2021 Federal Budget Highlights
Deputy Prime Minister and Finance Minister Chrystia Freeland released the Federal Government’s first Pandemic Budget (“Budget 2021”) on April 19th 2021.
Budget 2021 focuses on spending for COVID recovery including:
- extension of some key Covid-19 support programs to September 25th 2021 such as the Canadian Emergency Wage Subsidy (CEWS) Program, the Canada Emergency Rental Subsidy (CERS) program, extension of the Canada Recovery Benefit and a NEW Canada Recovery Hiring Credit (CRHC)
- $101 billion of new program spending over 3 years to support Canada’s economic recovery from Covid-19 including:
- $30 billion over five years to create and fund a $10 per day federal early learning and childcare program which is expected to lead to a higher labour force participation rate,
- $17.6 billion investment in Canada’s transition to a Greener Economy such as a temporary tax rate reduction for manufacturers of technological equipment and infrastructure, investment tax credits for investments in carbon capture, utilization and storage projects and accelerated capital cost allowance claims on clean energy equipment.
- $4 billion investment to support small and medium-sized businesses to digitize and advance e-commerce opportunities through the new Canada Digital Adoption Program and through Business Development Bank funding.
- $3 billion investment in clean technologies which will be managed by the NetZero Accelerator Initiative to help decarbonize heavy industry and advance the development of new clean technologies.
- $2 billion investment in key sectors such as funding for life sciences, aerospace, automotive and agricultural sectors through the Strategic Innovation Fund.
- funding for emerging technologies such as genomics and artificial intelligence.
- additional funding for venture capital startups through the Venture Capital Catalyst Program.
- additional funding through the Industrial Research Assistance Program.
- several initiatives to help workers transition to the new knowledge-based economy.
Budget 2021 projects a deficit of $354 billion for the most recently completed 2020-21 year, $155 billion for the 2021–22 year [both of which are significantly less than forecasted in the Government’s November 30th 2020 Economic Update] and further reduction as the economy recovers and expands.
By the Government’s estimate, the Debt-to-GDP ratio will peak at 51% and then reduce to 49% by 2025-26 with program spending at 20% of GDP this year and expected to fall to 16% and then settling at 15% by 2023-24 in line with projected long-term government revenues as a percentage of GDP.
Budget 2021 does not address how the budget will be balanced in the long-term and does not make any changes to the federal personal or corporate income tax rates, did not change the capital gains inclusion rate, did not change the taxation of gains on principal residences or introduce a new wealth or estate tax.
However, Budget 2021 did address a number of targeted individual, business, International tax and excise tax measures intended to:
- shut down certain perceived loopholes in the current tax system such as introducing (a) the interest expense restriction for larger Canadian–controlled private corporations, public corporations and certain other taxpayers and (b) measures to combat certain cross-border arrangements meant to exploit mismatch arrangements between the tax rules in Canada and another country,
- enhancing tax compliance, review, enforcement and collection actions by the Government such as new mandatory disclosure rules for “reportable” and “notifiable” transactions, disclosure of uncertain tax positions by certain larger Canadian tax-paying corporations for which it or a related corporation’s financial statements are audited and prepared in accordance with International Financial Reporting Standards (IFRS).
- enhancing the taxation of the growing digital economy including:
- the introduction of a new 3% digital service tax (DST) on certain revenue streams of large businesses effective January 1st 2022 which is intended to apply to revenue streams from online marketplaces, social media, online advertising, and user data. The DST is intended to be a temporary measure that will be repealed once the international tax community reaches a consensus on how to tax large multinational companies in the digital economy such as Netflix.
- Effective July 1, 2021, the introduction of GST on e-commerce supplies which will require platform operators such as Amazon and third-party suppliers to register, collect and remit GST in respect of online e-commerce supplies where the amount of online sales is expected to be over $30,000 per year.
- stimulate the small and medium-sized sectors such as the immediate expensing of the cost of most depreciable property (other than long-lived assets such as buildings, structures, goodwill) by Canadian-controlled Private Corporations for property acquired after April 19, 2021 and put in use before 2024 and limited to $1.5 million per year (shared among associated corporations),
- raise additional tax revenue such as:
- introducing a new 1% national tax effective on January 1, 2022 on Canadian housing owned by foreigners (including individuals who are not Canadian citizens nor permanent residents) which are considered to be vacant or underutilized (on top of possible 0.5% to 2% BC Speculation and Vacancy Tax and Vancouver’s 3% Empty House Tax ). This tax will require all owners (other than Canadian citizens and permanent residents) to file an annual declaration as to the property’s use with significant penalties for failure to file,
- the introduction of a luxury tax: a new excise tax on the sale of luxury vehicles and personal aircraft priced over $100,000 and boats priced over $250,000 effective January 1st 2022.
As well there are other tax and programming initiatives of note including:
- significant expansion to the Canada Workers Benefit for low income workers which provides a tax credit up to $1,395 for single individuals without dependents or $2,403 for families, couples and single parents,
- increase to the OAS benefits for Canadian 75 years of age and older as of June 2022, including a one-time $500 payment and a 10% increase to ongoing OAS pension payments,
- the establishment of a $15 federal minimum wage applicable to the federally regulated private sector.
- the announcement of a new excise tax on vaping products,
- the announcement of a new publicly-accessible corporate beneficial ownership registry to be implemented by 2025
- significant additional funding to the CRA to increase audits of large businesses, to help the collection of outstanding taxes and enhance other tax compliance, collection and enforcement actions.
Details of many measures in Budget 2021 are still to be released while others will be under consultation. If you need any assistance in regards to any of these matters, please contact your DMCL Business and Tax Advisor.