2021 Federal Budget overview
On April 19, 2021 Deputy Prime Minister and Minister of Finance Chrystia Freeland delivered the first Federal Budget in more than 2 years. Below are some highlights of the 2021 Federal Budget.
The budget had no new personal or corporate tax rate changes. Rather, it proposes unprecedented fiscal stimulus to support the economy without any significant revenue-generating tax measures aimed at paying for this spending. You may find interesting what wasn’t in this budget. There was no increase in the capital gains inclusion rate, no change to the principal residence exemption, no family wealth tax, nor was there any income tax rate increases for individuals or corporations. But that doesn’t necessarily mean we won’t see some of these measures in the future.
Here’s an overview of some of the proposals:
- New tax on luxury goods. Effective January 1, 2022, this luxury tax would apply to new, personal use luxury vehicles and aircraft priced over $100,000 and boats priced over $250,000. This would apply on both purchases (both outright and financed) and leases, with the seller or lessor responsible for remitting the full amount of the federal tax owing. Further, GST/HST would be applicable to the final sale price, including the proposed luxury tax. The tax will be calculated as the lesser of 10% of the full value or 20% of the value above the applicable threshold.
- Additional Old Age Security (OAS) benefits. Seniors who will be 75 or older as of June 2022 will receive a one-time payment of $500 in August this year. Also, as of July 2022, OAS payments for individuals 75 and older will increase by 10% on an ongoing basis.
- Expanded Disability Tax Credit. The Disability Tax Credit (DTC) is a non-refundable tax credit that’s intended to recognize the impact of non-itemizable disability-related costs on the ability to pay tax. Starting in 2021, the eligibility criteria for the DTC is being expanded. This will also make it easier to qualify to open a Registered Disability Savings Plan.
- Enhanced Canada Workers Benefit. The Canada Workers Benefit (CWB) is a non-taxable refundable tax credit that supplements the earnings of low- and modest-income workers and improves their work incentives. Starting in 2021, the CWB is being enhanced by increasing the “phase-in” and “phase-out” rates. Also, to improve work incentives for the secondary earner in a couple, a “secondary earner exemption” to the CWB for those with eligible spouses is being introduced. This would allow the spouse or common-law partner with the lower income to exclude up to $14,000 of their working income in the calculation of their adjusted net income.
- Extended COVID-19 recovery benefits. The budget includes an extension of up to 12 weeks to the Canada Recovery Benefit and 4 weeks to the Canada Recovery Caregiving Benefit.
- Flexible tax treatment of COVID-19 benefits. The COVID-19 benefit amounts (e.g. the suite of emergency and recovery benefits) are normally taxable as ordinary income at the recipient’s marginal tax rate. Generally, where an individual wasn’t eligible for a benefit, the subsequent repayment amount can only be deducted from income in the year the repayment takes place. Where the repayment year differs from the year the benefit is received, an individual may owe tax on the benefit income in one year while obtaining a deduction for the repayment amount in another year. The budget proposes to allow individuals the option to claim a deduction of the repayment of a COVID‑19 benefit when calculating their income for the year in which the benefit income was received rather than the year in which the repayment was made. This would be available for benefits repaid at any time before 2023.