2021 federal fiscal update: tax and benefit highlights
By ATB Wealth 15 December 2021 7 min read
Certain tax and benefit announcements from the 2021 Canadian federal fiscal update may be of interest to both business owners and individuals.
From a business perspective, this article discusses two new tax credits (the carbon credit for farmers and the small business air quality improvement tax credit) as well as a summary of the wage and rent subsidies that were previously announced.
For individuals, we highlight announcements that may be relevant for individuals that continued to work from home during 2021, low-income seniors and students.
Carbon credit for farmers on eligible expenses
In the federal government’s fall economic and fiscal update, a new refundable tax credit was announced that will return fuel charge proceeds from the federal carbon tax system to certain eligible farming businesses.
The credit will be available for farming operations in specific provinces (Alberta, Manitoba, Ontario and Saskatchewan, at the time of writing) carried on by corporations, individuals, trusts, and partnerships that have incurred eligible farming expenses of $25,000 or more. The credit will take effect as of the 2021-2022 fuel charge year (April 1, 2021 to March 31, 2022), at a rate of 0.147% of eligible farming expenses in the 2021 calendar year and 0.173% in the 2022 calendar year.
Small business air quality improvement tax credit
The fall fiscal update also introduced a refundable tax credit for small businesses that invest in ventilation and air filtration improvements. This temporary credit is available for unincorporated sole proprietors and Canadian-owned small businesses in respect of qualifying expenditures incurred between September 1, 2021 and December 31, 2022.
The credit applies at a rate of 25% of the business’s qualifying expenditures, to a maximum of $10,000 of expenses per location and $50,000 of expenses across all locations. The credit only applies to certain types of expenditures, such as the purchase, installation, upgrade, or conversion of a heating, ventilation and air conditioning (HVAC) system (which must meet certain minimum efficiency rates) or the purchase of devices designed to filter air using high-efficiency filters, the primary purpose of which is to increase outdoor air intake, or improve air clearing or air filtration.
Proposed extension of the Canada Recovery Hiring Program (CRHP)
The federal government introduced the CRHP as a hiring subsidy program in the 2021 federal budget, effective June 6, 2021. The CRHP provides a wage subsidy to businesses that have experienced a decline in revenue of more than 10%, with the amount of the subsidy based on the incremental remuneration paid to eligible employees. “Incremental remuneration” refers to the business’s increase in total remuneration paid to all eligible employees, compared to a baseline period (March 14 to April 10, 2021), with some limits.
The CRHP initially provided a subsidy of 50% of incremental remuneration paid to eligible employees (from June 6 - August 28), with the rate phased out over time. The program was slated to end November 20, 2021, but the fall fiscal update reaffirms the government’s intention to extend this benefit and increase the subsidy rate. If the legislation passes, the subsidy rate is expected to remain at 50% of incremental remuneration until at least May 7, 2022.
Targeted supports for hard-hit industries
In addition to the broad-based support of the CRHP, the federal government has announced plans for targeted support to assist some of the hardest-hit industries, including tourism and hospitality. This includes three new benefit programs: the Tourism and Hospitality Recovery Program, the Hardest-Hit Business Recovery Program, and the Local Lockdown Program. Each of these programs will be available until May 7, 2022, with the subsidy rates halved after March 12, 2022.
The Tourism and Hospitality Recovery Program is intended to provide wage and rent subsidies for businesses in specific industries, with a subsidy rate of between 40% and 75% (depending on the business’s decline in revenue). For a business to benefit from this subsidy, more than 50% of its pre-pandemic revenues must have been earned from qualifying activities in the tourism and hospitality industry. Additionally, a business can only claim this subsidy if it has suffered a significant decline in its monthly revenue of at least 40% in the month to which the subsidy applies and at least 40% on average from March 15, 2020 to March 13, 2021.
The Hardest-Hit Business Program provides wage and rent subsidies for businesses that have faced particularly severe losses as a result of the pandemic, at rates between 10% and 50% (depending on the business’s decline in revenue). For a business to benefit from this subsidy, it must have suffered a significant decline in its monthly revenue of at least 50% in the month to which the subsidy applies and at least 50% on average from March 15, 2020 to March 13, 2021.
The Local Lockdown Program will provide additional wage and rent subsidy support for businesses that are, as a result of local health restrictions, required to cease activities accounting for at least 25% of the business’s revenues for at least seven days. The business will also need to demonstrate a decline in its revenue for the month in which the health restriction applies. The subsidy rates are proposed to be the same as for the Tourism and Hospitality Recovery Program, at up to 75%, depending on the business’s decline in revenue.
Further details on these programs are expected to be released in the future.
Home Office Expense Deduction
Many Canadians continue to work from home on a full-time or part-time basis. In 2020, the government permitted workers to use a temporary flat rate method to calculate their deduction for home office expenses. The fiscal update announced that the flat rate method will be available in both 2021 and 2022, with the temporary flat rate increasing to $500 annually.
Assistance for Guaranteed Income Supplement (GIS) recipients
Some individuals that received pandemic support in the form of the Canada Emergency Response Benefit (CERB) or the Canada Recovery Benefit (CRB) have had their benefits reduced or eliminated because this COVID-19 support is now considered in calculating income-tested benefits.
Specifically, low-income seniors who receive the Guaranteed Income Supplement (GIS) or Allowance benefits have seen a decline or elimination of their benefit amount. The government proposes to provide one-time payments to alleviate the financial hardship of GIS and Allowance recipients who received the CERB or the CRB in 2020 and will continue to investigate ways to limit potential benefit reductions for vulnerable seniors who received emergency and recovery benefits.
Help for students negatively affected by CERB payments
Students that received the CERB, despite not being eligible, are facing potentially significant repayments. As a result, the government proposes to provide debt relief to students who received the CERB although ineligible, but were eligible for the Canada Emergency Student Benefit (CESB). CERB-related debt will be offset by the amount students would have received from CESB during the same benefit period.
Updates on previously-announced tax measures
The 2021 budget announced a new luxury tax on the sales, for personal use, of new luxury cars and personal aircraft with a retail sales price over $100,000 and boats over $250,000. The tax will be calculated at the lesser of:
- 20% of the value exceeding the thresholds above; or
- 10% of the full value of the luxury car, aircraft or boat.
This tax was originally intended to come into effect on January 1, 2022. The fall fiscal update has proposed to release details—including the date it will come into force—in early 2022.
Underused housing tax
The 2021 budget reintroduced a proposed tax on vacant housing owned by non-residents of Canada. The proposal would tax residential real estate owned by non-resident non-Canadians, if that real estate is considered to be vacant or underused. The tax is proposed to be 1% of the value of the real estate, annually. This is expected to come into force for the 2022 calendar year.
After consultations, new exemptions were added for this tax. The tax is not intended to apply to housing that is used as a primary place of residence for the owner, their spouse or common-law partner, or their child (if the child is a student and occupying the property for that purpose). The tax is also not intended to apply to vacation properties located outside of metropolitan areas, provided they are actually used by the owners for at least four weeks per calendar year.
The above summary only highlights certain items from the fiscal update. Please refer to the Government of Canada’s fiscal update page for further details regarding these and other initiatives.
This document has been prepared by ATB Wealth. ATB Investment Management Inc., ATB Securities Inc. (Member Investment Industry Regulatory Organization of Canada and Canadian Investor Protection Fund) and ATB Insurance Advisors Inc. are wholly owned subsidiaries of ATB Financial and operate under the trade name ATB Wealth. The information provided in this article is a simplified general summary and is not intended to replace or serve as a substitute for professional advice. Professional tax advice should always be obtained when dealing with taxation issues as each individual’s situation is different. This information has been obtained from sources believed to be reliable but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. This information is subject to change and ATB Securities Inc. (Member Investment Industry Regulatory Organization of Canada and Canadian Investor Protection Fund), ATB Investment Management Inc. and ATB Insurance Advisors Inc. reserves the right to change the information without prior notice, and does not undertake to provide updated information should a change occur. ATB Financial, ATB Investment Management Inc., ATB Securities Inc. and ATB Insurance Advisors Inc. do not accept any liability whatsoever for any losses arising from the use of this document or its contents.