On April 19, 2021, Deputy Prime Minister and Minister of Finance, Chrystia Freeland, presented Canada’s 2021 federal budget. The government’s first budget in over two years is massive in almost every sense. The deficit is projected to be approximately $354 billion for the past year and $155 billion for the current year, with no plans to return to balance in the next five years. Among a wide array of substantial spending initiatives, there is more than $100 billion over three years to help stimulate economic recovery and $30 billion over five years for the creation of a national childcare program. Even the budget document itself—at over 700 pages—is huge.
The economic plan is also ambitious, attempting to focus on both “finishing the fight against COVID-19” and setting the stage for a robust economic recovery that moves Canada towards a more environmentally sustainable and inclusive economy.
From a tax perspective, this year’s budget includes many interesting proposals, including the introduction of new taxes on digital services businesses, luxury items, vaping products, and vacant residential properties owned by foreign non-residents, as discussed below.
COVID-19 Relief Programs
Many of the programs introduced to provide support to businesses during the COVID-19 pandemic have been extended and modified, and a new incentive program has been announced to encourage post-pandemic hiring.
Canada Emergency Wage Subsidy
The Canada Emergency Wage Subsidy (CEWS), which would otherwise end after Period 16 (May 9 to June 5, 2021), will be extended for four additional periods until September 25, 2021.
The subsidy rate will decrease beginning on July 4, 2021, with no subsidy available for revenue declines of 10% or less. In addition, the maximum subsidy rate of 75% will apply for Period 17 (June 6 to July 3, 2021), but will subsequently be reduced to:
- 60% for Period 18 (July 4 to July 31, 2021);
- 40% for Period 19 (August 1 to August 28, 2021); and
- 20% for Period 20 (August 29 to September 25, 2021).
The government has also indicated that the CEWS may be extended further until November 20, 2021, depending on the economic situation in September.
In response to criticism received regarding utilization of the CEWS, the budget proposes to require any publicly listed corporation receiving the subsidy and paying specified executives more in 2021 than it did in 2019 to repay an equivalent amount of the wage subsidy, up to the total amount received for any qualifying period starting after June 5, 2021 and until the end of the program.
Canada Emergency Rent Subsidy
On the same basis as the CEWS, the budget proposes to extend both the Canada Emergency Rent Subsidy (CERS) and lockdown support until September 25, 2021, with the potential for further extension if deemed necessary. Again, no subsidy will be available for revenue declines of 10% or less.
The maximum subsidy rate of 65% will apply for Period 17 (the periods will remain the same as for the CEWS), with subsequent decreases to 60% for Period 18, 40% for Period 19, and 20% for Period 20.
Canada Recovery Hiring Program
The budget introduces a new COVID-19 support initiative called the Canada Recovery Hiring Program (CRHP) that, in general, applies to employers qualifying for the CEWS. However, with respect to for-profit entities, the new program will apply only to Canadian-controlled private corporations (CCPCs).
This support will only be available in respect of active employees between June 6 and November 20, 2021. Eligible employers would claim the higher of the CEWS or the proposed new subsidy, but not both.
Eligible employers may claim a subsidy of up to 50% of the incremental remuneration paid to eligible employees, declining to 20% over a six-month period. Specifically, the CRHP rates will be:
- 50% for Periods 17 to 19 (same as for the CEWS and CERS);
- 40% for Period 20 (same as for the CEWS and CERS);
- 30% for Period 21 (September 26 to October 23, 2021); and
- 20% for Period 22 (October 24 to November 20, 2021).
Incremental remuneration for a qualifying period will be the difference between an employer’s total eligible remuneration paid to eligible employees for the qualifying period and its total eligible remuneration paid to eligible employees for a baseline period. For both the qualifying and baseline periods, eligible remuneration for each eligible employee will be subject to a maximum of $1,129 per week.
Where an eligible employer’s decline in revenues exceeds the revenue-decline threshold for a qualifying period, the subsidy for that period will be its incremental remuneration multiplied by the applicable hiring subsidy rate.
Corporate Income Tax Measures
Rate Reduction for Zero-Emission Technology
The budget proposes a temporary measure reducing the corporate income tax rates for income resulting from specified zero-emission technology manufacturing or processing activities, as follows:
- 7.5%, for income otherwise taxed at the 15% general corporate tax rate; and
- 4.5%, for income otherwise taxed at the 9% small business tax rate.
Eligible activities exclude all activities that do not qualify as manufacturing or processing for the purposes of capital cost allowance (CCA) and qualification requires at least 10% of gross revenue from all active business carried on in Canada to be derived from eligible activities.
A taxpayer’s eligible income will generally be equal to its adjusted business income multiplied by the proportion of its total labour and capital costs used in eligible activities. The definition of “adjusted business income” and the method used to determine labour and capital costs would be substantially based on those used for calculating manufacturing and processing profits.
The federal government is seeking consultation on this program and the reduced tax rates would apply to taxation years that begin after 2021, with a gradual phase-out commencing in taxation years that begin in 2029. The new program would be fully phased out for taxation years beginning after 2031.
CCA for Clean Energy Equipment
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. The budget proposes to expand these classes to include the following:
- Pumped hydroelectric storage equipment;
- Electricity generation equipment that uses physical barriers or dam-like structures to harness the kinetic energy of flowing water or wave or tidal energy;
- Active solar heating, ground source heat pump, and geothermal energy systems that are used to heat water for a swimming pool;
- Equipment used to produce solid and liquid fuels (e.g., wood pellets and renewable diesel) from specified waste material or carbon dioxide;
- A broad range of equipment used to produce hydrogen by electrolysis of water; and
- Equipment used to dispense hydrogen for use in hydrogen-powered automotive equipment and vehicles.
The expansion of classes will be effective in respect of property acquired and becoming available for use on or after April 19, 2021 (where it has not been used or acquired for use for any purpose before that day). Amendments to the eligibility criteria for equipment related to systems that burn fossil fuels and waste fuels will also be made, effective for property that becomes available for use after 2024.
Temporary Immediate Expensing for CCPCs
The budget announced a temporary, immediate expensing in respect of certain property acquired by a CCPC. This immediate expensing will be available for eligible property acquired by a CCPC on or after April 19, 2021, which becomes available for use before January 1, 2024, to a maximum amount of $1.5 million per taxation year. The $1.5 million limit must be shared among associated members of a group of CCPCs.
Eligible property is capital property that is subject to the CCA rules, other than property included in Classes 1 to 6, 14.1, 17, 47, 49, and 51, which are generally long-lived assets.
Mandatory Disclosure Rules
The government is seeking consultation on significant enhancements to mandatory disclosure rules, including those for uncertain tax treatments, reportable transactions, and notifiable transactions.
Uncertain Tax Positions
For U.S. tax purposes, a corporation meeting an asset threshold and certain other conditions must report (under Schedule UTP) when it has taken a tax position on a U.S. income tax return and either the corporation or a related party has recorded a reserve with respect to that tax position in its audited financial statements.
The budget proposes to implement a similar reporting regime in Canada. Specified corporate taxpayers would be required to report particular uncertain tax treatments to the Canada Revenue Agency (CRA).
For corporations subject to the requirement to report uncertain tax treatments, it is proposed that the penalty for failure to report each particular uncertain tax treatment be $2,000 per week, to a maximum of $100,000.
These measures would apply where the following conditions are met:
- The corporation files a Canadian income tax return;
- The corporation has at least $50 million in assets at the end of the year;
- The corporation, or a related corporation, has audited financial statements prepared in accordance with IFRS or other country-specific GAAP relevant for domestic public companies; and
- There is an uncertain tax position related to the corporation’s Canadian income tax reflected in the audited financial statements.
Currently, reporting of a transaction is required if it is considered an “avoidance transaction” as defined for the general anti-avoidance rule and it meets at least two of three defined tests. The reporting is required to be made on or before June 30 of the calendar year following the calendar year in which the transaction first becomes reportable.
The budget proposes a change to the rules for reportable transactions, such that only one of the three tests need to be met for a transaction to be reportable. It is also proposed that the definition of an “avoidance transaction” be amended so that a transaction will be considered an avoidance transaction if it can reasonably be concluded that one of the main purposes for entering into the transaction is to obtain a tax benefit.
A taxpayer would be required to report the transaction to the CRA within 45 days of the earlier of the day that a taxpayer, or another person who entered into the transaction for the benefit of the taxpayer: (i) becomes contractually obligated to enter into the transaction; or (ii) enters into the transaction.
In response to a recent decision of the Tax Court of Canada (Paletta v. The Queen), the budget proposes to require a taxpayer that enters into a notifiable transaction, or a person who enters into a transaction for the benefit of a taxpayer, to report the transaction or series of transactions to the CRA within 45 days of the earlier of the day the taxpayer or person: (i) becomes contractually obligated to enter into the transaction; or (ii) enters into the transaction.
Notifiable transactions will include both transactions that the CRA determines to be abusive and transactions identified as “transactions of interest.” Further disclosure of the planned rules for notifiable transactions will be forthcoming.
In support of the Organisation for Economic Co-operation and Development (OECD) initiative on Base Erosion and Profit Shifting (BEPS) Action 12, the budget proposes that persons who enter into a reportable or notifiable transaction, or for whom a tax benefit results from a reportable or notifiable transaction, will be subject to a penalty of $500 per week for each failure to report such a transaction, up to the greater of $25,000 and 25% of the tax benefit. For corporations that have assets with a total carrying value of $50 million or more, the penalty will be $2,000 per week, up to the greater of $100,000 and 25% of the tax benefit.
Further, it is proposed that advisors and promoters of reportable or notifiable transactions, as well as those who do not deal at arm’s length with such persons and are entitled to a fee with respect to the transactions, be subject to a penalty for each failure to report equal to the total of: 100% of the fees charged by that person to the taxpayer for whom a tax benefit results; $10,000; and $1,000 for each day during which the failure to report continues, up to a maximum of $100,000.
The budget proposes that the normal reassessment limitation period (i.e., 3 or 4 years) will not commence in respect of a transaction until the taxpayer has complied with the applicable mandatory reporting requirements. As a result, a reassessment in respect of the transaction will not become statute barred.
Draft legislation and sample transactions are expected to be provided in coming weeks, but the mandatory disclosure amendments would apply to taxation years beginning and transactions occurring after 2021. Penalties will not apply to transactions occurring before the date the legislative amendments receive Royal Assent.
Film and Video Production Tax Credits
The budget announced the temporary extension of certain timelines for the Canadian Film or Video Production Tax Credit and the Film or Video Production Services Tax Credit by 12 months to reflect the impact of the pandemic in delaying productions. Note that a waiver will be required to extend the assessment limitation period in such situations. This relief is available for productions with eligible expenditures incurred in taxation years ending in 2020 or 2021.
International Income Tax Measures
Interest Deductibility Limits
The budget proposes to introduce an earnings-stripping rule consistent with the recommendations in the BEPS Action 4 Report. The new rule would limit the amount of net interest expense that a corporation may deduct in computing its taxable income to no more than a fixed ratio of “tax EBITDA,” which is that corporation’s taxable income before taking into account interest expense, interest income, income tax, and deductions for depreciation and amortization, where each of these items is as determined for tax purposes. Under the proposal:
- As it is based on a corporation’s taxable income, tax EBITDA would exclude, among other things, dividends to the extent they qualify for the inter-corporate dividend deduction or the deduction for certain dividends received from foreign affiliates;
- Interest expense and interest income would include not only amounts that are legally interest, but also certain payments that are economically equivalent to interest, and other financing-related expenses and income;
- The measure of interest expense would exclude interest that is not deductible under existing income tax rules, including the thin capitalization rules, which would continue to apply;
- Interest expense and interest income related to debts owing between Canadian members of a corporate group would generally be excluded to effectively allow for loss utilization among a related corporate group;
- The new earnings-stripping rule would also apply to trusts, partnerships, and Canadian branches of non-resident taxpayers; and
- Interest denied under the earnings-stripping rule would be available to be carried forward for up to 20 years or back for up to three years.
The new rules would be phased in, with a fixed ratio of 40% for taxation years beginning on or after January 1, 2023, but before January 1, 2024 (the transition year), and 30% for taxation years beginning on or after the latter date.
The proposed rules would not apply to CCPCs (including associated corporations) that have taxable capital employed in Canada of less than $15 million or groups of corporations and trusts whose aggregate net interest expense among their Canadian members is $250,000 or less.
Hybrid Mismatch Arrangements
The budget also proposes to implement rules consistent with recommendations under BEPS Action 2. In general terms, under the main proposed rules, payments made by Canadian residents under hybrid mismatch arrangements would not be deductible for Canadian income tax purposes to the extent that they give rise to a further deduction in another country or are not included in the ordinary income of a non-resident recipient.
Conversely, to the extent that a payment made under such an arrangement by an entity that is not resident in Canada is deductible for foreign income tax purposes, no deduction in respect of the payment would be permitted against the income of a Canadian resident. Any amount of the payment received by a Canadian resident would also be included in income and, if the payment is a dividend, it would not be eligible for the deduction otherwise available for certain dividends received from foreign affiliates.
These rules are intended to neutralize a mismatch by aligning the Canadian income tax treatment with the income tax treatment in the foreign country.
The federal government will introduce draft legislation for comment in two stages. The first legislative package (generally for deduction/non-inclusion mismatches) will be released for comment later in 2021, with those rules anticipated to take effect on July 1, 2022. The second package is expected to be released for comment after 2021, and those rules would apply no earlier than 2023.
The budget announced the government’s intention to examine Canada’s transfer pricing rules with a view to protecting the integrity of the tax system and preventing perceived loopholes, some of which may have resulted from the Tax Court of Canada’s decision in The Queen v. Cameco Corporation.
Concentration will be given to transactions that inappropriately shift income outside of Canada. However, it is not the intention of the government to restrict Canada from new investment while reviewing its transfer pricing standards. Transfer pricing regulations are a recurring topic in federal budgets, which stresses the necessity of maintaining proper contemporaneous documentation.
Personal Income Tax Measures
This year’s budget includes various proposed measures that will directly impact individual taxpayers. Key personal income tax changes that the government intends to implement include:
- Expansion of eligibility for the disability tax credit with broadened definitions for mental functions and life-sustaining therapy;
- Enhancement of the Canada Workers Benefit non-taxable refundable tax credit for low-income earners by increasing the phase-in rate (to 27%), phase-out rate (to 15%) and phase-out thresholds (to $22,944 for individuals and $26,177 for families);
- Expansion of access to the travel component of the Northern Residents Deductions, including more options with respect to the amount available to be claimed; and
- Allowing individuals who received a range of COVID-19 related support benefits (e.g., Canada Emergency Response Benefit, Canada Recovery Benefit, Canada Recovery Sickness Benefit, etc.) to claim the deduction for any repayments in the year in which the benefit was received, rather than the one in which the repayment is made, provided the repayment is made before 2023.
Digital Services Tax
In response to the growing number of ways that digital businesses are able to leverage and monetize data gathered from online users, without any local physical presence in a particular jurisdiction, the government is proposing to implement a new Digital Services Tax (DST), effective January 1, 2022. This new tax is expected to be an interim measure, pending ongoing efforts to reach a consensus on a multilateral approach to the taxation of digital services businesses through discussions involving the OECD and fellow G20 countries.
The proposed DST, which is not an income tax, will apply at a rate of 3% to revenue derived from certain digital services that rely on data and content harnessed from Canadian users. The intent is for the new tax to apply to any revenue of online businesses being generated through the participation, interaction, or contributions of Canadian users, including revenue from:
- Online marketplaces (e.g., Amazon);
- Social media (e.g., Facebook and Twitter);
- Online advertising and the facilitation of online ad placement; and
- User data, including the sale or licensing of data, whether it has been aggregated or preserves anonymity.
As this measure is targeting only large digital service providers, it will only apply to businesses in a particular calendar year that, either alone or as part of a group, have global revenue (from all sources) of €750 million or more in the prior calendar year and revenue associated with Canadian users (as described above) in excess of $20 million in that particular year.
Specific rules will also be introduced to determine, on a reasonable basis, the:
- Source of revenue for entities that have activities generating revenue both within and outside the scope of the DST;
- Amount of revenue (within scope) attributable to Canadian users; and
- Location of users (i.e., within or outside Canada).
As proposed, the rules to determine the appropriate amount of revenue to be taxed will vary, depending on the nature of user interaction with a particular business and the technological capability of a business to track or trace its users and their location. For example, in many cases, the taxable revenue will be determined based on a ratio of the number of Canadian users to the total number of users giving rise to the revenue.
Businesses subject to the DST will be required to file an annual return and remit any tax owing after the end of each reporting period (likely to be a calendar year). The DST will be deductible in computing taxable income for Canadian income tax purposes based on general principles, but it will not be eligible as a tax credit.
Interested parties are invited to comment on these proposed measures, with a submission deadline of June 18, 2021. Draft legislation to implement the DST is not expected until this summer.
GST/HST and Other Sales Tax Measures
GST/HST on E-Commerce
The Federal Fall Economic Statement 2020 proposed sales tax measures requiring unregistered non-resident vendors supplying digital products or services, as well as distribution platform operators facilitating supplies to Canadian consumers, to register for and collect GST/HST on taxable supplies to consumers in Canada. In addition, all short-term rental accommodations supplied in Canada through digital platforms will be subject to GST/HST, requiring the tax to be collected and remitted by either the property supplier or platform operator. A simplified GST/HST registration and remittance system will be put in place to facilitate compliance by non-resident vendors and non-resident distribution or accommodation platform operators.
Further, distribution platform operators will be required to register under the regular GST/HST rules and collect and remit tax on supplies of goods shipped from a fulfillment warehouse or another place in Canada for sales made by unregistered vendors through their platforms. Similarly, non-resident vendors making their own sales will be required to register under the general rules and collect tax on sales shipped from a fulfillment warehouse or another place in Canada. Information reporting requirements will also be placed on fulfillment warehouses operating in Canada. These initiatives are still scheduled to take effect on July 1, 2021.
This year’s budget introduced the following amendments to the previously proposed measures:
- Platform operators and third-party suppliers will be jointly and severally liable for collecting and remitting the GST/HST where the third-party supplier (i.e., unregistered non-resident vendor) provides false information to the platform operator;
- Where a platform operator relied in good faith on false information provided by a third-party supplier, the liability of the platform operator will be limited concerning the failure to collect and remit the applicable GST/HST;
- Registrants under the simplified GST/HST system will be permitted to provide HST point-of-sale rebates to eligible customers, such as audiobooks acquired by public libraries;
- Registrants under the simplified GST/HST system may be able to recover GST/HST remitted where an amount charged to a customer has been written off as a bad debt;
- Zero-rated supplies of digital products or services made by non-residents will be excluded from the $30,000 threshold used for determining whether unregistered non-residents are required to register under the simplified GST/HST system;
- Only platform operators registered for GST/HST, or required to be registered, must file annual information returns if they enable, through their platforms, supplies of short-term accommodation in Canada or sales by an unregistered vendor of goods located in a fulfillment warehouse in Canada;
- The Minister of National Revenue will be authorized to compel registration under the GST/HST simplified framework, where required; and
- The CRA will exercise discretion where reasonable measures are taken by platform operators and impacted businesses to comply with their GST/HST obligations, but they are unable to do so, during a 12-month transition period, starting July 1, 2021.
Input Tax Credit Documentary Requirements
The Excise Tax Act requires that a GST/HST registrant obtain adequate supporting documentation before claiming an input tax credit to show that GST/HST has been paid to a registered supplier. Registrants are generally required to obtain, among other things, the business name and, depending on the value of the consideration paid, the GST/HST registration number of the supplier. Currently, either a supplier or an intermediary can provide this information. However, the budget proposes to allow a billing agent to be treated the same as an intermediary for these purposes, effective April 20, 2021.
In addition, the documentary requirements increase where the amount paid or payable for a supply exceeds the previously existing thresholds of $30 or $150. Effective April 20, 2021, these documentary requirement threshold amounts will increase to $100 and $500, respectively, to facilitate the claiming of input tax credits.
GST New Housing Rebates
To qualify for the GST New Housing Rebate, the purchaser must be acquiring the dwelling as a primary place of residence or as a primary place of residence for a related person. In a situation where two or more unrelated individuals purchase a new home together, they are all currently required to meet this condition to qualify for the rebate. The budget proposes to alter this condition, with the rebate becoming available provided the new home is acquired with the intention that any one of the purchasers, or one of their relations, will use the dwelling as their primary place of residence.
This proposed change to the primary place of residence condition will also apply to GST New Housing Rebate claims made in relation to owner-built homes, co-op housing shares, and homes constructed on leased land, as well as new housing rebate claims made for the provincial component of HST. The proposed changes will apply to purchases and sales of new homes made on or after April 20, 2021. For owner-built homes, the change will take effect where construction or substantial renovation of the residential complex has been completed after April 19, 2021.
Rebate for Excise Tax on Provincial Purchases
Certain provinces are eligible for a rebate of the federal excise tax embedded in the cost of motive fuels, automobile air conditioners, and fuel-inefficient vehicles purchased or imported for their own use. Eligible provinces do not have an agreement with the federal government wherein the province and the federal government mutually agree to pay each other’s taxes.
The budget proposes to introduce a joint election to allow only the vendor to apply for the rebate where the election has been made. Where no joint election is made, only the province will be entitled to apply for the rebate. This change will apply to goods purchased or imported by a province after December 31, 2021.
Tobacco Tax Increase
This year’s budget proposes to increase the excise duty rate on tobacco by $4 for a carton of 200 cigarettes, effective April 20, 2021. As a result, the following equivalent excise duty rates will apply:
- $29.09 (from $25.09) per carton of 200 cigarettes;
- $0.72725 (from $0.62725) per five cigarettes or fraction thereof;
- $0.14545 (from $0.12545) per tobacco stick;
- $9.09062 (from $7.84062) per 50 grams or fraction thereof of manufactured tobacco; and
- $31.65673 (from $27.30379) per 1,000 cigars, plus the greater of $0.11379 (from $0.09814) per cigar and 88% of the sale price or duty-paid value.
Tax on Vaping Products
The budget proposes the introduction of a new taxation framework that will impose excise duty on vaping products starting in 2022. The new excise duty will be imposed on vaping liquids that are produced in or imported into Canada and intended for use in a vaping device. The excise duty rates are undetermined at this time, but a single flat rate duty would be imposed on every 10 millilitres of vaping liquid or fraction thereof in a container at the time of packaging or importation.
The administration of the proposed excise duty on vaping products will be handled by the CRA in a manner similar to other excise duties imposed under the Excise Act, 2001. Enforcement at the border will be the responsibility of the Canada Border Services Agency. The CRA will require licensees to report quantities of vaping products manufactured or imported, the amount of excise duty payable, inventory details, and the quantity of vaping products exported on a monthly duty and information report.
Registration, licensing, and stamping requirements are expected to be comparable to those imposed under Canada’s other excise duty regimes (e.g., tobacco and cannabis), with similar penalty and offence provisions for non-compliance. Public consultation submissions regarding the proposed excise duty for vaping products are due June 30, 2021.
Tax on Select Luxury Goods
This year’s budget proposes the introduction of a new tax on the retail sale of new luxury cars and personal aircraft priced over $100,000, and boats priced over $250,000, effective January 1, 2022. This tax will be applied at the final point of purchase in Canada. For imports, the tax will apply at the time of importation where no further sale is intended, or at the time of the final sale in Canada after importation. Vendors will be responsible for remitting the tax on the supply of these items, whether purchased, financed, or leased by consumers.
The tax applies if the final price paid by the consumer (excluding GST/HST or PST) exceeds the applicable threshold, and the rate will be the lesser of 10% of the full value or 20% of the value in excess of $100,000 for vehicles and aircraft or $250,000 for boats, respectively. In addition, this tax will be added to the price of the target luxury goods before the application of GST/HST.
As a rule of thumb, this tax is intended to focus on luxury goods for personal use rather than commercial use, and the budget proposes a list of exclusions, including racing cars, large aircraft used commercially, air ambulances, rescue aircraft, ferries, and commercial fishing boats. In addition, the tax will not apply to motorcycles, all-terrain vehicles, motor homes, and taxable items to be exported.
Further details on this proposed tax will be announced at a later date.
Vacancy Tax on Foreign Non-Residents
The budget is proposing the introduction of a 1% tax on the value of residential real estate owned by non-Canadian non-residents and considered to be vacant or underused, effective January 1, 2022. To implement the tax, owners of residential property in Canada, excluding Canadian citizens and permanent residents of Canada, will be required to file an annual declaration with the CRA in respect of each property. The information on the declaration will be used to calculate an owner’s liability for tax, determine potential eligibility for exemption, and report and remit tax to the CRA by a specified due date. Failing to provide the required information could result in penalties, including the potential loss of available exemptions, and interest.
Further details on this new tax, including key definitions and compliance measures, are expected to be released in the coming months for public consultation.
Electronic Filing and Payments
As announced in the budget, several tax statutes will be amended to allow the CRA to operate digitally in more situations. Some of the major changes planned include:
- Requiring most GST/HST registrants to file their returns electronically, effective for reporting periods that commence after 2021;
- Reducing the threshold requiring remittances of several different taxes to be made at a financial institution (including online payments) to $10,000 from $50,000, effective for payments after 2021;
- Providing the CRA with the ability to send certain Notices of Assessment electronically without the need for taxpayer authorization (e.g., where an individual files their income tax return electronically);
- Allowing issuers of T4A and T5 information returns to provide them electronically without having to issue a paper copy or obtain taxpayer authorization, effective for returns sent out after 2021;
- Lowering the threshold for mandatory electronic filing of income tax information returns for a calendar year from 50 to 5, in respect of a particular type of information return, applicable to calendar years after 2021; and
- Eliminating the requirement that signatures be in writing on certain prescribed forms, such as T183, Information Return for Electronic Filing of an Individual’s Income Tax and Benefit Return, and T2200, Declaration of Conditions of Employment.
Enhancement to Anti-Avoidance Rules
To address the increased use of a complex series of transactions to escape the application of certain tax debt anti-avoidance rules, the budget has proposed new measures, effective for transfers of property occurring on or after April 19, 2021, to prevent the manipulation of the timing of a tax debt or the arm’s length status of parties involved in a transfer of assets when a tax liability exists, as well as the stripping out of the value of a transferor’s assets through a series of transactions.
Clarification of Audit Powers
In response to a recent court decision that called into question the scope of the CRA’s authority to require persons to answer questions and provide reasonable assistance in relation to administration and enforcement activities, amendments to several tax statutes will be made to confirm that authority and provide the CRA with the ability to require persons to answer questions in any form specified by a CRA official.
Duty and Tax Collection on Imported Goods
The budget proposes amendments to the Customs Act and related regulations to improve the collection of duties and taxes on imported goods. Under the current rules, some foreign importers pay lower duties and taxes on imports compared to Canadian importers, by using a previous foreign sale price to value their imports. To ensure fairness for all importers, proposed amendments will require all imported goods to be valued at the amount of the last sale for export to a purchaser in Canada.
In the same vein, the payment process for commercial importers will be revamped to offer a more streamlined system, with the ability to make good-faith corrections without incurring penalties or interest.
The government has not yet indicated a specific date for the launch of these initiatives.
Previously Announced Measures
Playing catch-up because of various disruptions to the legislative process, including an election and the COVID-19 pandemic, the government has confirmed its intention to proceed with a host of previously announced tax and related measures, with introduction dates ranging from 2016 to 2021.
Government Funding Initiatives
Following significant spending on COVID-19 relief programs in the prior fiscal year, the government has committed an additional $101.4 billion in new spending in the 2021–22 fiscal year to support Canadians and revitalize the economy. Investments in the transition to a greener economy, digital transformation and innovation, and infrastructure are the main areas of focus, with additional support being made available to those industries most impacted by the pandemic. Highlights of the multitude of programs announced are listed below.
COVID-19 Relief Measures
- $250 million for the Aerospace Regional Recovery Initiative
- $7.2 billion for the Strategic Innovation Fund (SIF), with $511.4 million ongoing, including $8 billion over seven years for the Net Zero Accelerator, $1.75 billion towards aerospace, and $1 billion towards life sciences and bio-manufacturing
- $1.9 billion for the National Trade Corridors Fund
- $1.4 billion for the Canada Digital Adoption Program
- $500 million for Industrial Research Assistance Program
- $443.8 million in support of the Pan-Canadian Artificial Intelligence Strategy
- $400 million in support of a Pan-Canadian Genomics Strategy
- $250 million to create a new Tri-Council Biomedical Research Fund
- $250 million to CIHR to implement new Clinical Trials Fund
- $100 million for the Enabling Accessibility Fund
- $60 million to the Innovation Supercluster Initiative
- $46.9 million for NSERC’s Community Innovation Program
Environmental and Agricultural Sustainability
- $1 billion over five years to help draw private sector investment to support large-scale clean tech projects
- $292.5 million for a Processor Investment Fund
- $200 million to establish a Natural Infrastructure Fund
- $200 million for Agriculture Climate Solutions Program
- $101 million for Agriculture and Agri-Food Canada to implement a program for the wine sector
- $94.4 million to Environment and Climate Change Canada to address climate change and support the Clean Growth Hub
- $54.8 million over two years to the National Research Council to enhance capacity of the Investments in Forestry Industry Transformation program
- $50 million from the Agriculture Clean Technology Program for efficiency-focused capital investments for farmers across Canada
- $36 million through the Strategic Partnership Initiative to build capacity for local, economically sustainable clean energy projects in indigenous communities
Job Creation for Youth
- $960 million for a new Sectoral Workforce Solutions Program
- $708 million to Mitacs to create at least 85,000 STEM placements
- $371.8 million in new funding for Canada Summer Jobs
- $298 million for a new Skills for Success Program
- $239.8 million in the Student Work Placement Program
- $109.3 million in for the Youth Employment and Skills Strategy
Tourism and Culture Funding
- $500 million for a Tourism Relief Fund
- $300 million to establish a Canadian Heritage Recovery Fund for the heritage, arts, culture, and sport sectors
- $200 million to support local festivals and community, cultural, heritage, and sports events
- $117 million for the Indigenous Community Business Fund
- $70 million for the Canada Music Fund and $60 million to the Canada Media Fund
- $146.9 million to strengthen the Women Entrepreneurship Strategy
- $101.4 million for the Small Business Entrepreneurship Development Program
- $90 million to create ElevateIP to help accelerators and incubators provide start-ups with access to experts in IP services
- $51.7 million of additional funding for the Black Entrepreneurship Program
- $42 million to expand the Aboriginal Entrepreneurship Program
Further details on the 2021 federal budget can be found on the government’s website at:
If you have any questions about how these proposed changes might impact your organization, please do not hesitate to call the Ryan TaxDirect® line at 1.800.667.1600.