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Canada’s 2021 Budget: A Sigh of Relief?

By April 21, 2021 No Comments
Tax Law

Canada’s 2021 Budget: A Sigh of Relief?

In light of the ongoing COVID-19 pandemic and increased government spending over the last year, tax advisors anticipated that the Federal Government’s 2021 budget (Budget 2021) would include significant tax increases aimed at the wealthiest Canadians who should, in the government’s view, shoulder the financial burden of the pandemic. Instead, Budget 2021 has taken a less obvious approach to achieving its stated objective of fairness in tax policy, focusing its messaging on new or extended spending measures to provide support for families and businesses affected by the pandemic. In the words of Deputy Prime Minister and federal Finance Minister, Chrystia Freeland, “[t]his budget is about finishing the fight against COVID-19. It’s about healing the wounds left by the COVID-19 recession. And it’s about creating more jobs and prosperity for Canadians in the days – and decades – to come.” 

However, Canadians should be aware of certain tax changes that have been quietly tucked away in Budget 2021 and may be of particular concern to middle-class Canadians as well as high-net-worth individuals. Below are the highlights of Budget 2021. In more detailed articles to follow, the Nerland Lindsey Tax Group will delve into these changes and their anticipated impacts on Canadians.

Certain Tax & Policy Benefits Proposed by the Budget

    • Canadian Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) and Lockdown Support extended to September 2021, with subsidy rates declining between July and September 2021, accompanied by an authorization for the government to add further qualifying periods for these subsidies until November 20, 2021, if needed;
    • Confirmation that Canada Emergency Business Account (CEBA) application deadlines will be extended to June 30, 2021, and extension of application deadlines for similar support programs (Regional Relief and Recovery Fund and Indigenous Business Initiative) until June 30, 2021;
    • Introduction of the Canada Recovery Hiring Program, a new 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 (available only to employers not claiming the CEWS during the same period); and
    • Creation of a national Early Learning and Child Care program (including Indigenous Early Learning and Child Care), to be developed over the next 5 years and implemented starting in 2025-26.

What was Not in Budget 2021

    • No increase in federal Goods and Services Tax (GST) or provincial Harmonized Sales Tax (HST) rates;
    • No increase in the capital gains inclusion rate;
    • No increase in personal or corporate income tax rates;
    • No capital gains tax on principal residences sales; and
    • No wealth tax.

Notable Tax Changes in Budget 2021

    • Application of the GST/HST to non-resident vendors supplying digital products or services to consumers in Canada and non-resident distribution platform operators who facilitate supplies to Canadian consumers;
    • Introduction of a new federal Luxury Tax on the retail sale of certain luxury goods – the current measures will apply to new cars and personal aircraft valued at over $100,000 and personal-use boats valued at over $250,000, effective January 1, 2022; and
    • New rules targeting tax planning strategies deemed by the Canada Revenue Agency (CRA) to be aggressive, and rules providing the CRA with expanded audit powers.

Additional Tax Changes Proposed

In addition to the measures noted above, the Federal Government has proposed the creation of the following new taxes:

    • Digital Services Tax: this proposed tax is intended to ensure that revenue earned by large businesses, both foreign and domestic, through engagement with online users in Canada will be subject to Canadian tax.
    • 1% tax on so-called “unproductive use” of Canadian housing by foreign, non-resident owners of residential real estate in Canada.

For more information, please contact a member of our Tax Law group at nerlandlindsey.com/services/tax-law

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