Monday afternoon the Federal government released its 2021 Federal Budget: A recovery plan for Jobs, Growth and Resilience – outlining its policies to continue the fight against COVID-19 and to “build back better”. The program spending and tax measures announced are focused on moving the economy from emergency response to recovery. With respect to program spending, the government announced it will invest more than $101 billion in net new spending over the next three years, including $30 billion over the next five years to build a national child-care system (as Liberals tried to do last in 2005). Overall, the budget came across as one to appeal voters heading into the next election, rather than tackle the record levels of debt in Canada.
From a financial standpoint, at first glance the main concern with this budget is that after a year where our government has had record levels of spending (creating more and more debt), there are essentially no meaningful tax increases in the federal budget. Without any notable increases, we’re aiming on high economic growth to work our way out, or the path of least resistance would be inflation. Inflation and rising rates are something we have to keep in mind with any long-term financial plan.
The following are a few key emergency measures and tax highlights we gathered from the announcements;
COVID Program Supports
- To address the continuing effect of the pandemic, the government announced that the Canada Emergency Wage Subsidy (CEWS), the Canada Emergency Rent Subsidy (CERS) and the Lockdown support will be extended until September 25th, 2021 (originally set to end on June 5th 2021, gradual phasing out starting July 4th, 2021)
Canada Recovery Hiring Benefit (CRHB)
- Eligible employers will receive a subsidy of up to 50 percent on the incremental remuneration paid to eligible employees between June 6th, 2021 and November 20th, 2021
*eligible employers can claim either the CRHM or the CEWS for a particular qualifying period, but not both
Personal Tax Measures
Improved Access to the Disability Tax Credit
- Update the list of mental functions of everyday life that is used for the eligibility for the Disability Tax Credit (DTC) – to recognize more activities in determining time spent on life-sustaining therapy and to reduce the minimum required frequency of therapy to qualify for DTC. Looking to fund consultations to reform the eligibility process for federal disability programs and benefits
Increased Old Age Security payments for seniors
- Government proposes to help seniors by providing a one-time payment of $500 in August 2021 to OAS pensioners who will be 75 or over as of June 2022
- Introduce legislation to increase regular OAS payments for pensioners 75 and over by 10 per cent on an ongoing basis as of July 2022. This would increase the benefits for approximately 3.3 million seniors, providing additional benefits of $766 to full pensioners in the first year, and indexed to inflation going forward. This would give seniors more financial security later in life, particularly at the time when they face increased care expenses and greater risk of running out of savings
No changes to capital gains or personal tax rates
- There was no increase in the capital gains inclusion rate, no new personal income tax rate, nor was the principal residence exemption changed
New taxation measures for non-resident, non-Canadian-owned homes
- The government’s intention to implement a national, annual 1% tax on the value of non-resident, non-Canadian owned residential real estate that is considered to be vacant or underused, effective January 1, 2022
The ‘Luxury Tax’
- Proposes to introduce a tax on the sales of luxury cars and aircraft for personal use with a retail price tag over $100,000, and boats, for personal use, over $250,000. The tax would be calculated at the lesser of 20% of value above the individual threshold ($100,000/$250,000) or 10% of the full value of the luxury car, boat, or personal aircraft.
Corporate Tax Measures
No changes to corporate tax rates
- No new corporate income tax rate changes were announced in this Budget, other than for zero-emission technology manufacturers (reduced rates will apply to taxation years that begin after 2021)
- Provide immediate deductions in respect of certain “eligible property” acquired by a CCPC (Canadian Controlled Private Corporation). This immediate deduction will be available for eligible property acquired on or after Budget Day and that becomes available for use before January 1, 2024, up to a maximum amount of $1.5 million per taxation year
Interest Deductibility Limitations
- Introduce rules that will limit the amount of net interest expense that an entity may deduct in computing its taxable income to no more than a fixed ratio of “tax EBITDA”. Measures will be phased in, with a fixed ratio of 40% for 2023 and 30% for taxation years beginning after January 1, 2024
Capital Cost Allowance for Clean Energy Equipment
- Modernize CCA classes for investments in specified clean energy generation and energy conservation equipment. Qualifying property will be eligible for accelerated CCA rates of 30 percent and 50 percent, depending on classification
We Can Help
As your financial advisor, we can help you assess the impact of these proposals on your personal finances or business affairs and show you ways to take advantage of these benefits or ease their impact.
*For a full view or to download the Federal Budget 2021, please visit www.budget.gc.ca