HIGHLIGHTS FROM THE 2021 FEDERAL BUDGET
Canada’s Finance Minister, the Honourable Chrystia Freeland, tabled the 2021 Federal Budget on April 19, 2021.
The COVID-19 pandemic brought about the deepest and fastest recession, worldwide, since the Great Depression, having an unprecedented impact on the Canadian labour market, with more than 3 million Canadians losing their jobs and another 2.5 million Canadians working significantly reduced hours—representing about 30% of the pre-pandemic workforce. The budget was aimed at addressing COVID-19 relief and ensuring the Canadian economy was well positioned for growth after the pandemic.
After accounting for Budget 2021 measures, the budgetary balance is expected to show a deficit of $354.2 billion in 2020-21, improving to $154.7 billion in 2021-22, and gradually declining to a deficit of $30.7 billion in 2025-26, or approximately one per cent of GDP. The federal debt is expected to peak at 51.2% of GDP in 2021-22 before declining to 49.2% of GDP in 2025-26.
The budget announces the extension of COVID-19 relief programs along with the introduction of the new Canada Recovery Hiring program, establishes the Canada-wide Early Learning and Child Care System, introduces a luxury tax for personal use of luxury cars, boats and personal aircrafts and implements a tax of 3% on revenue from digital services.
The following is a summary of significant tax and program changes announced in the budget. Please note that the changes are proposals until passed by the federal government.
INDIVIDUALS
Extension of COVID-19 Recovery Benefits and Employment Insurance General Benefits
Budget 2021 proposes to extend CRB benefits by an additional 12 weeks to 50 from 38. The first 4 weeks will provide a benefit of $500 per week. The remaining 8 weeks will provide a lower benefit of $300 per week. All new CRB claimants after July 17, 2021 will receive $300 per week until September 25, 2021. Budget 2021 also proposes to extend the CRCB an additional 4 weeks to a maximum of 42 weeks. The benefit will remain at $500 per week. In addition, Budget 2021 proposes legislative amendments to provide extensions to these benefit programs and to regular EI benefits until no later than November 20, 2021, if they are required.
Student Grants and Interest-Free Loans
Budget 2021 proposes to extend the increased student grant for students ($3,000 to $6,000 for full-time students; $1,800 to $3,600 for part-time students; and $2,000 to $4,000 for students with disabilities, among others) for another two years, to 2023. In addition, Budget 2021 proposes to increase the waiver of interest accrual on Canada Student Loans and Canada Apprentice Loans until March 31, 2023. The repayment assistance thresholds, where students living alone do not have to make payments on their loans, is proposed to rise from students earning $25,000 in income to $40,000.
Increase to Old Age Security Benefits
Budget 2021 proposes a one-time payment of $500 in August 2021 for seniors age 75 and older as of June 2022. In addition, Budget 2021 proposes to introduce legislation to increase regular Old Age Security Benefits for pensioners age 75 and older by 10% on an ongoing basis, beginning July 2022. This is expected to provide additional benefits of $766 annually to full OAS pensioners in the first year and be indexed to inflation thereafter.
Disability Tax Credit (Mental Functions and Life-Sustaining Therapy)
Budget 2021 proposes a broadening of qualifications for the Disability Tax Credit, starting in 2021 and in subsequent taxation years once the Budget receives Royal Assent. Qualifications will widen to include mental functions, as well as lifesustaining therapy. This will allow an increased number of Canadians to qualify for the Disability Tax Credit.
BUSINESSES
Emergency Support Measures for Businesses
The Canada Emergency Wage Subsidy (CEWS), Canada Emergency Rent Subsidy (CERS) and the related Lockdown Support for businesses that are subject to a lockdown or significant restrictions under a public health order is currently set to expire in June 2021. The government has proposed for these measures to be extended until September 25, 2021, (with further extension possible to November 20, 2021). Under the proposed extension, the support available through these measures will be gradually phased out starting July 4, 2021.
New Canada Recovery Hiring Program
The budget proposes to introduce a new Canada Recovery Hiring Program to provide certain eligible employers with a subsidy of up to 50% on incremental remuneration paid to eligible employees between June 6, 2021 to November 20, 2021. This subsidy would not be available if the employer has claimed CEWS for the same qualifying period. Employers that are eligible for CEWS (such as individuals, non-profit organizations, certain partnerships) would generally also be eligible for this hiring subsidy. For-profit corporations would only qualify if they are a Canadian-controlled private corporation (CCPC). The employer must have experienced a decline in revenues to qualify for this subsidy.
Immediate Expensing of Capital Cost Expenses
The budget proposes a temporary immediate expensing of eligible property acquired by CCPC on or after April 19, 2021 that becomes available for use before January 1, 2024. The eligible property includes depreciable property other than property included in CCA classes 1 to 6, 14.1. 17, 47, 49, and 51.
OTHER
Tax on Unproductive Use of Canadian Housing by Foreign Non-Resident Owners
Beginning in 2022, Budget 2021 proposes the introduction of a brand new national 1% tax on the fair market value of non-resident, non-Canadian owned residential real property that is considered vacant or underused. Starting in 2023, owners of residential property in Canada (except for Canadian citizens and Permanent residents of Canada) will also be required to file an annual declaration with the CRA for each residential property owned in the prior calendar year.
Establishing Canada-wide Early Learning and Child Care System
A center piece of the budget is the proposed establishment of Canada-wide early learning and childcare. The government’s goal is to ensure that all families have access to high-quality, affordable and flexible early learning and childcare with an overall goal of bringing fees for regulated childcare down to $10 per day on average within the next five years. By the end of 2022, the government is aiming to achieve a 50% reduction in average fees for regulated early learning and childcare. These targets would apply everywhere outside of Quebec where prices are already affordable. The budget proposes new investments totaling up to $30 billion over the next 5 years, and $8.3 billion ongoing for these programs as well as expanding and improving afterschool care programs.
Luxury Tax on Certain Cars, Boats and Personal Aircraft
The introduction of a tax on the retail sale of luxury cars, personal aircraft and boats was proposed. The tax on luxury cars and aircraft priced over $100,000 would be the lesser of 10% of the full value of the car or aircraft or 20% of the value above $100,000. The tax on boats priced over $250,000, the tax would be the lesser of 10% of the full value of the boat or 20% of the value above $250,000. Luxury cars include coupe, sedans, station wagons, sports cars, passenger vans and mini vans (that accommodate 10 passengers), SUVs as well as passenger pick-up trucks.
Home Retrofit Interest Free Loan of $40,000
Starting in 2021/2022, the federal government will provide interest free loans of up to $40,000 through Canada Mortgage Housing Corporation (CMHC) to assist homeowners and landlords in undertaking energy efficient retrofits, including: Replacing oil furnaces with high efficiency furnaces, Better wall or basement insulation, Installing high efficiency water heater, Replacing drafty windows and doors.
Sources: CI, Mackenzie, RBC