The 2021 federal budget was unveiled on Monday, April 19th. In the first federal budget delivered in two years, Chrystia Freeland, Canada’s finance minister, expects a deficit of $354.2 billion for 2020-21, and forecasts a further deficit of $154.7 billion for 2021-2022.
Though there have been no changes to existing personal and corporate federal tax rates in this current budget, the deficit is expected largely based on the extension of the various government programs introduced to navigate the government-imposed restrictions on economic activity during the COVID-19 pandemic.
While numerous initiatives, restrictions, and tax changes have been introduced in this year’s budget, the summary below highlights some changes pertinent to incorporated professionals and business owners alike.
Existing Covid-19 Programs
The Canada Emergency Wage Subsidy (CEWS), Lockdown Support for businesses, and the Canada Emergency Rent Subsidy (CERS) have all been extended until September 25th, 2021. The Canada Workers Benefit has also been expanded for both single people without dependents, and families. Also included is the introduction of a “secondary earner exemption” to improve work incentives for secondary earners in a couple.
Canada Recovery Hiring Program
In addition to the programs outlined above, the government aims to introduce further programs available to employers in a stated attempt to promote economic activity on the heels of the pandemic. The most prominent of these being the Canada Recovery Hiring Program which is a subsidy proposed to offset a portion of the extra costs’ employers incur upon reopening, either by increasing wages or hours worked, or hiring more staff. This program is only available for active employees, and therefore the funds received are not eligible to be used for other costs related to the business.
Employers will be able to claim the higher of this benefit or the existing CEWS benefit. It will be available from June 6th – November 20th, 2021 and the benefit will decrease over time so as to incentivize employers to hire people as soon as possible to maximize their benefit.
Northern Residents Deduction
For those who qualify by living in a “prescribed northern zone” or “prescribed intermediate zone” for a period of at least six consecutive months, the Northern Residents Deduction is a deduction that consists of both a residency amount and a travel amount for taxpayers receiving employer-provided benefits. This year’s budget aims to expand access to this travel component by allowing an individual to claim for themselves and each “eligible” family member up to the amount of the employer-provided travel benefits received in respect of travel by that person, or a $1,200 standard amount claimed for eligible trips taken.
Establishment of a $15/hour federal minimum wage
The 2021 budget also proposes to establish a $15/hour federal minimum wage for the federally regulated private sector which is planned to rise with inflation. In cases where provincial or territorial minimum wage standards are higher, the greater of the two wages will prevail. This is assumed to help 26,000 workers who currently make less than minimum wage in the federally-regulated private sector, but does not affect minimum wage workers in provincially regulated sectors.
$10/Day Childcare
The government’s unprecedented spending included in this year’s budget aims to reduce childcare costs to $10/day over the next five years. By adding $3 billion in funding this year, and scaling up over five years to a spending mark of $8.3 billion in permanent annual spending, the government states that it will aim to be contributing half of childcare costs for the provinces and territories that administer these programs.
In addition to a goal of reducing childcare costs to $10/day, the government’s stated measure of success also includes a goal to cut the average fees for regulated childcare in half by the end of 2022.
Expansion of Old Age Security (OAS)
The budget has proposed a one-time payment of $500 in August of this year for seniors who are 75 or over, as of June 2022. Additionally, this year’s budget also proposes to increase regular OAS payments for pensioners 75 and over by 10 percent on an ongoing basis as of July, 2022. It is stated that this will increase the OAS payment for these seniors by $766 in the first year and will be indexed to inflation thereafter.
Incentives for Students
The 2021 budget proposes to extend the waiver of interest accrual on Canada Student Loans and Canada Apprentice Loans until March 31st, 2023. Also, it is proposed to double Canada Student Loan grants to $6,000 for full-time students and $3,600 for part-time students, for an additional two years to the end of July 2023. Further supports have also been made available to students with disabilities and adult learners.
Introduction of a luxury tax
As anticipated, budget 2021 plans to introduce a tax on the sales of cars and personal aircraft with a retail price greater than $100,000, and for personal-use boats over $250,000. This tax, which is slated to come into effect January 1st, 2022, is to be calculated as the lesser of 10percent of the full value of the good, and 20 percent of the value above the aforementioned thresholds.
Tax on vacant homes for foreign non-residents
Similar to measures introduced in Vancouver, budget 2021 proposes an annual 1 percent tax on the value of homes not owned by Canadians that is vacant or underused. Compliance to this rule involves a declaration as to the current use of the property with significant penalties for non-compliance.
TPC Recommendations
While there have been no changes to income tax rates themselves, the expansion of the various COVID-19 programs for employers does represent an opportunity to continue to subsidize business expenses through the CEWS, CERS, Lockdown Support, and the new Canada Recovery Hiring Program for those eligible employers that continue to be directly impacted by the pandemic.
Further, the introduction of a relatively punitive luxury tax does incentivize purchasing a relatively expensive new car, personal aircraft, or boat prior to 2022. For most professionals who enjoy available credit at historically low-interest rates, it may even make sense to consider borrowing to accelerate the timeline of a purchase prior to 2022 if you don’t have the funds immediately available, to avoid this new luxury tax.
If you have any comments, questions, or concerns, we encourage our existing and prospective clients alike to reach out to their TPC Financial Group Ltd. advisor to discuss how the 2021 budget in general, and the changes mentioned above, may impact their financial outlook both now and in the future.