The proposed 2021 Federal Budget offers a variety of changes that impact tax reporting. Below we highlight some of these changes and how they impact Canadian employees and individuals. If you have questions regarding the budget and how it may impact your situation, call McNabb Lucuk LLP at 780-539-3400.
Under the proposed budget, individuals will be given the option to claim a deduction against COVID-19 benefit amounts repaid before 2023. The deduction would be applied to the year when the benefit was received, meaning an adjustment may be required if the repayment is made in a subsequent year.
This proposed deduction would apply to the following COVID-19 benefits:
- Canada Emergency Response Benefits (CERB) / Employment Insurance Emergency Response Benefits;
- Canada Emergency Student Benefits (CESB);
- Canada Recovery Benefits (CRB);
- Canada Recovery Sickness
- Benefits (CRSB); and
- Canada Recovery Caregiving Benefits (CRCB).
Disability Tax Credit (DTC)
Several changes in the 2021 budget create broader access to the DTC. The Federal Government has included changes that expand the definition of Mental Functions necessary for everyday life to include: attention, concentration, memory, judgment, perception of reality, problem-solving, goal-setting, regulation of behaviour and emotions, verbal and non-verbal comprehension, and adaptive functioning. They have also expanded the types of activities for Life-Sustaining Therapy and reduced the frequency of this therapy to two times each week while maintaining the average minimum threshold of 14 hours per week.
These changes would apply to the 2021 and subsequent taxation years for DTC certificates filed on or after Royal Assent.
Canada Workers Benefit (CWB)
The CWB is a non-taxable refundable tax credit that helps supplement low- and modest-income Canadians. The proposed budget aims to enhance this benefit 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 in 2021. Corresponding changes would be made to the disability supplement.
The budget also proposes to introduce a “secondary earner exemption” for 2021 to allow a spouse or common-law partner with a lower working income to exclude up to $14,000 of their income in the calculation of adjusted net income.
Northern Residents Deductions (NRD)
Budget 2021 presents expanded access to the travel component of the NRD by giving taxpayers the option to claim up to $1,200 across eligible trips taken by that individual, eligible family members, or dependants. These changes would allow individuals with no employment benefit line to claim this deduction in 2021 and subsequent tax years.
Postdoctoral Fellowship Income
Postdoctoral fellowship income is proposed to be included as “earned income” for RRSP in the budget. This would apply to postdoctoral fellowship income received in the 2021 and subsequent taxation years. The change could also be applied to the 2011 to 2020 taxation years by making a request in writing to the CRA for an adjustment.
Business Tax Impacts
Canada Emergency Wage Subsidy (CEWS)
The proposed 2021 budget, introduces a phased-out approach to the CEWS. Employers who qualify for the maximum weekly benefit will be able to claim $847 per active employee for the four-week period ending July 3, with the maximum benefit in subsequent periods reduced to $677, $452 then $226 concurrently. This phased-out approach also extends this benefit to September 25, 2021. It will also continue to be available for furloughed employees until August 28, 2021, one period earlier.
The budget also proposes the following alternative baseline remuneration periods for calculating entitlement to this benefit: March 1 to June 30, 2019, or July 1 to December 31, 2019, for the qualifying period between June 6, 2021, and July 3, 2021; and July 1 to December 31, 2019, for qualifying periods beginning after July 3, 2021.
The reference periods for determining the revenue decline in these new periods must be consistent with the approach chosen in the prior periods, either by comparing the current period to similar months in 2019 or against an average from January and February 2020
Canada Emergency Rent Subsidy (CERS)
Similar to the CEWS, the budget introduces a phased-out approach to the CERS starting July 3, 2021, and extends the benefit until September 25, 2021. Under this phased approach, a business qualifying for the maximum subsidy, with a revenue decline of 70% or more, would see their subsidy amount of 65% for the period ending July 3, be reduced to 60%, 40% then 20% in the subsequent periods.
Canada Recovery Hiring Program (CRHP)
The CRHP proposes to provide a temporary subsidy of up to 50% of the incremental remuneration paid to eligible employees between June 6, 2021, and November 20, 2021. Eligible employers can choose to apply for the subsidy that provides the higher benefit but cannot claim both the CEWS and the CRHP in a qualifying period. Eligible remuneration would be subject to a maximum of $1,129 per week per eligible employee at a rate of 50% for the first 3 periods, then 40%, 30%, and 20% for periods ending September 25, October 23, and November 20, 2021, respectively.
The reference period for determining the revenue decline for the CRHP follows the same format of CEWS and applications would need to be made no later than 180 days after the end of the qualifying period. This new subsidy would not be available for furloughed employees.
Capital Asset Purchases
The 2021 budget proposes a full cost deduction for “eligible property” acquired by a Canadian Controlled Private Corporate (CCPC) on or after Budget Day, provided the property becomes available for use before January 1, 2024. This deduction would be available for up to $1.5 million per taxation year and can be shared between an associated group of CCPCs, with the limit being prorated for shorter taxation years. Speak to your account or visit canada.ca for more information on Capital Cost Allowance and calculations.
Zero-Emission Technology Manufacturing
In Budget 2021, a temporary 7.5% tax rate 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%) is proposed for eligible zero-emission technology manufacturing and processing income. Provincial taxes would still apply to this income. The reduced rate would apply to taxation years that begin after 2021 and would phase out starting in 2029 through 2031.
No changes to the dividend tax credit rates or the allocation of corporate income for the purpose of dividend distributions are proposed.
Budget 2021 also proposes to expand Classes 43.1 and 43.2 for Capital Cost Allowance (CCA) for Clean Energy Equipment 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.
Aggressive Tax Planning and Filing
The Federal Government is consulting with stakeholders on proposals to enhance mandatory disclosure rules for aggressive tax strategies until September 3. Changes would be implemented after January 1, 2022. Learn more and get involved by visiting canada.ca.We hope the highlighted changes above help shed some light on how the 2021 budget impacts you and your business. Contact your accountant or reach out to McNabb Lucuk LLP by phone at 780-539-3400, or email [email protected] or [email protected] for specifics on how these and other proposed changes may apply to you.