COVID-19 – Canadian Tax and Business News, release #26
Our COVID-19 Canadian Tax and Business News updates are our way of informing our clients, friends and business associates with recent information that may help businesses and individuals while coping with the outcomes from the COVID-19 pandemic.
Our goal is to monitor the news and release relevant information as it becomes available.
The summary below is based on our understanding and interpretation of the announcements made by the government. The information below is in summary form and subject to change until the proposals are passed as legislation. Contact one of our professionals to discuss these matters in the context of your situation before acting upon such information.
On November 30, 2020, Federal Finance Minister and Deputy Prime Minister Chrystia Freeland presented the 2020 Federal Economic Statement titled Supporting Canadians and Fighting COVID-19. The Government proposes spending $100 billion after the pandemic to help jolt and “jumpstart” the Canadian economic rebound. The Government will look to spend 3% to 4% of the Canadian Gross Domestic Product (GDP) over three years. The Government anticipates a deficit of $381 billion. No significant tax changes were introduced by the Government. As a result, there were no changes to personal or corporate income tax rates, the capital gains inclusion rate or the GST/HST rate. There was also no proposal of a Wealth Tax or taxation of principal residence transactions as anticipated by the tax community.
We have highlighted some of the notable tax measures addressed in the economic update.
Business Tax Measures
Canada Emergency Wage Subsidy (CEWS)
The CEWS top-up subsidy rate will increase to 35% for periods 11 to 13 (December 20, 2020 to March 13, 2021). The maximum base subsidy rate will remain at 40%. Businesses that are eligible for both the base and top-up subsidies can receive a total subsidy rate of 75%. Details on subsequent periods will be announced at a later date as the program continues until June 2021. The wage subsidy percentages as well as the reference periods for determining the revenue decline are summarized below. Note that eligible businesses have to follow the same approach for determining the revenue decline as used previously in the program.
Subsidy Percentage for Periods 11 to 13 (December 20, 2020 to March 31, 2021)
|Revenue Decline for the Period||Base Subsidy||Top-up subsidy|
|Revenue decline 70% or greater||40%||35%|
|Revenue decline from 50% to 69%||40%||1.75 x the revenue decline in excess of 50%|
|Revenue decline from 0% to 49%||0.8x the revenue decline for the period||0%|
Reference Periods for Periods 11 to 13 (December 20, 2020 to March 31, 2021) CEWS & CERS
|Period 11: |
Dec 20 – Jan 16
|Period 12: |
Jan 17 – Feb 13
|Period 13: |
Feb 14 – Mar 13
|General Approach||Dec 2020 over|
Dec 2019 or
Nov 2020 over
|Jan 2021 over|
Jan 2020 or
Dec 2020 over
|Feb 2021 over|
Feb 2020 or
Jan 2021 over
|Alternative Approach||Nov 2020 or Dec 2020 over the average of Jan & Feb 2020||Dec 2020 or Jan 2021 over the average of Jan & Feb 2020||Jan 2021 or Feb 2021 over the average of Jan & Feb 2020|
Support for furloughed employees will also be extended to periods 11 to 13. The subsidy per week will be the lesser of:
- The amount of eligible remuneration paid in respect of the week; and
- The greater of:
- $500 and
- 55% of the pre-crisis remuneration for the employee up to a maximum of $595.
Also, the Government proposed the employer portion of CPP and EI will continue to be eligible for the CEWS in respect of furloughed employees.
Canada Emergency Rent Subsidy (CERS)
The CERS lockdown support top-up subsidy of 25% will be extended to the March 13, 2021 reporting period. The reference periods for determining the revenue decline follow the same table as referenced above. The rent subsidy percentages are referenced below.
Subsidy Percentage for Periods 4 to 6 (December 20, 2020 to March 31, 2021)
|Revenue decline for the period||Subsidy|
|Additional Lockdown Subsidy|
|Revenue decline 70% or greater||65%||25%|
|Revenue decline from 50% to 69%||40% plus 1.25 x the revenue decline in excess of 50%||25%|
|Revenue decline from 0% to 49%||0.8 x the revenue decline for the period||25%|
It should be noted that once a business has chosen to use the general or alternative approach, they must use the same approach for the above noted three periods for both the CERS and CEWS programs. Revenues for purpose of the decline are also calculated in the same manner as the CEWS program. The government is also committed to changing the rent subsidy legislation to ensure it reflects amounts payable to be eligible for the rent subsidy as opposed to amounts actually paid.
Canada Emergency Business Account (CEBA)
As previously announced, the CEBA will be expanded by $20,000 and applications will be accepted beginning in December for the top-up amount. The deadline to apply has been extended to March 31, 2021.
Individual Tax Measures
Home Office Expense Deduction
To simplify the process for employees working from home in 2020 to claim expenses, the Government is proposing that employees with modest expenses can claim up to $400 based on the amount of time working from home without the need to track detailed expenses. A signed form from an employer will not be required. This measure will help taxpayers access deductions they are entitled to receive and simplify the tax filing process. Further details will be announced by the CRA in the coming weeks.
Canada Child Benefit (CCB)
The Government has proposed to amend the CCB to provide the following four payments in 2021:
- $300 per child under the age of six to families entitled to the CCB with family net income equal to or less than $120,000, and
- $150 per child under the age of six to families entitled to the CCB with family net income above $120,000.
The first payment is expected after the legislation is passed with subsequent amounts payable in the first month of each remaining quarter (i.e. April, July and October 2021).
Employee Stock Options
The government is proposing an annual limit of $200,000 with respects to stock options that may vest and be eligible for the stock option deduction. If an amount in excess of the $200,000 limit is exercised, the full amount of the employment benefit realized will be included as income in the year of exercise and the employee would not be entitled to the stock option deduction in respect of the benefit realized.
The new tax rules would apply to employee stock options granted after June 2021. The existing rules would continue to apply to options granted before July 2021 (including qualifying options granted after June 2021 that replace options granted before July 2021).
These new measures will apply to non-Canadian Controlled Private Corporations with annual gross revenues greater than $500 million.
The economic update also included proposed changes to ensure GST/HST applies to e-commerce transactions including those facilitated by multinational digital giants. This includes applying GST/HST to e-commerce supplies, cross-border digital products and services and goods supplied through fulfilment warehouses. The proposed new rules would generally apply to supplies made on or after July 1, 2021 and supplies made before July 1, 2021 if all of the consideration is payable on or after July 1, 2021.
The Government also proposed relief from GST/HST on face masks and face shields by treating these supplies as zero-rated. This measure will be in effect until their use is no longer broadly recommended by public health officials for the COVID-19 pandemic.
Lastly, the Government is proposing expanding GST/HST on short-term rentals that are supplied through digital platforms.
The GST/HST measures announced in the economic update are quite detailed and complex. Stay tuned for future publications which will discuss these new measures in greater detail.
As we all try to stay safe, we need to remind ourselves business will get back to normal but in the meantime let’s all do our part to get to normal as soon as we can. If you have any questions or require further information, don’t hesitate to reach out to us.