% + (60% revenue decline – 50%) x 0.5 = 15% subsidy rate)|
|>10-50%||Revenue decline x 0.8 (e.g., 30% revenue decline x 0.8 = 24% subsidy rate)||(Revenue decline – 10%) x 0.875 (e.g., (30% revenue decline – 10%) x 0.875 = 17.5% subsidy rate)||(Revenue decline – 10%) x 0.625 (e.g., (30% revenue decline – 10%) x 0.625 = 12.5% subsidy rate)||(Revenue decline – 10%) x 0.25 (e.g., (30% revenue decline – 10%) x 0.25 = 5% subsidy rate)|
|0-10%||Revenue decline x 0.8 (e.g., 5% revenue decline x 0.8 = 4% subsidy rate)||0%|
|* Expenses for each qualifying period are capped at $75,000 per location and are subject to an overall cap of $300,000 that is shared among affiliated entities.
** Period 17 of the Canada Emergency Wage Subsidy would be the tenth period of the Canada Emergency Rent Subsidy. Period identifiers have been aligned for ease of reference.
Canada Recovery Hiring Program:
Introduction of a new Canada Recovery Hiring Program (CRHP) to provide eligible employers with a subsidy of up to 50 % on the incremental remuneration (i.e., generally the difference between the remuneration for the qualifying period and the baseline period) paid to eligible employees between June 6, 2021, and November 20, 2021. The higher CEWS or CRHP could be claimed for a particular qualifying period, but not both.
In order to qualify for the CRHP, the employer would have to experience a revenue decline that would normally qualify for the CEWS program, that is any decline in Period 17 and more than 10% for Periods 18 through 22.
The subsidy rate starts at 50% and declines to 20% over the course of the program.
Employers eligible for CEWS would generally be eligible for CRHP. However, a for-profit corporation would be eligible for the hiring subsidy only if it is a Canadian-controlled private corporation (CCPC).
An eligible employee must be employed primarily in Canada by an eligible employer throughout a qualifying period CRHP will not be available for furloughed employees.
Eligible Remuneration and Incremental Remuneration
The same types of remuneration eligible for CEWS would also be eligible for CRHP (e.g., salary, wages, and other remuneration for which employers are required to withhold or deduct amounts). The amount of remuneration for employees would be based solely on remuneration paid in respect of the qualifying period.
Incremental remuneration for a qualifying period means the difference between:
- an employer’s total eligible remuneration paid to eligible employees for the qualifying period, and
- its total eligible remuneration paid to eligible employees for the baseline period (March 14 – April 10, 2021)
Eligible remuneration for each eligible employee would be subject to a maximum of $1,129 per week, for both the qualifying period and the base period. Similar to CEWS, the eligible remuneration for a non-arm’s length employee for a week could not exceed their baseline remuneration determined for that week.
Canada Recovery Hiring Program Dates Used to Calculate Incremental Remuneration, Periods 17* to 22 (June 6, 2021, to November 20, 2021).
|Qualifying Period Dates||Jun. 6 –
|Jul. 4 –
|Aug. 1 – Aug. 28||Aug. 29 – Sep. 25||Sep. 26 – Oct. 23||Oct. 24 – Nov. 20|
|Baseline Period||March 14 to April 10, 2021|
|*Period 17 of the Canada Emergency Wage Subsidy would be the first period of the Canada Recovery Hiring Program. Period identifiers have been aligned for ease of reference.|
CRHP Rates, Periods 17* to 22 (June 6, 2021, to November 20, 2021)
Jun. 6 –
Jul. 4 –
Aug. 1 – Aug. 28
Aug. 29 – Sep. 25
Sep. 26 – Oct. 23
Oct. 24 – Nov. 20
|Hiring subsidy rate||50%||50%||50%||40%||30%||20%|
|*Period 17 of the CEWS would be the first period of the Canada Recovery Hiring Program.|
Immediate Expensing of Capital Assets:
Budget 2021 proposes to permit the full cost of “eligible property” acquired by a CCPC on or after Budget Day to be deducted, provided the property becomes available for use before January 1, 2024. Up to $1.5 million per taxation year is available for sharing among each associated group of CCPCs. No carry-forward of excess capacity would be allowed.
Eligible property includes capital property that is subject to the CCA rules, other than property included in CCA classes 1 to 6 (generally buildings or fences), 14.1 (goodwill and other intangible property), 17 (roads, sidewalks and similar property), 47 (generally LNG facility equipment), 49 (certain pipelines and related equipment) and 51 (certain pipelines and related equipment). The excluded classes are generally those that have long lives, such as buildings, fences, and goodwill.
Interactions of the Immediate Expensing with Other Provisions
Where capital costs of eligible property exceed $1.5 million in a year, the taxpayer would be allowed to decide which assets would be deducted in full, with the remainder subject to the normal CCA rules.
Other enhanced deductions already available, such as the full expensing for manufacturing and processing machinery, would not reduce the maximum amount available ($1.5 million).
Generally, property acquired from a non-arm’s length person, or which was transferred to the taxpayer on a tax-deferred “rollover” basis, would not be eligible.
Also, there are several other rules that limit CCA claims that would continue to apply, such as limits to claims on rental losses.
Rate Reduction for Zero-Emission Technology Manufacturers:
Introduction of a temporary measure to reduce corporate income tax rates for qualifying zero-emission technology manufacturers. Taxpayers would be able to apply reduced tax rates on eligible zero-emission technology manufacturing and processing income of 7.5 %, where that income would otherwise be taxed at the 15 % general corporate tax rate; and 4.5 %, where that income would otherwise be taxed at the 9 % small business tax rate.
This measure would apply in respect of income from numerous zero-emission technology manufacturing or processing activities listed in Budget 2021, including:
- solar energy conversion equipment, excluding passive solar heating equipment;
- wind energy conversion equipment;
- water energy conversion equipment;
- geothermal energy equipment;
- equipment for a ground source heat pump system;
- electrical energy storage equipment used for storage of renewable energy or for providing grid-scale storage or other ancillary services;
- zero-emission vehicles (including conversion of vehicles into zero-emission vehicles);
- batteries and fuel cells for zero-emission vehicles;
- electric vehicle charging systems and hydrogen refuelling stations for vehicles;
- equipment used for the production of hydrogen by electrolysis of water;
- hydrogen by electrolysis of water; and
- solid, liquid, or gaseous fuel (e.g., wood pellets, renewable diesel and biogas) from either carbon dioxide or specified waste material, excluding the production of by-products which is a standard part of another industrial or manufacturing process.
Manufacturing of components or sub-assemblies will be eligible only if such equipment is purpose-built or designed exclusively to form an integral part of the relevant system. Eligible income would be determined as a proportion of “adjusted business income” determined by reference to the corporation’s total labour and capital costs that are used in eligible activities.
Film or Video Production Tax Credits:
Credits originally announced will be extended for 12 months as COVID has limited the ability to be accessed.
Amendments confirming that CRA officials would have the authority to require persons to answer all proper questions, and to provide all reasonable assistance, for any purpose related to the administration or enforcement of the relevant statute. The amendments would also provide that CRA officials have the authority to require persons to respond to questions orally or in writing, including in any form specified by the relevant CRA official. Note that this is not a new measure but will now be passed through legislation.
Support for small and medium-size business innovation:
The budget allocates $4 billion to help small and medium-size businesses digitize and take advantage of e-commerce opportunities. Funding of $1.4 billion will be managed through the newly created Canada Digital Adoption Program and the Business Development Bank of Canada will allocate $2.6 billion of these funds to help companies finance technology
Through the Venture Capital Catalyst Program, the budget provides additional funding for venture capital for start-ups, as well as expanded funding for research and assistance for an additional 2,500 small and medium-sized businesses, through the Industrial Research Assistance Program.
PERSONAL TAX MEASURES
No change proposed.
Enhancements to CWB are to be made by increasing the phase-out thresholds for individuals without dependents and families (from $13,194 to $22,944 and from $17,522 to $26,177, respectively in 2021). Moreover, changes would be made to the disability supplement’s phase-in and reduction rates as well as the reduction threshold.
Budget 2021 also proposes to introduce a “secondary earner exemption” to the CWB which would allow the spouse or common-law partner with the lower working income to exclude up to $14,000 of their working income in the computation of their adjusted net income, for the purpose of the CWB phase-out.
These measures would apply to the 2021 and subsequent taxation years. Indexation of amounts would continue to apply after the 2021 taxation year, including the secondary earner exemption.
Providing pensioners who will be age 75 and older as of June 2022 with a one-time additional payment of $500 in August 2021. Budget 2021 then proposes to increase regular OAS payments for pensioners 75 and over by 10% on an ongoing basis as of July 2022.
Providing new investments totalling up to $30 billion over the next 5 years, and $8.3 billion ongoing for Early Learning and Child Care and Indigenous Early Learning and Child Care, with the goal of providing regulated childcare for $10/day on average, within the next five years.
Budget 2021 proposes to extend many of the temporary EI measures commenced in 2020, including:
- Maintaining a 420-hour entrance requirement for regular and special benefits, with a 14-week minimum entitlement for regular benefits, and a new common earnings threshold for fishing benefits.
- Simplifying rules around the treatment of severance, vacation pay, and other monies paid on separation.
- Extending the temporary enhancements to the Work-Sharing program such as the possibility to establish longer work-sharing agreements and a streamlined application process.
- Sickness benefits would increase from 15 to 26 weeks, as of summer 2022.
- Self-employed fishers who submit an EI claim for the winter 2021 fishing benefit period would have extended temporary eligibility for the entire benefit period.
Consultation on long-term changes
Consultations on long-term reforms to EI will be commenced, focusing on the need for income support for self-employed and gig workers; how best to support Canadians through different life events such as adoption; and how to provide more consistent and reliable benefits to workers in seasonal industries.
Canada Recovery Benefits (CRB)
Budget 2021 proposes the following in respect of CRB:
- The maximum CRB would be extended by 12 weeks to a maximum of 50 weeks. The first four additional weeks will be paid at $500 per week, with subsequent weeks paid at $300 per week. All new CRB claims after July 17, 2021, would receive the $300 per week benefit, which will be available until September 25, 2021.
- The maximum Canada Recovery Caregiving Benefit would be extended by 4 weeks, to a maximum of 42 weeks, paid at $500 per week.
- Legislative amendments would be made providing the authority for additional potential extensions of CRB, EI and related programs until November 20, 2021.
Tax on unproductive use of Canadian housing by foreign non-resident owners:
The budget introduces a new 1% tax on the value of non-resident, non-Canadian owned residential real estate considered to be vacant or underused. This tax will be levied annually beginning in 2022.
The budget also requires all owners of residential property in Canada (other than Canadian citizens or permanent residents of Canada) to file an annual declaration for the prior calendar year with the CRA for each Canadian residential property they own, beginning in 2023. In their declaration, an owner will be required to report information such as the address, and the value and the owner’s interest in a property. The owner may also be eligible to claim in their declaration an exemption from tax on the property for the year, for instance, where the property is leased to qualified tenants for a minimum period in a calendar year. Failure to file a declaration on a property for a calendar year as and when required could result in the loss of any available exemptions on the property for the calendar year. Penalties and interest would also apply and the assessment period would be unlimited.
The budget states that the government will release a backgrounder to provide stakeholders with an opportunity to comment on further parameters of the proposed tax such as the definition of residential property, the value on which the tax would apply, how the tax would apply where a property is owned by multiple individuals and/or non-individuals, potential exemptions and compliance and enforcement mechanisms. The consultation will also consider whether, how and when the proposed tax would apply in smaller, resort and tourism communities.
The DTC is a non-refundable tax credit that requires an individual to have a certificate confirming that they have a severe and prolonged impairment in physical or mental functions. For 2021, the value of the credit is $1,299. The budget proposes a number of changes to the program including:
- Increasing the list of mental functions necessary for everyday life (thus making it easier to qualify for the DTC);
- Recognizing that time spent on Life-Sustaining Therapy may have historically excluded certain activities which will now be included to some extent;
- Inclusion of time spent on therapy where another individual is required to assist will be included in the qualification calculations;
- Reduction in the number of time therapy is administered from three times a week to two times a week (total duration of 14 hours per week remains unchanged)
The proposed changes would apply to the 2021 and subsequent tax years for DTC certificates filed after the Bill receives Royal Assent.
Expansion of the access to the travel component of these deductions by giving a taxpayer the option to claim an amount in respect of each “eligible family member”, up to the prescribed maximum amount. It is also proposed that a maximum of two trips be allowed to be claimed in total for non-medical personal travel in a year (with no change to the number of medical-related trips that can be claimed). Option to claim either the amount of the employer-provided travel benefit or a $1,200 standard amount to be allocated across eligible trips ($600 for those in intermediate zones).
Postdoctoral Fellowship Income.
Income of this nature will now be eligible income for the purposes of calculating RRSP contribution room and taxpayers can request adjustments to RRSP contribution room back to 2011.
Repayment of COVID-19 Benefits:
Typically, a deduction is only applicable in the year a benefit is repaid – this results in a mismatch of the income and deduction. Taxpayers have the option to request CRA adjust the return in which the income was included when a repayment has been made so that the deduction matches the income.
SALES AND EXCISE TAX MEASURES
Application of the GST/HST to Non-Resident Suppliers and Platform Operators.
On November 30, 2020, the federal government proposed new GST/HST registration rules for non-residents selling services, digital products, or tangible goods delivered in Canada to persons in Canada who are not registered for GST/HST purposes.
Budget 2021 proposes amendments to those draft proposals to take into consideration comments received from stakeholders:
Under the new rules, platform operators would be jointly and severally liable for the GST/HST collectible on sales they facilitate for third-party vendors. New safe harbour rules will relieve platform operators from this liability if they in good faith rely on false information provided by the third-party vendor.
The new rules created a “simplified” registration for non-resident suppliers of services and digital products; they are required to charge and collect GST/HST but are not entitled to input tax credits or most rebates.
Non-residents are required to register under the new rules if their revenue from Canadians exceeds C$30,000. Budget 2021 clarifies that consideration for zero-rated supplies of services and digital products is not included in the threshold amount.
The proposed rules have also been revised to grant the Minister of National Revenue the authority to register a person that the Minister believes should be registered under the simplified framework.
These measures would come into force on July 1, 2021.
Input Tax Credit (ITC) Information Requirements.
Businesses can claim ITCs to recover the GST/HST that they pay for goods and services used as inputs in their commercial activities. Businesses must obtain and retain certain information in order to support their ITC claims, such as invoices or receipts. To simplify tax compliance for businesses, Budget 2021 proposes to increase the current ITC information thresholds to $100 (from $30) and $500 (from $150), and to allow billing agents to be treated as intermediaries for purposes of the ITC information rules.
These measures would come into force on April 20, 2021.
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 these price thresholds, several other conditions must be met.
Budget 2021 proposes to remove the condition that where two or more individuals buy a new home together, each of them must be acquiring the home for use as their primary place of residence or the primary place of residence of a relation. Instead, the GST New Housing Rebate would be available as long as the new home is acquired for use as the primary place of residence of any one of the purchasers or in relation to any one of the purchasers.
This measure would apply to a supply made under an agreement of purchase and sale entered into after April 19, 2021.
Excise Duty on Tobacco & Vaping Products.
Budget 2021 proposes to increase the tobacco excise duty rate by $4 per carton of 200 cigarettes, along with corresponding increases to the excise duty rates for other tobacco products. This measure would come into force on April 20, 2021.
Inventories of cigarettes held by certain manufacturers, importers, wholesalers, and retailers at the beginning of the day after Budget Day would be subject to an inventory tax of $0.02/cigarette (subject to certain exemptions). Taxpayers would have until June 30, 2021, to file a return and pay the cigarette inventory tax.
Budget 2021 proposes to implement a tax on vaping products in 2022 through the introduction of new excise duty.
The new excise duty framework on vaping products is proposed to be introduced as part of the existing Excise Act and would apply solely to vaping liquids that are produced in Canada or imported and that are intended for use in a vaping device in Canada.
The proposed framework would impose a single flat rate duty on every 10 millilitres of vaping liquid or fraction thereof, within an immediate container. This rate could be in the order of $1.00/10 ml or fraction thereof, and the excise duty would be calculated and imposed based on the volume of the smallest immediate container holding the liquid.
Budget 2021 proposes to introduce a tax on the retail sale of new luxury cars and personal aircraft priced over $100,000, and boats priced over $250,000, effective as of January 1, 2022, and would be collected at the point of purchase. Importations of vehicles, aircraft and boats would also be subject to the tax assuming the importer is the consumer not a dealer purchasing for inventory purposes.
The tax would be the lesser of 10% of the value of the item or 20% of the value of the item above the threshold amounts noted above.
Upon purchase or lease, the seller or lessor would be responsible for remitting the full amount of the federal tax owing, regardless of whether the good was purchased outright, financed, or leased over a period of time. Exports will not be subject to the tax.
GST/HST would apply to the final sale price, inclusive of the proposed tax, so GST/HST would also be payable on this new tax. Further details are to be announced in the coming months.
INTERNATIONAL TAX MEASURES
Enhancing Anti-Avoidance Provisions.
The new rules would limit the amount of net interest expense that a corporation may deduct in computing its taxable income to no more than a fixed ratio of 30% of its “tax EBITDA” (40% for the transition year). Interest denied under the earnings-stripping rule would be able to be carried forward for up to twenty years or back for up to three years.
Exemptions from the new rule would be available for:
- Canadian-controlled private corporations that, together with any associated corporations, have taxable capital employed in Canada of less than $15 million;
- groups of corporations and trusts whose aggregate net interest expense among their Canadian members is $250,000 or less; and
- Interest expense and interest income related to debts owing between Canadian members of a corporate group would generally be excluded.
The new rule would also be applicable to trusts, partnerships and branches of non-resident corporations and be phased in, with a fixed ratio of 40% for taxation years beginning on or after January 1, 2023, but before January 1, 2024 (the transition year), and 30% for taxation years beginning on or after January 1, 2024.
For hybrid mismatch arrangements, which take advantage of differences in the income tax treatment in different countries, such as situations where the same expense can be deducted in multiple countries, or a deduction is available in one country which is not taxable, within a reasonable period, in the other.
These measures will be the subject of draft legislation to be released for consultation in the summer and would not apply before July 1, 2022.
OTHER TAX MEASURES
Duty and Tax Correction on Imported Goods.
Budget 2021 proposes amendments to the Customs Act to improve the collection of duties and taxes on imported goods.
The amendments to the Customs Act and related regulations would ensure that all importers value their goods using the value of the last sale for export to a purchaser in Canada.
A second element to the proposal would support a broad modernization of payment processes for commercial importers in the Customs Act and regulations. These changes would coincide with the implementation of key functionalities of the CBSA Assessment and Revenue Management initiative that is set to serve as a single portal for commercial importers.
Budget 2021 proposes to implement a DST. The tax is “intended to ensure that revenue earned by large businesses – foreign or domestic – from engagement with online users in Canada, including through the collection, processing and monetizing of data and content contributions from those users, is subject to Canadian tax”. The DST would apply as of January 1, 2022. A 3% tax is proposed to be imposed on revenues generated from online marketplaces, social media, online advertising, and the sale or licensing of user data. The tax would only apply to businesses with global revenue of €750 million, and Canadian revenue of more than $20 million.
Tax Incentive for Carbon Capture, Utilization, and Storage (CCUS).
The government intends to take significant action to support and accelerate the adoption of CCUS. In this respect, Budget 2021 proposes to introduce an investment tax credit for capital invested in CCUS projects with the goal of reducing emissions by at least 15 megatons of CO2 This measure will come into effect in 2022.
Extending the waiver of interest accrual on Canada Student Loans and Canada Apprentice Loans until March 31, 2023, and extending the doubling of the Canada Student Grants until the end of July 2023.
Providing interest-free loans of up to $40,000 to homeowners and landlords who undertake retrofits identified through an authorized EnerGuide energy assessment. This program will also include funding dedicated to supporting low-income homeowners and renters including cooperatives and not-for-profit-owned housing. The program would be available by summer 2021.