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2021 Federal Budget

The new Canadian federal budget was tabled on April 19, 2021 by finance minister Chrystia Freeland. The federal deficit is estimated to be $354.2 billion for fiscal year 2020-21 and next year’s deficit is expected to be $154.7 billion. By the end of 2021-22 fiscal year, the federal debt is expected to be over $1.2 trillion.

The budget introduced a $30 billion national childcare plan over 5 years, to reduce kindergarten prices by 50% in 2022, with a target of $10 per day by 2026. The budget included several targeted taxes effective January 1, 2022 on luxury cars, jets, and boats, a 1% tax on vacant homes owned by non-Canadians, and a 3% tax on digital services for large businesses such as Netflix. The budget also implemented excise duties on vaping products and increased excise duties on tobacco. No changes were made to tax rates for individuals or businesses, and no change was made to a capital gains tax rate.

The following changes are being made to the COVID-19 relief programs offered by the Federal government.

The Canada Emergency Wage Subsidy (CEWS), the Canada Emergency Rent Subsidy (CERS) and Lockdown Support programs are being extended to September 25, 2021, with an option to further extend them until November 20, 2021. The CEWS and CERS program rates will be gradually phased out. Employers must now demonstrate a revenue decline of more than 10% to be eligible for these subsidies starting July 4, 2021. CEWS will continue to be available for eligible employees with pay on temporary leave until August 28, 2021.

The Federal government will be establishing a new program entitled the “Canada Recovery Hiring Program” (CRHP) as an alternative to CEWS (i.e., cannot claim both). Eligible employers will be allowed to claim an amount under CRHP for 6 periods between June 6, 2021 and November 20, 2021. Eligible employers include Canadian-Controlled Private Corporations (CCPCs), individuals, non‑profit organizations, registered charities, and certain partnerships. The subsidy will apply to incremental remuneration increases at a rate of 50% for the first three periods. Then it will decline for the final three periods to 40%, 30% and 20%, respectively. The eligible weekly remuneration is capped at $1,129 per eligible employee. The CEWS revenue decline test would apply to determine continued eligibility, along with other conditions.

Budget 2021 will allow CCPCs the ability to immediately write-off up to $1.5 million per year of eligible property acquired on or after April 19, 2021 and put into use before January 1, 2024. The $1.5 million limit must be shared among associated CCPCs.

The new legislation will allow individuals the option to claim a deduction in computing their income in respect of their COVID-19 benefit repayments for the year they received the benefit rather than the year it was repaid. If a tax return has already been filed, then the individual may contact CRA to adjust their return. This repayment option is available any time before 2023.

The budget introduced reduced tax rates on eligible zero-emission technology manufacturing and processing income of 7.5% for corporations and 4.5% for corporations eligible for small business deduction. The reduced rates will apply for 2022–2028 and then gradually be phased out by 2031.

The federal government also introduced rules to limit the amount of net interest expense that corporations, trusts, partnerships, and Canadian branches of foreign companies can deduct in computing their taxable income.

For answers to questions about the new tax rules and COVID-19 subsidies, please contact one of our specialists at .

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