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All our commonly asked questions, procedures, and information you need in one place.
On March 28, 2023, the Deputy Prime Minister and Finance Minister, the Honourable Chrystia Freeland, presented Budget 2023 – A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future, to the House of Commons.
No changes were made to personal or corporate tax rates or to the inclusion rate on taxable capital gains. Some highlights include the following:
Individuals will owe AMT if the tax amount calculated under the AMT regime is greater than the tax calculated under the ordinary progressive tax rate regime. Under the current rules, the calculation of AMT allows fewer deductions, exemptions and tax credits than under the ordinary income tax rules and applies a flat 15% tax on income over a standard $40,000 exemption.
Budget 2023 proposes several changes to the AMT calculation. First, the AMT rate is proposed to increase from 15% to 20.5%.
Second, the exemption would increase from $40,000 to the start of the fourth tax bracket (for 2024 this is approximately $173,000). Third, the AMT base would be broadened by further limiting tax preferences (i.e., exemptions, deductions and credits) as follows:
The ability to recover AMT in the seven subsequent years, to the extent that tax computed under the ordinary progressive tax rate regime exceeds AMT, is not proposed to change.
The proposed changes would come into force for the 2024 personal tax year.
Individuals and families with modest incomes receive the Goods and Services Tax Credit (GSTC). The maximum 2022/2023 GSTC is $467 for a single person, and $612 plus $161 per child for a married or common-law couple. Budget 2023 proposes a one-time payment called the Grocery Rebate which will equal half of the annual maximum (twice the quarterly payment received in January, 2023) to be paid as soon as possible after the legislation is passed.
Under the current law, a tradesperson can claim a deduction of up to $500 of eligible new tools acquired in a taxation year as a condition of employment. Budget 2023 proposes to double the maximum employment deduction for tradespeople’s tools from $500 to $1,000, effective for 2023 and subsequent taxation years. As a consequence of this change, extraordinary tool costs that are eligible to be deducted under the apprentice vehicle mechanics’ tools deduction would be those costs that exceed the combined amount of the increased deduction for tradespeople’s tool expenses ($1,000) and the Canada employment credit ($1,368 in 2023) or 5% of the taxpayer’s income earned as an apprentice mechanic, whichever is greater. Registered Education Savings Plans (RESPs)
Government grants and investment income can be withdrawn from RESPs as an education assistance payment (EAP) when a beneficiary is enrolled in an eligible post-secondary program. These withdrawals are taxable.
Under the current law, beneficiaries that are full-time students cannot withdraw more than $5,000 in EAPs in respect of the first 13 consecutive weeks of enrollment in a 12-month period. For part-time students, the limit is $2,500 per 13-week period. Budget 2023 proposes to increase these limits to $8,000 for full-time students and $4,000 for part-time students.
Budget 2023 also proposes to enable divorced or separated parents to open joint RESPs for one or more of their children or to move an existing joint RESP to another promoter. Under the current law, only spouses or common-law partners can jointly enter into an agreement with an RESP promoter to open an RESP.
These changes would come into force on Budget Day.
Where the contractual competence of a person with a disability who is 18 years of age or older is in doubt, the RDSP plan holder must be that person’s guardian or legal representative. A temporary measure allowed the person’s parent, spouse or common-law partner (a “qualifying family member”) to open an RDSP and be the plan holder where the person does not have a legal representative.
Budget 2023 proposes to extend this measure by three years, to December 31, 2026. Budget 2023 also proposes to broaden the definition of qualifying family members to include a brother or sister of the beneficiary who is 18 years of age or older. Qualifying family members who become a plan holder before the end of 2026 could remain the plan holder after 2026.
These proposals would apply as of royal assent of the enacting legislation.
An RCA is type of employer-sponsored arrangement that generally allows an employer to provide supplemental pension benefits to employees. A refundable tax is imposed at a rate of 50% on contributions to an RCA trust, as well as on income and gains earned or realized by the trust. The tax is generally refunded as the retirement benefits are paid to the employee. The employer receives a full deduction for contributions made to the RCA.
Employers who do not pre-fund supplemental retirement benefits through contributions to an RCA trust and instead settle retirement benefit obligations as they become due, can obtain a letter of credit (or a surety bond) issued by a financial institution in order to provide security to their employees. To secure or renew the letter of credit, the employer pays an annual fee or premium charged by the issuer. These fees and premiums are subject to the 50% refundable tax.
Budget 2023 proposes that fees or premiums paid for the purposes of securing or renewing a letter of credit (or a surety bond) for an RCA that is supplemental to a registered pension plan will not be subject to the refundable tax. This change would apply to fees or premiums paid on or after Budget Day.
Budget 2023 also proposes to allow employers to request a refund of previously remitted refundable taxes in respect of such fees or premiums paid in prior years. They would be entitled to recover 50% of retirement benefits paid after 2023, to a maximum of the refundable taxes paid in the past.
Historically where parents transferred shares of their corporation to a corporation owned by their children, deemed dividends rather than capital gains would arise on the disposition (due to Section 84.1 of the Income Tax Act). In 2021, legislation was passed (Bill C-208) to provide an exception from this deemed dividend treatment to facilitate the transfer of family businesses to the next generation. This exception allowed parents to utilize the lifetime capital gains exemption or simply receive capital gain treatment on the disposition, and enjoy the same tax benefits available on a sale to unrelated third parties.
However, the government was concerned that this exception contained insufficient safeguards and may have provided an inappropriate tax advantage where there was no transfer of a business to the next generation.
More specifically, this exception did not require that:
Budget 2023 proposes to amend these rules to ensure that they apply only where a genuine intergenerational business transfer (IBT) takes place.
A genuine IBT under the current law would be a transfer of shares of a corporation (the Transferred Corporation) by an individual shareholder (the Transferor) to another corporation (the Purchaser Corporation) where both of the following conditions are satisfied:
To ensure that only genuine IBTs are excluded from the deemed dividend rules, Budget 2023 proposes additional conditions be added. To provide flexibility, taxpayers who wish to undertake a genuine IBT may choose to rely on one of two transfer options:
The immediate transfer rule would provide finality earlier in the process, though with more stringent conditions. In recognition that not all business transfers are immediate, the gradual transfer rule would provide additional flexibility for those who choose that approach.
Both the immediate and gradual business transfer options would reflect the hallmarks of a genuine IBT. The chart on the next page outlines the proposed conditions to qualify as a genuine IBT under each option.
When the current exception was introduced, it was intended that there be restrictions for transfers of large corporations. However, these restrictions were not effectively implemented. Budget 2023 indicates that there would be no limit on the value of shares transferred in reliance upon this rule.
The current exception includes restrictions on sale of the business by the purchaser corporation within five years of the share transfer. Budget 2023 proposes that these requirements would be eliminated. In addition, new relieving rules would apply to deem requirements 3, 4 and 5 in the above chart to be met in respect of a child where either of the following occurs:
In order to benefit from the exception to the deemed dividends, the Transferor and child(ren) would be required to jointly elect for the transfer to qualify as either an immediate or gradual intergenerational share transfer. The child(ren) would be jointly and severally liable for any additional taxes payable by the Transferor on deemed dividends resulting from a transfer that does not meet the above conditions. The joint election and joint and several liability recognize that the actions of the child could potentially cause the parent to fail the conditions and to be reassessed in this regard.
The limitation period for reassessing the Transferor’s liability for tax that may arise on the transfer is proposed to be extended by three years for an immediate business transfer and by ten years for a gradual business transfer, ensuring that the Transferor can be reassessed if the requirements are not met throughout the applicable period.
Budget 2023 also proposes to provide a ten-year capital gains reserve for genuine intergenerational share transfers that satisfy the above proposed conditions, which would allow capital gains to be brought into income over a period of up to ten years, in proportion to proceeds received. The normal limit for such reserves is five years.
These rules would apply to share sales occurring on or after January 1, 2024.
An EOT is a form of employee ownership where a trust holds shares of a corporation for the benefit of the corporation’s employees. EOTs can be used to facilitate the acquisition by employees of their employer’s business, without requiring them to pay directly to acquire shares. This will provide business owners an additional option for succession planning. Budget 2023 proposes new rules to facilitate the use of EOTs to acquire and hold shares of a business.
The following subsections describe the general rules that would apply to EOTs. Complex requirements are set out in draft legislation included in the Budget papers.
To be an EOT, a trust would be required to be resident in Canada (excluding deemed resident trusts) and have only two purposes. First, it would hold shares of qualifying businesses for the benefit of the employee beneficiaries of the trust. Second, it would make distributions to employee beneficiaries, where reasonable, under a distribution formula that could only consider an employee’s length of service, remuneration and hours worked. Otherwise, all beneficiaries must generally be treated in a similar manner.
An EOT would be required to hold a controlling interest in the shares of the qualifying business. A qualifying business would need to meet certain conditions. It would be required to be a Canadian-controlled private corporation. All or substantially all of the fair market value of its assets must be attributable to assets used in an active business carried on in Canada. A qualifying business would not be able to carry on business as a partner in a partnership. An EOT would not be permitted to allocate shares of a qualifying business to individual beneficiaries. Trustees of the EOT would be elected by the beneficiaries every five years. Individuals who held a significant economic interest in a business prior to its acquisition by the EOT would not be able to make up more than 40% of the trustees of the EOT, the directors of a corporation serving as a trustee of the EOT or the directors of any qualifying business owned by the EOT. This limit would also include persons related to such individuals.
Trust beneficiaries would be limited to qualifying employees. Individuals, and persons related to them, who hold, or held prior to the disposition to the EOT, a significant economic interest in the business would be excluded from being qualifying employees.
The EOT would be a taxable trust and will be generally subject to the same rules as other personal trusts. Therefore, undistributed trust income would be taxed in the EOT at the top personal marginal tax rate. If the EOT distributes dividends received from the qualifying business, those dividends would retain their character when received by employee beneficiaries and would be eligible for the dividend tax credit.
A qualifying business transfer would occur when a taxpayer disposes of shares of a qualifying business for proceeds that do not exceed fair market value. The shares must be disposed of to either a trust that qualifies as an EOT immediately after the sale or a corporation owned 100% by the EOT. The EOT must own a controlling interest in the qualifying business immediately after the qualifying business transfer.
These amendment would apply as of January 1, 2024.
Budget 2023 proposes to introduce a 15% refundable tax credit for eligible investments in:
Both new projects and the refurbishment of existing facilities will be eligible. Taxable and non-taxable entities such as Crown corporations and publicly owned utilities, corporations owned by Indigenous communities, and pension funds, would be eligible. The clean electricity investment tax credit could be claimed in addition to the Atlantic investment tax credit, but generally not with any other investment tax credit.
In order to access the tax credit in each province and territory, other requirements will include a commitment by a competent authority that the federal funding will be used to lower electricity bills, and a commitment to achieve a net-zero electricity sector by 2035.
The clean electricity investment tax credit would be available as of Budget Day 2024 for projects that did not begin construction before Budget Day 2023. The credit would not be available after 2034.
Budget 2023 proposes to introduce the clean hydrogen refundable investment tax credit for investments made in clean hydrogen production based on the lifecycle carbon intensity of hydrogen (previously noted in the 2022 Fall Economic Statement). The amount of the credit, which ranges from 15% to 40%, is based on assessed carbon intensity of the hydrogen that is produced (i.e., kilogram (kg) of carbon dioxide equivalent (CO2e) per kg of hydrogen).
The credit would be available in respect of the cost of purchasing and installing eligible equipment for projects that produce hydrogen from electrolysis or natural gas (so long as emissions are abated using carbon capture, utilization, and storage).
Property that is required to convert clean hydrogen to clean ammonia would also be eligible for the credit, at the lowest credit rate of 15%.
This measure would apply to property that is acquired and that becomes available for use on or after Budget Day. The credit would be fully phased out for property that becomes available for use after 2034.
The 2022 Fall Economic Statement proposed a 30% clean technology investment tax credit for Canadian businesses adopting in clean technology and investing in eligible property that is acquired and that becomes available for use on or after Budget Day 2023. Eligible capital costs include investments in:
Budget 2023 proposes to expand eligibility of the tax credit to include geothermal energy systems that are eligible for Class 43.1 of Schedule II of the Income Tax Regulations. The expansion would apply in respect of property that is acquired and becomes available for use on or after Budget Day, where it has not been used for any purpose before its acquisition.
The phase-out of the credit would commence in 2034, rather than 2032 as previously announced.
Budget 2022 proposed a refundable investment tax credit for the cost of purchasing and installing eligible equipment used in an eligible CCUS project for businesses that incur eligible expenses starting on January 1, 2022.
Budget 2023 proposes the following changes in respect of the CCUS, with details to be released in the coming months:
These measures would apply to eligible expenses incurred after 2021 and before 2041.
Budget 2023 proposes to implement the government’s intention to attach prevailing wage and apprenticeship requirements to the proposed clean electricity, clean technology and clean hydrogen investment tax credits. In general, the rates available for these credits will be reduced by 10% if the following labour two requirements are not met.
The requirements would apply to work performed on or after October 1, 2023. Budget 2023 also indicated that labour requirements are intended to apply to the investment tax credit for carbon capture, utilization, and storage, with details to be announced at a later date.
Budget 2023 proposes to introduce a 30% refundable investment tax credit for clean technology manufacturing and processing, and critical mineral extraction and processing, on the capital cost of eligible property associated with eligible activities, including:
The credit would apply to property that is acquired and becomes available for use on or after January 1, 2024. The credit would be gradually phased out, starting with property that becomes available for use in 2032 and would no longer be in effect for property that becomes available for use after 2034.
For a particular property, businesses would be able to claim only the investment tax credits for carbon capture, utilization and storage; clean technologies; clean electricity; or clean technology manufacturing. However, multiple tax credits could be available for the same project if the project includes different types of eligible property.
In 2021, the corporate income tax rate for qualifying zero-emission technology manufacturers was reduced by 50%. Budget 2023 proposes to expand eligible activities to include the following nuclear manufacturing and processing activities:
This expansion would apply for taxation years beginning after 2023.
Budget 2023 proposes to extend the availability of these reduced rates by three years, such that the planned phase-out would start in taxation years that begin in 2032. The measure would be fully phased out for taxation years that begin after 2034.
The 2022 Fall Economic Statement announced the government’s intention to introduce a 2% tax on the net value of all types of share repurchases by public corporations in Canada. Budget 2023 provides the design and implementation details of the proposed measure. The tax would apply only to public corporations (Canadian-resident corporations whose shares are listed on a designated stock exchange).
It would not apply to mutual fund corporations, but would apply to real estate investment trusts, specified investment flow-through (SIFT) trusts and SIFT partnerships if they have units listed on a designated stock exchange.
The proposed tax would apply in respect of repurchases and issuances of equity that occur on or after January 1, 2024.
The GAAR in the Income Tax Act is intended to prevent abusive tax avoidance transactions while not interfering with legitimate commercial and family transactions. If abusive tax avoidance is established, the GAAR applies to deny the tax benefit created by the abusive transaction.
A consultation on various approaches to modernizing and strengthening the GAAR has recently been conducted. A consultation paper released last August identified a number of issues with the GAAR and set out potential ways to address them. As part of the consultation, the government received a number of submissions, representing a wide variety of viewpoints.
A preamble would be added to the GAAR, in order to help address interpretive issues and ensure that the GAAR applies as intended. While the GAAR informs the interpretation of, and applies to, every other provision of the Income Tax Act, it fundamentally denies tax benefits sought to be obtained through abusive tax avoidance transactions. It in effect draws a line: while taxpayers are free to arrange their affairs so as to obtain tax benefits intended by Parliament, they cannot misuse or abuse the tax rules to obtain unintended benefits. The preamble would also clarify that the GAAR is intended to apply regardless of whether or not the tax planning strategy used to obtain the tax benefit was foreseen.
The threshold for an “avoidance transaction” potentially subject to the GAAR would be reduced from a “primary purpose” test to a “one of the main purposes” test. This is consistent with the standard used in many modern anti-avoidance rules in other countries and is considered by the government to strike a reasonable balance, as it would apply to transactions with a significant tax avoidance purpose but not to transactions where tax was simply a consideration.
A rule would be added to the GAAR to better meet the objective of requiring economic substance in addition to literal compliance with the words of the Income Tax Act. Currently, Supreme Court of Canada jurisprudence has established a more limited role for economic substance.
The proposed amendments would provide that economic substance is to be considered at the ‘misuse or abuse’ stage of the GAAR analysis and that a lack of economic substance tends to indicate abusive tax avoidance. A lack of economic substance will not always mean that a transaction is abusive. It would still be necessary to determine the object, spirit and purpose of the provisions or scheme relied upon, in line with existing GAAR jurisprudence. In cases where the tax results sought are consistent with the purpose of the provisions or scheme relied upon, abusive tax avoidance would not be found even in cases lacking economic substance.
The amendments would provide indicators for determining whether a transaction or series of transactions lacks economic substance. These are not an exhaustive list of factors that might be relevant and different indicators might be relevant in different cases. However, in many cases, the government believes that the existence of one or more of these indicators would strongly point to a transaction lacking economic substance. These indicators are:
Budget 2023 provided the example of an individual contributing to a tax-free savings account. Such a transfer could be considered to be entirely tax motivated, with no change in economic position or potential for profit other than as a result of tax savings. Even if the transfer is considered to be lacking in economic substance, it is clearly not a misuse or abuse of the relevant provisions of the Income Tax Act. The individual is using their tax-free savings account in precisely the manner that Parliament intended. There are contribution rules that specifically contemplate such a transfer and, perhaps more fundamentally, the basic tax-free savings account rules would not work if such a transfer was considered abusive.
The proposal would not supplant the general approach under Canadian income tax law, which focuses on the legal form of an arrangement. In particular, it would not require an enquiry into what the economic substance of a transaction actually is (e.g., whether a particular financial instrument is, in substance, debt or equity). Rather, it would require consideration of a lack of economic substance in the determination of abusive tax avoidance.
A penalty would be introduced for transactions subject to the GAAR, equal to 25% of the amount of the tax benefit. Where the tax benefit involves a tax attribute that has not yet been used to reduce tax, the amount of the tax benefit would be considered to be nil. The penalty could be avoided if the transaction is disclosed to CRA, either as part of mandatory disclosure rules which are currently proposed or voluntarily.
A three-year extension to the normal reassessment period would be provided for GAAR assessments, unless the transaction had been disclosed to CRA as discussed above.
Budget 2023 announced a consultation on these proposals to close on May 31, 2023. Following this consultation, the government intends to publish revised legislative proposals and announce the application date of the amendments.
Corporations are able to deduct dividends received on shares of other corporations resident in Canada in computing their taxable income, preventing the same earnings being subject to multiple levels of corporate taxation. The government considers this treatment inconsistent with the mark-to-market rules that essentially classify gains on portfolio shares held by banks as business income. Budget 2023 proposes to deny the dividend deduction in respect of dividends received by financial institutions on shares that are mark-to-market property, effective for dividends received after 2023.
A credit union (as defined for income tax and GST purposes) benefits from a GST/HST rule allowing it to receive most taxable supplies of goods and services from credit union centrals and other credit unions on an exempt basis. The definition prevents a credit union that earns more than 10% of its revenue from sources other than certain specified sources (such as interest income from lending activities) from meeting the definition of “credit union,” and qualifying for the special income tax and GST/HST rules governing credit unions. This could arise even though the credit union’s governing legislation permits it to earn revenue from these other sources. Most credit unions are currently full-service financial institutions that offer a comprehensive suite of financial products and services. Budget 2023 proposes to eliminate the revenue test from the definition of “credit union” and amend that definition to accommodate how credit unions currently operate, effective for taxation years ending after 2016.
Canada is one of 137 members of the OECD/Group of 20 (G20) Inclusive Framework on Base Erosion and Profit Shifting (the Inclusive Framework) that have joined a two-pillar plan for international tax reform agreed to on October 8, 2021. Budget 2023 reiterates Canada’s commitment to the framework, and its intention to implement the Pillar One (intended to reallocate a portion of taxing rights over the profits of the largest and most profitable multinational enterprises to market countries where their users and customers are located) and Pillar Two (intended to ensure that the profits of large multinational enterprises are subject to an effective tax rate of at least 15%, regardless of where they are earned) initiatives.
Budget 2023 announces the government’s intention to introduce legislation implementing the income inclusion rule and a domestic minimum top-up tax applicable to Canadian entities of MNEs that are within scope of Pillar Two, with effect for fiscal years of MNEs that begin on or after December 31, 2023.
Alcohol excise duties are automatically indexed to total Consumer Price Index (CPI) inflation at the beginning of each fiscal year (i.e., on April 1st). Budget 2023 proposes to temporarily cap the inflation adjustment for excise duties on beer, spirits and wine at 2%, for one year only, as of April 1, 2023.
Excise duties are imposed on cannabis products, and are generally remittable on a monthly basis. Budget 2022 brought forward a measure that allowed certain smaller licensed cannabis producers to remit excise duties on a quarterly basis. Budget 2023 proposes to allow all licensed cannabis producers to remit excise duties on a quarterly rather than monthly basis, starting from the quarter beginning on April 1, 2023.
The Air Travellers Security charge (ATSC) is generally paid by passengers when they purchase airline tickets. Budget 2023 proposes to increase ATSC rates by 32.85%, noting that these rates were last increased in 2010, at which time they were raised by 52.4%.
The proposed new ATSC rates will apply to air transportation services that include a chargeable emplanement on or after May 1, 2024, for which any payment is made on or after that date. The charge for a domestic one-way flight will rise from $7.48 to $9.94. The transborder charge will increase from $12.71 to $16.89, and the charge for other international travel will increase from $25.91 to $34.42. These rates include the GST or federal portion of HST.
Budget 2023 announced that commitments had been obtained from Visa and Mastercard to lower fees for small businesses. More than 90% of credit card-accepting businesses are expected to see their fees reduced by up to 27%.
Budget 2023 announced that the number of Canadians eligible for CRA’s automatic File My Return service will be increased to 2 million by 2025, almost tripling the number of currently eligible Canadians. In 2022, 53,000 returns were filed using this service. In addition, a new pilot project will be implemented to assist vulnerable Canadians in applying for benefits even if they do not file tax returns.
Budget 2023 proposes increasing Canada student grants by 40%, raising the interest-free Canada student loan limit from $210 to $300 per study week, and waiving the requirement for mature students (aged 22 or older) to undergo credit screening in order to qualify.
The Canadian dental care plan would provide coverage for all uninsured Canadians with an annual family income of less than $90,000 (the Canada dental benefit only provided benefits for children under 12) by the end of 2023. The plan will be administered by Health Canada with support from a third-party benefits administrator. Benefits are reduced for families with income between $70,000 and $90,000.
Budget 2023 proposes to amend the Canada Labour Code to strengthen prohibitions against employee misclassification for federally regulated gig workers such that they will receive protections and benefits including EI and CPP.
Budget 2023 proposes to provide $53.8 million in 2022-23 to Employment and Social Development Canada to support integrity activities relating to overpayments of COVID-19 emergency income supports.
Budget 2023 confirms the government’s intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their release.
The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.
No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
On April 7, 2022, the Deputy Prime Minister and Finance Minister, the Honourable Chrystia Freeland, presented Budget 2022: A Plan to Grow Our Economy and Make Life More Affordable, to the House of Commons.
No changes were made to personal or corporate tax rates, nor to the inclusion rate on taxable capital gains. Some highlights include:
The Government’s fiscal position includes the following projected surplus/deficit:
Budget 2022 proposes to create the tax-free FHSA to help first-time home buyers save up to $40,000 for their first home. Contributions to an FHSA would be deductible (like an RRSP), and income earned in an FHSA and qualifying withdrawals from an FHSA made to purchase a first home would be non-taxable (like a TFSA).
The lifetime limit on contributions would be $40,000, subject to an annual contribution limit of $8,000. Unused annual contribution room would not be carried forward. Individuals would also be allowed to transfer funds from an RRSP to an FHSA tax-free, subject to the $40,000 lifetime and $8,000 annual contribution limits.
Withdrawals for purposes other than to purchase a first home would be taxable. However, an individual could transfer funds from an FHSA to an RRSP (at any time before the year they turn 71) or a RRIF on a non-taxable basis. Transfers would not reduce, or be limited by, the individual’s available RRSP room. Withdrawals and transfers would not replenish FHSA contribution limits. Individuals would not be permitted to make both an FHSA withdrawal and a home buyers’ plan withdrawal in respect of the same qualifying home purchase.
If an individual has not used the funds in their FHSA for a qualifying first home purchase within 15 years of opening an FHSA, their FHSA would have to be closed. Any unused funds could be transferred into an RRSP or RRIF or would otherwise have to be withdrawn on a taxable basis.
Individuals eligible to open an FHSA must be at least 18 years of age and resident in Canada. In addition, they must not have lived in a home that they or their spouse owned at any time in the year the account was opened or the preceding four calendar years.
The government would work with financial institutions to allow individuals to open an FHSA and start contributing in 2023.
First-time home buyers can obtain up to $750 in tax relief as a non-refundable tax credit by claiming this credit. Budget 2022 proposes to double the Home Buyers’ Tax Credit amount, such that tax relief of up to $1,500 can be accessed by eligible home buyers. This measure would apply to acquisitions of a qualifying home made on or after January 1, 2022.
The Home Accessibility Tax Credit is a non-refundable tax credit that provides relief of up to $1,500 on eligible home renovations (15% of expenses of up to $10,000) to make the dwelling more accessible to seniors or those eligible for the Disability Tax Credit that reside in the property. Budget 2022 proposes to double the annual expense limit to $20,000, such that the maximum non-refundable tax credit would be $3,000. This measure would apply to expenses incurred in the 2022 and subsequent taxation years.
Budget 2022 proposes a new refundable tax credit to support constructing a secondary suite for an eligible person to live with a qualifying relation. An eligible person would be a senior (65+ years of age at the end of the tax year when the renovation was completed) or an adult (18+ years of age) eligible for the disability tax credit. A qualifying relation would be 18+ years of age and a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece or nephew of the eligible person (which includes the spouse or common-law partner of one of those individuals).
This tax credit would provide tax relief of 15% on up to $50,000 of eligible expenditures, providing a maximum benefit of $7,500.
The renovation must allow the eligible person to live with the qualifying relation by establishing a secondary unit (which must have a private entrance, kitchen, bathroom facilities and sleeping area). The secondary unit could be newly constructed or created from an existing living space that did not already meet the requirements to be a secondary unit. Relevant building permits for establishing a secondary unit must be obtained, and renovations must be completed in accordance with the laws of the jurisdiction in which the eligible dwelling is located.
One qualifying renovation would be permitted to be claimed in respect of an eligible person over their lifetime.
The credit would be claimed in the year that the qualifying renovation passes a final inspection, or proof of completion of the project according to all legal requirements of the jurisdiction in which the renovation was undertaken is otherwise obtained.
Eligible expenses would include the cost of labour and professional services, building materials, fixtures, equipment rentals and permits. Items such as furniture and items that retain a value independent of the renovation (such as construction equipment and tools) would not qualify for the credit.
Goods or services provided by a person not dealing at arm’s length with the claimant would not be eligible unless that person is registered for GST/HST. All expenses must be supported by receipts.
Expenses would not be eligible for this credit if claimed as a medical expense tax credit and/or home accessibility tax credit.
The credit may be claimed by the eligible person, their spouse, or a qualifying relation that resides in or intends to reside in the dwelling within 12 months of the renovation. A qualifying relation that owns the dwelling can also make a claim.
Where one or more eligible claimants claim in respect of a qualifying renovation, the total of all amounts claimed for the renovation must not exceed $50,000.
An eligible dwelling must be owned by the eligible person, their spouse, or a qualifying relation. Within twelve months of the renovation, the eligible person and the qualifying relation must also ordinarily reside or intend to reside in the property.
This measure would apply for the 2023 and subsequent taxation years, in respect of work performed and paid for and/or goods acquired on or after January 1, 2023.
The government is concerned that taxpayers are inappropriately reporting gains on the disposition of real estate acquired for resale at a profit. In these cases, the profit is fully taxable as business income (100% taxed), and not a capital gain (50% taxed, and potentially eligible for the principal residence exemption).
Budget 2022 proposes to introduce a new rule that all gains arising from dispositions of residential property (including a rental property) that was owned for less than 12 months would be business income.
The new deeming rule would not apply if the disposition related to one of the life events listed below:
Properties held for more than 12 months, or meeting one of the exceptions noted above, would continue to generate either business income or a capital gain on the disposition, depending on whether the property was acquired for the purpose of resale at a profit (business income) or was acquired for some other purpose (capital gain). While this measure was reflected as a “personal income tax measure,” it is unclear whether the deeming rule will also apply to corporations and other taxpayers.
The measure would apply in respect of residential properties sold on or after January 1, 2023. The government indicates that there will be a consultation when the legislation is drafted.
Budget 2022 proposes a deduction of up to $4,000/year to recognize certain travel and relocation expenses of workers in the construction industry.
An eligible individual would be a tradesperson or an apprentice who temporarily relocates to enable them to obtain or maintain employment under which the duties performed are temporary in a construction activity at a particular work location. Prior to the relocation, they must also ordinarily reside in Canada, and during the relocation period, at temporary lodging in Canada near that work location.
The temporary lodging must be at least 150 kms closer than the ordinary residence to the particular work location. The particular work location must be located in Canada, and the temporary relocation must be for at least 36 hours. Eligible expenses would include reasonable amounts for:
The maximum deduction would be capped at 50% of the worker’s employment income from construction activities at the particular work location in the year. Amounts could be claimed in the tax year before or after the year they were incurred, provided they were not deductible in a prior year.
The individual’s ordinary residence must remain available to them during the period that they are in the temporary lodging.
Expenses for which the individual received non-taxable financial assistance could not be claimed. Amounts claimed under this deduction would not be eligible under the existing moving expense deduction and vice versa.
This measure would apply to the 2022 and subsequent taxation years.
Budget 2022 proposes to expand access to the METC in cases where an individual relies on a surrogate or a donor to become a parent. Medical expenses paid by the taxpayer, or the taxpayer’s spouse or common-law partner, with respect to a surrogate mother or donor would be eligible for the METC, whereas previously they would generally not have been eligible. For example, expenses paid by the intended parent to a fertility clinic for an in vitro fertilization procedure with respect to a surrogate mother or for hormone medication for an ova donor would be eligible for the METC.
Budget 2022 proposes to allow reimbursements paid by the taxpayer to a patient to be eligible for the METC, provided that the reimbursement is for an expense that would generally qualify under the credit. For example, the METC could be available for reimbursements paid by the taxpayer for expenses incurred by a surrogate mother with respect to an in vitro fertilization procedure or prescription medication related to their pregnancy.
Budget 2022 also proposes to allow fees paid to fertility clinics and donor banks to obtain donor sperm or ova to be eligible under the METC. Such expenses would be eligible where the sperm or ova are acquired for use by an individual to become a parent.
All expenses claimed under the METC would be required to be incurred in Canada and in accordance with the Assisted Human Reproduction Act and associated regulations.
These measures would apply to expenses incurred in the 2022 and subsequent taxation years.
Budget 2022 proposes several amendments to ensure that the Children’s Special Allowance, the Canada Child Benefit and the Canada Workers Benefit amount for families are appropriately directed in situations involving Indigenous governing bodies. These measures would be retroactive to 2020.
Budget 2022 also proposes a number of measures for individuals for which few details were provided, including the following:
Canadian-controlled private corporations (CCPCs) benefit from the small business deduction (SBD), a reduced corporate tax rate on active business income from the 15% general rate to 9% federally. Each province also has an SBD regime. A “business limit” of $500,000 of annual income (shared between associated corporations) limits eligibility to the SBD federally, and in all provinces except Saskatchewan, which has a $600,000 provincial business limit.
The business limit is reduced for corporations or associated groups which have “taxable capital” in excess of $10 million, with the business limit reduced by $1 for every additional $10 of taxable capital over the $10 million threshold, until it is eliminated where taxable capital equals or exceeds $15 million.
Budget 2022 proposes to reduce the business limit by $1 for every $80 of taxable capital in excess of $10 million, such that the limit will be more gradually reduced, and only eliminated where taxable capital equals or exceeds $50 million. This measure is proposed to apply for corporate taxation years beginning on or after April 7, 2022.
No changes are proposed to the parallel reduction to the business limit where adjusted aggregate investment income exceeds $50,000.
In addition to being ineligible for the SBD, investment income (such as interest, royalties, rent and taxable capital gains) earned by CCPCs is subject to a significantly higher corporate tax rate of 38 2/3% (plus provincial tax which, in most provinces, results in a combined tax rate of over 50%). A similar regime (Part IV Tax) applies to portfolio dividends received by CCPCs. This is intended to result in corporate taxes similar to the top personal tax rates.
A portion of this tax is refundable when taxable dividends are paid by the corporation to its shareholders, so that the combined corporate taxes after this refund and personal tax paid by the ultimate individual shareholders is comparable to the tax that would have been paid if the investments had been made personally, rather than corporately.
As these special rules apply only to CCPCs, some planning strategies have been developed where corporations are structured to fall outside CCPC status. These include the use of corporations governed by a foreign country’s corporate legislation, or the issuance of options or voting shares to non-Canadians. A number of taxpayers who have implemented such strategies have been challenged by CRA, with appeals to be heard by the Tax Court of Canada, however such challenges are both time-consuming and costly for the government.
Budget 2022 proposes that private corporations which are not CCPCs, but are factually controlled by one or more Canadian persons, be subject to the same investment income rules as a CCPC. An anti-avoidance rule will also apply this treatment to any corporation falling outside the technical rules, where it is reasonable to consider that one or more transactions were undertaken to avoid these rules. This measure will generally apply to taxation years that end on or after April 7, 2022, with possible deferral where an arm’s length sale pursuant to a written purchase and sale agreement was entered into prior to that date.
A complex anti-avoidance rule prevents the sale of shares of closely-held corporations by individual shareholders to related corporations from resulting in capital gains, instead causing the seller to realize dividends. In addition to attracting higher taxes than capital gains, dividends are not eligible for the lifetime capital gains exemption (LCGE).
This provision has been a source of frustration for business owners wishing to transition a family business to the next generation, denying them access to the LCGE which would have been available on a similar sale to unrelated parties. On June 29, 2021, legislation (Bill C-208) exempting sales of shares of small business corporations or family farm or fishing corporations from parents to corporations controlled by their children from this provision, allowing the realization of capital gains potentially eligible for the LCGE, was passed into law.
The government had indicated that they were concerned that this legislation could permit transfers beyond genuine intergenerational business successions to benefit from this lower tax cost, a practice commonly referred to as “surplus stripping,” and that further amendments would be made to limit these transactions to their intended purpose.
Budget 2022 reiterates the government’s intention to amend the legislation to restrict these transactions to genuine intergenerational business transfers, while continuing to facilitate legitimate business successions. It announces a consultation by the Department of Finance, with specific mention of the agriculture sector, to close on June 17, 2022. Comments can be sent to email@example.com. The government indicated that amending legislation would be included in a bill to be tabled in the fall after the conclusion of the consultation process.
Flow-through share agreements allow corporations to renounce or “flow through” specified expenses to investors, who can deduct the expenses in calculating their taxable income. These are common in the resource sector, where they allow certain resource pools to be claimed by investors, rather than the corporations incurring the costs. A Mineral Exploration Tax Credit equal to 15% of specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors also applies to some flow-through shares.
Budget 2022 proposes to introduce a new 30% Critical Mineral Exploration Tax Credit for specified minerals, specifically copper, nickel, lithium, cobalt, graphite, rare earth elements, scandium, titanium, gallium, vanadium, tellurium, magnesium, zinc, platinum group metals and uranium. These minerals are used in the production of batteries and permanent magnets, both of which are used in zero-emission vehicles, or are necessary in the production and processing of advanced materials, clean technology, or semi-conductors. This will effectively double the credit for exploration expenditures related to such minerals.
This enhanced credit would apply to expenditures renounced under eligible flow-through share agreements entered into after April 7, 2022 and on or before March 31, 2027.
Budget 2022 proposes to eliminate the flow-through share regime for oil, gas and coal activities. Such expenditures would not be permitted to be renounced to share purchasers under flow-through share agreements entered into after March 31, 2023.
Several business measures proposed in Budget 2022 target specific sectors. These include the following:
The digital economy (including the sharing and gig economies, and online sellers of goods) continues to grow at a rapid pace. Participants in the digital economy often make use of digital platforms. Many tax authorities are concerned that not all participants are aware of the tax implications of their online activities. In addition, transactions occurring digitally through online platforms may not be visible to tax administrations, making it difficult for CRA to identify non-compliance.
The Organisation for Economic Co-operation and Development (OECD) has developed model rules for reporting by digital platform operators with respect to platform sellers which require the platforms to collect and report relevant information to tax administrations. The model rules provide for the sharing of information between tax administrations so that an online platform would generally need to report the information to only one jurisdiction, and that jurisdiction would then share the information with partner jurisdictions based on the residence of each person earning revenue through the platform. Jurisdictions which have announced their intention to implement such a framework include the European Union, the United Kingdom and Australia.
Budget 2022 proposes to implement the model rules in Canada. They would require reporting platform operators that provide support to reportable sellers for relevant activities to determine the jurisdiction of residence of their reportable sellers and report certain information on them. Reporting platform operators would be entities that make software that runs a platform available for the sellers to be connected to other users, or to collect compensation through the platform.
The measure would generally apply to platform operators that are resident for tax purposes in Canada, and to platform operators that are not resident in Canada or a partner jurisdiction (one that has implemented similar rules and will share data with CRA on Canadian activity) and that facilitate relevant activities by Canadian residents or with respect to rental of real property located in Canada.
Relevant activities would be sales of goods and relevant services including the following:
Reporting would not be required in respect of sellers that represent a limited compliance risk, including government entities, publicly listed entities, large providers of hotel accommodation (more than 2,000 per year in respect of a property listing) and, with respect to the sales of goods, sellers who make less than 30 sales a year for a total of not more than 2,000 euro.
Reporting platform operators would be required to provide the required disclosures to CRA by January 31 of the year following the calendar year. CRA would automatically exchange information received on sellers resident in partner jurisdictions. Likewise, CRA would receive information on Canadian sellers from partner jurisdictions. This measure would apply to calendar years beginning after 2023, with the first reporting and exchange of information expected to take place in early 2025 with respect to the 2024 calendar year.
The government intends to prohibit foreign commercial enterprises and people who are not Canadian citizens or permanent residents from acquiring non-recreational, residential property in Canada for a period of two years. This would not apply to refugees and people authorized to come to Canada while fleeing international crises, certain international students on the path to permanent residency or individuals on work permits who are residing in Canada.
Canada is one of 137 members of the OECD/Group of 20 (G20) Inclusive Framework on Base Erosion and Profit Shifting (the Inclusive Framework) that have joined a two-pillar plan for international tax reform agreed to on October 8, 2021. Budget 2022 reiterates Canada’s commitment to the framework, and its intention to implement the Pillar One (intended to reallocate a portion of taxing rights over the profits of the largest and most profitable multinational enterprises to market countries where their users and customers are located) and Pillar Two (intended to ensure that the profits of large multinational enterprises are subject to an effective tax rate of at least 15%, regardless of where they are earned) initiatives.
Budget 2022 sets out the government’s plans for consultation and implementation of these initiatives.
Interest paid from a Canadian resident to a non-arm’s length non-resident is generally subject to a 25% flat withholding tax, reduced under various tax treaties (often to either 10% or 15%; generally to nil where paid to U.S. residents). Budget 2022 proposes measures to address certain arrangements (referred to as interest coupon stripping arrangements) to ensure that this withholding tax is not avoided.
An assignment sale in respect of residential housing is a transaction in which a purchaser (an “assignor”) under an agreement of purchase and sale with a builder of a new home sells their rights and obligations under the agreement to another person (an “assignee”). An assignment sale of newly constructed (or substantially renovated) residential real estate made by an individual would generally be taxable if the individual had originally entered into the agreement of purchase and sale with the builder for the primary purpose of selling their interest in the agreement. Where there was another primary purpose, such as residing in the property, the assignment sale would generally be exempt.
To provide greater certainty on the status of assignment sales, Budget 2022 proposes to make all assignment sales in respect of newly constructed or substantially renovated residential housing taxable for GST/HST purposes. As a result, the GST/HST would apply to the total amount paid for a new home by its first occupant. Typically, the consideration for an assignment sale includes an amount attributable to a deposit that had previously been paid to the builder by the assignor. That deposit would already be subject to GST/HST when applied by the builder to the purchase price on closing. Budget 2022 proposes that the amount attributable to the deposit be excluded from the consideration for a taxable assignment sale.
The assignor in respect of a taxable assignment sale would generally be responsible for collecting the GST/HST and remitting the tax to CRA. Where an assignor is non-resident, the assignee would be required to self-assess and pay the GST/HST directly to CRA.
The amount of a new housing rebate is determined based on the total consideration payable for a newly-constructed home, which would include the consideration for a taxable assignment sale. Accordingly, these changes may affect the amount of a New Housing Rebate that may be available in respect of a new home.
This measure would apply in respect of any assignment agreement entered into on or after May 7, 2022 (one month after Budget Day).
Hospitals can claim an 83% rebate and charities and non-profit organizations can claim a 50% rebate of the GST (or federal component of the HST) that they pay on inputs used in their exempt supplies. The 83% hospital rebate also applies to eligible charities and non-profit organizations that provide health care services similar to those traditionally performed in hospitals.
One of the conditions to be eligible for the expanded hospital rebate is that a charity or non-profit organization must deliver the health care service with the active involvement of, or on the recommendation of, a physician, or in a geographically remote community, with the active involvement of a nurse practitioner.
Budget 2022 proposes to allow the 83% hospital rebate to a charity or non-profit organization that delivers health care service with the active involvement of, or on the recommendation of, either a physician or a nurse practitioner, irrespective of their geographical location.
This measure would generally apply to rebate claim periods ending after April 7, 2022 in respect of GST/HST paid or payable after that date.
Budget 2021 announced a consultation on a new excise duty on vaping products. Budget 2022 sets out a taxation framework on vaping products that include either liquid or solid vaping substances (whether or not they contain nicotine), with an equivalency of 1 ml of liquid = 1 gram of solids (excluding those already subject to the cannabis excise duty framework).
A federal excise duty rate of $1 per 2 ml, or fraction thereof, is proposed for the first 10 ml of vaping substance, and $1 per 10 ml, or fraction thereof, for volumes beyond that. If a province or territory were to choose to participate in a coordinated vaping taxation regime administered by the federal government as set out in the budget documents, an additional duty rate would be imposed in respect of dutiable vaping products intended for sale in that participating jurisdiction.
Budget 2022 proposes several amendments to streamline, strengthen, and adapt the cannabis excise duty framework specifically, as well as other excise regimes, including the following:
Except where indicated otherwise, the above proposals would be effective only on Royal Assent.
Wine that is produced in Canada and composed wholly of agricultural or plant product grown in Canada (i.e. 100% Canadian wine) is presently exempt from excise duties. However, this exemption was challenged at the World Trade Organization (WTO). In accordance with a settlement reached in July 2020, Budget 2022 proposes to repeal the 100% Canadian wine excise duty exemption effective on June 30, 2022.
At present, wine and spirits containing no more than 0.5% alcohol by volume (ABV) are exempt from federal excise duty, however beer containing no more than 0.5% ABV is subject to duty. Budget 2022 proposes to eliminate excise duty for beer containing no more than 0.5% ABV, bringing the tax treatment of such beer into line with the treatment of wine and spirits with the same alcohol content. This measure would come into force on July 1, 2022.
Budget 2022 proposes to provide more borrowing flexibility to administrators of defined benefit registered pension plans (other than individual pension plans) for amounts borrowed on or after April 7, 2022.
Budget 2022 proposes to require financial institutions to annually report to CRA the total fair market value of property held in each RRSP and RRIF at the end of the calendar year. This information would assist CRA in its risk-assessment activities regarding qualified investments held by RRSPs and RRIFs. This measure would apply to the 2023 and subsequent taxation years.
Registered charities are generally required to expend a minimum amount each year for charitable purposes, referred to as the disbursement quota (DQ). Presently, the DQ is set at 3.5% of property not used directly in charitable activities or administration.
Budget 2022 proposes to increase the DQ rate from 3.5% to 5% for the portion of property not used in charitable activities or administration that exceeds $1 million. Budget 2022 also proposes to clarify that expenditures for administration and management are not considered qualifying expenditures to satisfy a charity’s DQ.
Where a charity cannot meet its DQ, it may apply to CRA and request relief. Budget 2022 proposes to amend the existing rule such that CRA will have the discretion to reduce a charity’s DQ obligation for any particular tax year. It also proposes to allow CRA to publicly disclose information relating to such a decision to provide relief.
These measures would apply to charities in respect of their fiscal periods beginning on or after January 1, 2023.
Budget 2022 proposes to allow a charity to provide its resources to organizations that are not qualified donees, provided that these disbursements further the charity’s charitable purposes and the charity ensures that the funds are applied to charitable activities by the grantee.
To be considered a qualifying disbursement, the charity will need to meet mandatory accountability requirements, including, for example:
In addition, Budget 2022 proposes to require charities to, upon request by CRA, take all reasonable steps to obtain receipts, invoices, or other documentary evidence from grantees to demonstrate amounts were spent appropriately.
Finally, Budget 2022 proposes to prohibit registered charities from accepting gifts, the granting of which was expressly or implicitly conditional on making a gift to a person other than a qualified donee.
These changes would apply as of Royal Assent.
Budget 2022 confirms the government’s intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their release:
Budget 2022 reiterates the government’s intention to return a portion of the proceeds from the price on pollution to small and medium-sized businesses through new federal programming in backstop jurisdictions (Alberta, Saskatchewan, Manitoba and Ontario). Budget 2022 proposes to provide funds, starting in 2022-23, to Environment and Climate Change Canada to administer direct payments to support emission-intensive, trade-exposed small and medium-sized enterprises in those jurisdictions.
Budget 2022 also reaffirms the government’s intention to revise the Employment Insurance (EI) system, including its support for experienced workers transitioning to a new career and coverage for seasonal, self-employed and gig workers. A long-term plan for the future of EI will be released after consultations conclude. As an interim measure, Budget 2022 proposes to extend previous expansions to EI coverage for seasonal workers.
The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.
No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
Request to Deduct Federal COVID-19 Benefits Repayment in a Prior Year:
First-Time Home Buyers’ Tax Credit:
Home Accessibility Tax Credit:
Labour Mobility Deduction for Tradespeople:
Ontario Staycation Tax Credit:
Employment Expenses for Working at Home due to COVID-19:
Other Notable Updates:
On April 19, 2021, the Deputy Prime Minister and Finance Minister, the Honourable Chrystia Freeland, presented Budget 2021: A Recovery Plan for Jobs, Growth, and Resilience, to the House of Commons.
No changes were made to personal or corporate tax rates (other than a temporary measure for zero-emission technology manufacturers), nor to the inclusion rate on taxable capital gains.
Some highlights include:
A. Personal Measures
B. Business Measures
C. International Measures
D. Sales and Excise Tax
E. Electronic Filing, Payments and Certification
F. Previously Announced
COVID-19 Benefit Amounts – Tax Treatment
Budget 2021 proposes to allow individuals the option to claim a deduction in respect of the repayment of a COVID‑19 benefit amount for the year when the benefit was received, rather than the year in which the repayment was made. This option would be available for benefit amounts repaid at any time before 2023.
For these purposes, COVID-19 benefits would include:
Individuals may only deduct benefit amounts once they have been repaid. An individual who makes a repayment, but who has already filed their income tax return for the year in which the benefit was received, would be able to request an adjustment to the return for that year.
Canada Recovery Benefits (CRB)
Budget 2021 proposes the following in respect of CRB:
Employment Insurance (EI)
Budget 2021 proposes to extend many of the temporary EI measures commenced in 2020, including:
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.
Disability Tax Credit (DTC)
Budget 2021 proposes several changes which would provide broader access to the DTC. These proposals would apply to the 2021 and subsequent taxation years, in respect of DTC certificates filed on or after Royal Assent.
The DTC is generally available to individuals who are markedly restricted in their ability to perform a basic activity of daily living due to a severe and prolonged impairment in physical or mental functions. Budget 2021 proposes to expand the definition of mental functions necessary for everyday life to include: attention, concentration, memory, judgement, perception of reality, problem-solving, goal-setting, regulation of behaviour and emotions, verbal and non-verbal comprehension, and adaptive functioning.
Individuals can qualify for the DTC where they undergo therapies that have a significant impact on everyday life. Under current rules, the therapy is required to be administered at least three times/week for a total duration averaging at least 14 hours a week. Also, only certain types of therapy are allowed to be included in this computation.
To better recognize additional aspects of therapy for this computation, Budget 2021 proposes to:
These proposals would apply to the 2021 and subsequent taxation years, in respect of DTC certificates filed on or after Royal Assent.
Canada Workers Benefit (CWB)
The CWB is a non-taxable refundable tax credit that supplements the earnings of low- and modest-income workers.
Budget 2021 proposes to enhance the CWB by, for example, 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). The phase-out rate is also slightly increased. Corresponding changes would be made to the disability supplement.
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.
Northern Residents Deductions (NRD)
Budget 2021 proposes to expand access to the travel component of the NRD. Under the current rules, the claim is limited to the amount of employer-provided travel benefits the taxpayer received in respect of travel by that individual. Under the new approach, a taxpayer would have the option to claim, in respect of the taxpayer and each "eligible family member", up to a $1,200 standard amount that may be allocated across eligible trips taken by that individual, allowing individuals with no employment benefits to claim this deduction. For residents of the Intermediate Zone, this effectively becomes a $600 standard amount.
An eligible family member would be an individual living in the taxpayer's household who is the taxpayer’s spouse/common-law partner, their child under the age of 18, or a related individual who is wholly dependent on them for support and is either their parent or grandparent, or dependent by reason of mental or physical infirmity.
Claims would still be limited to the least of this new number, the total expenses paid for the trip and the cost of the lowest return airfare to the nearest designated city.
This measure would apply to the 2021 and subsequent taxation years.
Postdoctoral Fellowship Income
Budget 2021 proposes to include postdoctoral fellowship income in “earned income” for RRSP purposes. This measure would apply in respect of postdoctoral fellowship income received in the 2021 and subsequent taxation years. This measure would also apply in respect of postdoctoral fellowship income received in the 2011 to 2020 taxation years, where the taxpayer submits a request in writing to CRA for an adjustment to their RRSP room for the relevant years.
Defined Contribution Pension Plans – Fixing Contribution Errors
Budget 2021 proposes to provide more flexibility to plan administrators of defined contribution pension plans to correct for both under-contributions and over-contributions. This measure would apply in respect of additional contributions made, and amounts of over-contributions refunded, in the 2021 and subsequent taxation years.
Budget 2021 also announced plans for a wide variety of other programs, including:
Canada Emergency Wage Subsidy (CEWS)
Extension and Phase-out for Active Employees
Budget 2021 proposes that CEWS will be extended to September 25, 2021, but will start phasing out after July 3, 2021. Only employers with more than a 10% decline in revenues will be eligible for the wage subsidy as of that date. The rates and limits are as follows:
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 |
(rev decline - 50%)
|35% + 1.25 x
(rev decline - 50%)
|25% + 0.75 x
(rev decline - 50%)
|10% + 0.5 x |
(rev decline - 50%)
|>10-50%||0.8 x rev decline||0.875 x (rev decline - 10%)||0.625 x (rev decline - 10%)||0.25 x (rev decline - 10%)|
|0-10%||0.8 x rev decline||0%||0%||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.
CEWS for furloughed employees would continue to be available to eligible employers until August 28, 2021, ending four weeks earlier than CEWS for active employees. To maintain the alignment of CEWS for furloughed employees with benefits available under EI, Budget 2021 proposes to maintain their weekly wage subsidy at the lesser of:
The wage subsidy relating to the employer’s portion of CPP, EI, the Quebec Pension Plan and the Quebec Parental Insurance Plan in respect of furloughed employees will also remain available.
The reference periods for determining the revenue decline are as follows:
CEWS Reference Periods, Periods 17 to 20
Jun. 6 –
Jul. 4 –
Aug. 1 – 28
Aug. 29 –
|General approach||Jun. 2021 over Jun. 2019 or May 2021 over May 2019||Jul. 2021 over Jul. 2019 or Jun. 2021 over Jun. 2019||Aug. 2021 over Aug. 2019 or Jul. 2021 over Jul. 2019||Sep. 2021 over Sep. 2019 or Aug. 2021 over Aug. 2019|
|Alternative approach||Jun. 2021
or May 2021 over average of Jan. and Feb. 2020
or Jun. 2021 over average
of Jan. and Feb. 2020
or Jul. 2021 over average of Jan. and Feb. 2020
or Aug. 2021 over
average of Jan. and Feb. 2020
The approach chosen in the prior periods must be maintained.
An employer’s entitlement to CEWS in respect of an employee may be affected by their baseline remuneration, also known as pre-crisis remuneration. Absent an election, baseline remuneration is calculated using the period beginning January 1, 2020 and ending March 15, 2020. Budget 2021 proposes to allow an eligible employer to elect to use the following alternative baseline remuneration periods:
Requirement to Repay Wage Subsidy – Public Corporations
Budget 2021 proposes to require a publicly listed corporation to repay wage subsidy amounts received for a qualifying period that begins after June 5, 2021 in the event that its aggregate compensation for specified executives during the 2021 calendar year exceeds that of the 2019 calendar year.
Specified executives are the Named Executive Officers whose compensation is required to be disclosed under Canadian securities laws in the annual information circular provided to shareholders, or similar executives in the case of a corporation listed in another jurisdiction.
The amount of the wage subsidy required to be repaid would be equal to the lesser of:
This applies to wage subsidy amounts paid to any entity in the group.
Canada Emergency Rent Subsidy (CERS)
Extension and Phase-out
Budget 2021 proposes that CERS will be extended to September 25, 2021, but will start phasing out after July 3, 2021. Paralleling CEWS, only employers with more than a 10% decline in revenues will be eligible for CERS as of that date. The rates and limits are as follows:
CERS Rate Structure, Periods 10 to 13
Jun. 6 –
Jul. 4 –
Aug. 1 –
Aug. 29 –
|70% and over||65%||60%||40%||20%|
|50-69%||40% + 1.25 x |
(rev decline - 50%)
|35% + 1.25 x |
(rev decline - 50%)
|25% + 0.75 x |
(rev decline - 50%)
|10% + 0.5 x |
(rev decline - 50%)
|>10-50%||rev decline x 0.8||0.875 x (rev decline - 10%)||0.625 x (rev decline - 10%)||0.25 x (rev decline - 10%)|
|0-10%||rev decline x 0.8||0%||0%||0%|
Purchase of Business Assets
An applicant must generally have had a payroll account with CRA to be eligible for CEWS. For CERS, a business number is required. For CEWS, a rule was introduced which provides that an eligible entity that purchases the assets of a seller will be deemed to meet the payroll account requirement if the seller met the requirement. Budget 2021 proposes a similar deeming rule that would apply in the context of the rent subsidy, where the seller met the business number requirement. This measure would be effective as of the start of CERS.
Budget 2021 proposes to extend lockdown support to September 25, 2021 at a 25% rate (unchanged).
Canada Recovery Hiring Program (CRHP)
Budget 2021 proposes the new CRHP to provide eligible employers with a subsidy of up to 50% of the incremental remuneration paid to eligible employees between June 6, 2021 and November 20, 2021. The higher of CEWS or CRHP could be claimed for a particular qualifying period, but not both.
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). Eligible employers (or their payroll service provider) must have had a CRA payroll account open March 15, 2020.
An eligible employee must be employed primarily in Canada by an eligible employer throughout a qualifying period (or the portion of the qualifying period throughout which the individual was employed by the eligible employer). CRHP will not be available for furloughed employees. A furloughed employee is an employee who is on leave with pay, meaning they are remunerated by the eligible employer but do not perform any work for the employer. However, an individual would not be considered to be on leave with pay for the purposes of the hiring subsidy if they are on a period of paid absence, such as vacation leave, sick leave, or a sabbatical.
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:
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. The base period for all application periods is March 14 to April 10, 2021.
CRHP Rates, Periods 17* to 22
Jun. 6 – Jul. 3
Jul. 4 - 31
Aug. 1 – 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.
Required Revenue Decline
To qualify, the eligible employer would have to have experienced a decline in revenues. For the qualifying periods between June 6, 2021 and July 3, 2021, the decline would have to be greater than 0%. For later periods, the decline must be greater than 10%.
CRHP Reference Periods, Periods 17 to 22
Jun. 6 – Jul. 3
Jul. 4 - 31
Aug. 1 – 28
Aug. 29 – Sep. 25
Sep. 26 – Oct. 23
Oct. 24 – Nov. 20
|General approach||Jun. 2021 over |
Jun. 2019 or
May 2021 over
|Jul. 2021 over Jul. 2019 or
Jun. 2021 over Jun. 2019
|Aug. 2021 over Aug. 2019 or
Jul. 2021 over
|Sep. 2021 over Sep. 2019 or
Aug. 2021 over Aug. 2019
|Oct. 2021 |
|Nov. 2021 |
|Alternative approach||Jun. 2021 or |
May 2021 over average of Jan.
and Feb. 2020
or Jun. 2021 over average of Jan.
and Feb. 2020
or Jul. 2021
of Jan. and Feb. 2020
average of Jan. and Feb. 2020
average of Jan. and Feb. 2020
or Oct. 2021
of Jan. and Feb. 2020
*Period 17 of the CEWS would be the first period of the CRHP.
Similar to CEWS and CERS, an application for a qualifying period would be required to be made no later than 180 days after the end of the qualifying period.
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, with the limit being prorated for shorter taxation years. 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, 14.1, 17, 47, 49 and 51. 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
Budget 2021 proposes a temporary measure to reduce corporate income tax rates for qualifying zero-emission technology manufacturers, halving the tax rate on eligible zero-emission technology manufacturing and processing income to 7.5% on income subject to the general corporate tax rate (normally 15%), and 4.5% where that income would otherwise be eligible for the small business deduction (normally 9%). Provincial taxes would still apply to this income.
For taxpayers with income subject to both the general and the small business corporate tax rates, taxpayers would be able to choose the income on which the rate would be halved.
No changes to the dividend tax credit rates or the allocation of corporate income for the purpose of dividend distributions are proposed. That is, income subject to the general reduced rate would continue to give rise to eligible dividends and the enhanced dividend tax credit, while income subject to the reduced rate for small businesses would continue to give rise to non-eligible dividends and the ordinary dividend tax credit.
This measure would apply in respect of income from numerous zero-emission technology manufacturing or processing activities listed in Budget 2021, including manufacturing or production of:
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.
Feedback on the proposed allocation method can be provided by sending written representations to the Department of Finance Canada, Tax Policy Branch at: ZETM-FTZE@canada.ca by June 18, 2021.
The reduced tax rates would require the corporation to derive at least 10% of its gross revenue from all active businesses carried on in Canada from eligible activities. The reduced tax rates would apply to taxation years that begin after 2021. The reduced rates would be gradually phased out starting in taxation years that begin in 2029 and fully phased out for taxation years that begin after 2031.
Capital Cost Allowance (CCA) for Clean Energy Equipment
Under the CCA regime, Classes 43.1 and 43.2 provide accelerated CCA rates (30% and 50%, respectively) for investments in specified clean energy generation and energy conservation equipment. Budget 2021 proposes to expand Classes 43.1 and 43.2 to include a variety of assets used to generate energy from water, solar or geothermal sources or waste material, or related to hydrogen production or utilization. Accelerated CCA would be available in respect of these types of property only if, at the time the property becomes available for use, the requirements of all Canadian environmental laws, by-laws and regulations applicable in respect of the property have been met.
Classes 43.1 and 43.2 currently include certain systems that burn fossil fuels and/or waste fuels to produce either electricity or heat, or both. Budget 2021 notes that the eligibility criteria for these systems have not been modified since they were first set approximately 25 and 15 years ago, and proposes changes in the eligibility criteria for various assets having significant usage of fossil fuels.
The expansion of Classes 43.1 and 43.2 would apply in respect of property that is acquired and that becomes available for use on or after Budget Day, where it has not been used or acquired for use for any purpose before Budget Day.
The removal of certain property from eligibility for Classes 43.1 and 43.2, as well as the application of the new heat rate threshold for specified waste-fuelled electrical generation systems, would apply in respect of property that becomes available for use after 2024.
Film or Video Production Tax Credits
Budget 2021 proposes to temporarily extend certain timelines for the Canadian Film or Video Production Tax Credit and the Film or Video Production Services Tax Credit by 12 months (in addition to certain extensions previously announced). These measures would be available in respect of productions for which eligible expenditures were incurred by taxpayers in their taxation years ending in 2020 or 2021.
Mandatory Disclosure Rules
While past Budgets have proposed specific anti-avoidance provisions, Budget 2021 proposes broad-based disclosure requirements for tax strategies considered aggressive by the government. Certain transactions must presently be reported to CRA. The government is consulting on proposals to enhance Canada’s mandatory disclosure rules. This consultation will address:
Amendments made as a result of this consultation would not apply prior to January 1, 2022.
Stakeholders are invited to provide comments on the proposals set out below, as well as on draft legislation and sample notifiable transactions which are expected to be released in the coming weeks as part of the consultation, by September 3, 2021. Comments should be sent to firstname.lastname@example.org.
The Income Tax Act contains rules that require that certain transactions entered into by, or for the benefit of, a taxpayer be reported to CRA. Such transactions must meet the definition of an “avoidance transaction” – generally, undertaken for no bona fide purpose other than obtaining a tax benefit – and bear at least two of the following three generic hallmarks:
Budget 2021 proposes that only one such hallmark will be required to make a transaction reportable. It also proposes that the definition of “avoidance transaction” for these purposes be broadened to include any transaction where it can reasonably be concluded that one of the main purposes of entering into the transaction is to obtain a tax benefit (even if there are other bona fide non-tax purposes).
The reporting obligation would extend to the taxpayer, any other person involved in procuring a tax benefit for the taxpayer, and a promoter or advisor (as well as certain other persons who are entitled to receive a fee with respect to the transaction). An exception would apply where disclosure would violate solicitor-client privilege.
Budget 2021 proposes to introduce a category of specific hallmarks known as “notifiable transactions”. The Minister of National Revenue would have the authority to designate, with the concurrence of the Minister of Finance, a transaction as a notifiable transaction. A taxpayer who enters into a notifiable transaction would be required to report the transaction to CRA. The reporting obligation would extend to the taxpayer, any other person involved in procuring a tax benefit for the taxpayer, and a promoter or advisor (as well as certain other persons who are entitled to receive a fee with respect to the transaction). An exception would apply where disclosure would violate solicitor-client privilege.
Notifiable transactions would include both transactions that CRA has found to be abusive and transactions identified as transactions of interest. The description of a notifiable transaction would set out the fact patterns or outcomes that constitute that transaction in sufficient detail to enable taxpayers to comply with the disclosure rule. It would also include examples in appropriate circumstances. Sample descriptions of notifiable transactions will be issued as part of the consultation.
Uncertain Tax Treatments
An uncertain tax treatment is a tax treatment used, or planned to be used, in income tax filings where there is uncertainty over whether the tax treatment will be accepted as being in accordance with tax law. At present, there is no requirement in Canada to disclose uncertain tax treatments.
Budget 2021 notes that several other countries (e.g. the U.S. and Australia) require disclosure of uncertain tax positions by corporations meeting an asset threshold, and certain other conditions, where either the corporation or a related party has recognized, disclosed or recorded a reserve with respect to that tax position in its audited financial statements. A similar reporting regime is proposed to be implemented in Canada. Canadian public corporations, and those Canadian private corporations that choose to use International Financial Reporting Standards (IFRS), have an existing requirement to identify uncertain tax treatments for financial statement purposes. When such a corporation determines that it is not probable that the taxation authority will accept an uncertain tax treatment, the effect of that uncertainty is reflected in the corporation's financial statements. It is proposed that specified corporate taxpayers be required to report particular uncertain tax treatments to CRA where the following conditions are met:
As public corporations are required to use IFRS, they would all be subject to these rules. Private corporations using Accounting Standards for Private Enterprise (ASPE) would not. The reporting requirement would also apply to a corporation that meets the asset threshold if it, or a related corporation, has audited financial statements prepared in accordance with another country-specific GAAP relevant for domestic public corporations.
In support of the new mandatory disclosure rules, Budget 2021 proposes that, where a taxpayer has a reporting requirement in respect of a transaction relevant to the taxpayer's income tax return for a taxation year, the normal reassessment period would not commence in respect of the transaction until the taxpayer has complied with the reporting requirement. As a result, if a taxpayer does not comply with a mandatory disclosure reporting requirement for a taxation year, a reassessment of that year in respect of the transaction would not become statute-barred.
Significant penalties would also apply to taxpayers and promoters who fail to file these required disclosures.
Avoidance of Tax Debts
The Income Tax Act has an anti-avoidance rule (Section 160) that is intended to prevent taxpayers from avoiding their tax liabilities by transferring their assets to non-arm’s length persons for insufficient consideration. In these circumstances, the rule causes the transferee to be jointly and severally liable with the transferor for tax debts of the transferor for the current or any prior taxation year, to the extent that the value of the property transferred exceeds the amount of consideration given for the property. Budget 2021 proposes a number of measures to address planning to circumvent this tracing of liability, as well as a penalty for those who devise and promote such schemes.
The specific proposals would apply to arrangements where:
A penalty would also be introduced for planners and promoters of tax debt avoidance schemes, mirroring an existing penalty in the so-called "third-party civil penalty" rules in the Income Tax Act in respect of certain false statements. The rules would apply in respect of transfers of property that occur on or after Budget Day. Similar amendments would be made to comparable provisions in other federal statutes (e.g., the Excise Tax Act for GST/HST).
CRA possesses the authority to audit taxpayers. Budget 2021 proposes amendments to confirm that CRA officials have the authority to require persons to answer all proper questions, and to provide all reasonable assistance, and to require persons to respond to questions orally or in writing, including in any form specified by the relevant CRA official. These measures would come into force on Royal Assent.
Budget 2021 also announced plans for a wide variety of other programs, including:
Tax on Unproductive Use of Canadian Housing by Foreign Non-resident Owners
Budget 2021 proposes to introduce this new national 1% tax on the value of vacant or underused real estate owned by non-resident, non-Canadians. The tax would be levied annually beginning in 2022.
All owners of residential property in Canada, other than Canadian citizens or permanent residents of Canada, would be required to file an annual declaration for the prior calendar year in respect of each Canadian residential property they own, starting in 2023.
The requirement to file this declaration would apply irrespective of whether the owner is subject to tax in respect of the property for the year. The owner would be required to report information such as the property address, the property value and the owner’s interest in the property. A claim exemption may be available, for instance, where a property is leased to one or more qualified tenants in relation to the owner for a minimum period in a calendar year. Where no exemption is available, the owner would be required to calculate the amount of tax owing and report and remit it to CRA by the filing due date.
Penalties and interest would also be applicable, and the assessment period would be unlimited.
In the coming months, the government will release a backgrounder to provide stakeholders with an opportunity to comment on further parameters of the proposed tax.
Digital Services Tax (DST)
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.
Written representations must be sent by June 18, 2021 to the Department of Finance Canada, Tax Policy Branch at: DST-TSN@canada.ca.
Enhancing Anti-Avoidance Provisions
Budget 2021 proposes measures implementing recommendations of the OECD’s “Base Erosion and Profit Shifting” project focusing on:
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.
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 these price thresholds, several other conditions must be met.
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). Under the current rules, if two or more individuals who are not considered relations for GST New Housing Rebate purposes buy a new home together, all of those individuals must meet this condition – otherwise none of them will be eligible for the GST New Housing Rebate. Budget 2021 proposes to make the GST New Housing Rebate available as long as the new home is acquired for use as the primary place of residence of any one of the purchasers or a relation of any one of the purchasers.
This measure would apply to agreements of purchase and sale entered into after Budget Day. For owner-built homes, the measure would apply where construction or substantial renovation of the residential complex is substantially completed after Budget Day.
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.
The information requirements for these documents are graduated, with progressively more information required when the amount paid or payable in respect of a supply equals or exceeds thresholds of $30 or $150. Budget 2021 proposes to increase these thresholds to $100 (from $30) and $500 (from $150).
In addition, under the ITC information rules, either the supplier or an intermediary (i.e., a person that causes or facilitates the making of a supply on behalf of the supplier) must provide its business name and, depending on the amount paid or payable in respect of the supply, its GST/HST registration number, on the supporting documents. However, for the purposes of these rules, an intermediary currently does not include a billing agent (i.e., an agent that collects consideration and tax on behalf of an underlying vendor but does not otherwise cause or facilitate a supply). Instead, the recipient of the supply must obtain the business name and registration number of the underlying vendor. Budget 2021 proposes to allow billing agents to be treated as intermediaries for purposes of the ITC information rules, removing this complexity.
These measures would come into force on the day after Budget Day.
Application of GST/HST to E-commerce
In the Fall Economic Statement 2020, the government proposed a number of changes to the GST/HST system relating to the digital economy, applicable to non-resident vendors supplying digital products or services, shipping goods from Canadian fulfillment warehouses, or facilitating short-term rental accommodation in Canada.
Under the proposals, GST/HST would be required to be collected and remitted by these entities commencing on July 1, 2021. Simplified registration and remittance frameworks would be available to these entities. Budget 2021 proposes amendments to these proposals to take stakeholder feedback into account, including safe harbour rules to protect platform operators who reasonably relied on the information provided by a third-party supplier, and clarifying several aspects of the legislation.
Excise Duty on Vaping Products
Budget 2021 proposes to implement a tax on vaping products in 2022 through the introduction of a new excise duty framework. Feedback from industry and stakeholders on these proposals will be accepted until June 30, 2021 at: email@example.com.
The new excise duty framework would be similar to existing excise duties on tobacco, wine, spirits, and cannabis products. It would apply to vaping liquids that are produced in Canada or imported and that are intended for use in a vaping device in Canada. These liquids generally contain vegetable glycerin, as well as any combination of propylene glycol, flavouring, nicotine, or other ingredients, all of which must comply with Health Canada regulations. The new duty would apply to these vaping liquids whether or not they contain nicotine. Cannabis-based vaping products would be explicitly exempt from this framework, as they are already subject to cannabis excise duties under the Act.
The proposed framework would impose a single flat rate duty on every 10 millilitres (ml) of vaping liquid or fraction thereof, within an immediate container (i.e., the container holding the liquid itself). This rate could be in the order of $1.00 per 10 ml or fraction thereof. The last federal licensee in the supply chain who packaged the vaping product for final retail sale, including vape shops holding an excise licence, as applicable, would be liable to pay the applicable excise duty.
Registration and licensing would not be required for individuals who mix vaping liquids strictly for their own personal consumption.
Tax on Select Luxury Goods
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. For vehicles, aircraft and boats sold in Canada, the tax would apply at the point of purchase if the final sale price paid by a consumer (not including GST/HST or provincial sales tax) is above the $100,000 or $250,000 price threshold, as the case may be. Importations of vehicles, aircraft and boats would also be subject to the tax.
The tax would apply to:
The tax would generally apply at the final point of purchase of new luxury vehicles, aircraft and boats in Canada. In the case of imports, application would generally be either at the time of importation (in cases where there will not be a further sale of the goods in Canada) or at the time of the final point of purchase in Canada following importation.
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.
Budget 2021 proposes a number of measures which would better facilitate CRA’s ability to operate digitally, while also enhancing security.
Notices of Assessment (NOA)
Budget 2021 proposes to provide CRA with the ability to send certain NOAs electronically without the taxpayer having to authorize CRA to do so. This proposal would apply in respect of individuals who file their income tax return electronically and those who use the services of a tax preparer that files their return electronically. Taxpayers who file their income tax returns in paper format would continue to receive a paper NOA from CRA. This measure would come into force on Royal Assent of the enacting legislation.
Correspondence with Businesses
Budget 2021 proposes to change the default method of correspondence for businesses that use CRA's My Business Account portal to electronic only. However, businesses could still choose to also receive paper correspondence. This measure would come into force on Royal Assent of the enacting legislation.
Information Returns – T4A and T5
Budget 2021 proposes to allow issuers of T4A (Statement of Pension, Retirement, Annuity and Other Income) and T5 (Statement of Investment Income) information returns to provide them electronically without having to also issue a paper copy and without the taxpayer having to authorize the issuer to do so. This measure would apply in respect of information returns sent after 2021.
Electronic Filing Thresholds
Budget 2021 proposes a number of measures which would limit the ability to file paper returns, including:
These measures would apply in respect of calendar years after 2021.
The mandatory electronic filing thresholds for returns of corporations under the Income Tax Act, and of GST/HST registrants (other than for charities or Selected Listed Financial Institutions) under the Excise Tax Act would be removed, resulting in most corporations and GST/HST registrants being required to file electronically.
Budget 2021 proposes to allow electronic signatures on certain prescribed forms, as follows:
This measure would come into force on Royal Assent of the enacting legislation.
Budget 2021 proposes that electronic payments be required for remittances over $10,000 under the Income Tax Act and that the threshold for mandatory remittances for GST/HST purposes be lowered from $50,000 to $10,000. Budget 2021 also proposes to clarify that payments required to be made at a financial institution include online payments made through such an institution. This measure would apply to payments made on or after January 1, 2022.
Budget 2021 confirms the government’s intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their release:
For a long time, our firm has been using revenue of $100,000 and $200,000 as a general benchmark for deciding whether or not to incorporate. Below $100,000 not, and above $200,000 yes, and anything in between, it depends.
Maybe we should amend our old numbers due to inflation, but the choice is more complicated than that.
1. More to invest after tax
Ontario corporations pay tax at 12.5 % on the first $500,000 of income, while personal income at the top tax bracket above $220,000 is taxed at 53 %.
If you don’t need to spend all your income, the more than 40% in tax savings stays in the corporation and can be used for investment purposes. The fact that PREC can earn investment income in the Corp either investing in real estate or stock portfolio is a great advantage.
2. Possible tax deferral
Corporations pay tax when earned (the accrual basis) and individuals pay tax when received (cash basis). A corporation can choose its first fiscal year end to be any date (as long as its within 53 weeks of incorporating). For this reason, having a July or August year-end, allows for the payment of a year-end bonus that would fall early into the next taxation year personally.
A corporation is allowed to expense a year-end bonus, which is salary to himself when declared, and pay tax personally when received, as long as paid within 6 months. With a PREC you would receive a salary from your own corporation and receive a T4 for personal tax filing purposes.
Another advantage of a summer year end is your accountant will have your year-end done before the end of December, and we may choose to pull some income forward to the current year if there’s an opportunity to declare income in a lower bracket.
3. Income splitting
A spouse, parent or child can own non-voting, non-equity shares and receive dividends which, if they are taxed at a lower rate would reduce the family’s overall tax.
There are rules called TOSI introduced recently that are designed to stop this, but the work around for this to be allowed, is the family member must work a minimum of 20 hours a week.
4. Holding company
A holding company owned by the principle is allowed and if desired, income from the active business (PREC) can pay tax free dividends to the holding company, and eliminate exposure to creditors of the active business. More importantly a holding company for the sale of the business mentioned in point 5 is a big advantage.
5. Lifetime Capital gains exemption (currently $883,384)
The sale of shares of a corporation are eligible for a tax-free capital gain. This would only apply to the agents shares and not the family member(s). The timing of the sale and the payment can be at different times.
Sales are usually not done to the succeeding agent but to his holding company (point 4 above). That way the eventual source of funds, would be a tax-free intercompany dividend from the active company (PREC) to the holding company of the future profits.
Effectively, the purchase is paid with low tax paid profits (taxed at 12.5 %). This would be more likely used by a broker that had a team.
Cost of incorporating and additional accounting fees for corporate filings of $2,000 to $5,000.
Our team of knowledgeable associates are happy to assist. Whether you have a question about navigating the Client Cloud, or about how to submit a certain document, you can contact our office for assistance.
Please give us our office a call at (905) 277-9499.