Federal Economic and Fiscal Update 2021

COVID-19 # 39 – Federal Economic and Fiscal Update 2021

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.

Economic Outlook

Today, Chrystia Freeland released the Economic and Fiscal Update 2021. The update reports the federal government’s final deficit for 2021 is lower than projected in the 2021 Budget given increase in government revenues from improved economic performance and lower than expected spending on COVID-19 related programs. The update also proposes new measures in spending for individuals and businesses. The update also revisited the new COVID-19 support programs previously announced and summarized in our publication Government Introduces New COVID Support Programs. This update will focus on new measures not addressed in the earlier publication.

Business Tax Measures

Small Business Air Quality Improvement Tax Credit

To encourage small businesses to invest in better ventilation and air filtration to improve indoor air quality, the government proposes to introduce a temporary Small Businesses Air Quality Improvement Tax Credit. The refundable tax credit would be available to eligible entities in respect of qualifying expenditures attributable to air quality improvements in qualifying locations incurred between September 1, 2021, and December 31, 2022. The tax credit rate would be 25% of qualifying eligible expenditures. The tax credit is capped at $10,000 in expenses per location and $50,000 cap across all qualifying locations. The $50,000 expenditure limit must be shared between affiliated entities. 

Entities eligible for this credit include sole proprietors, Canadian Controlled Private Corporations with taxable capital of less than $15 million (including associated entities) in the preceding tax year. Partnerships with eligible partners may also be eligible for the credit.

Eligible locations must be used by an eligible entity primarily in commercial activities in Canada (more than 50%). This includes rental activities. 

Qualifying expenditures incurred before January 1, 2022, would be claimed by an eligible entity for its first taxation year that ends on or after January 1, 2022. Qualifying expenditures incurred on or after January 1, 2022, would be claimed by an eligible entity for the taxation year in which the expenditure was incurred.

Extending CEBA Loan Repayments

The government is proposing to extend the deadline for repaying the CEBA loans. Details will be announced when legislation is brought forward.

Extending Credit Support for Businesses

The Highly Affected Sectors Credit Availability Program has been providing government-guaranteed, low-interest loans of up to $1 million to organizations that have seen significant revenue losses as a result of the pandemic. The government is extending the Highly Affected Sectors Credit Availability Program to March 31, 2022. This program was set to expire on December 31, 2021. The Business Development Bank of Canada will continue to work with lenders to support access to capital for Canadian businesses of all sizes in all sectors and regions.

Returning Proceeds from the Price on Pollution 

The government intends to return a portion of the proceeds from the price on pollution to small and medium-sized enterprises through new federal programming in backstop jurisdictions (currently Alberta, Saskatchewan, Manitoba, and Ontario), beginning in 2022-23. It is estimated that, in 2022-23, this programming would return at least $200 million of proceeds to eligible businesses. Further details will be announced in early 2022 by the federal government.

Recognizing that many farmers use natural gas and propane in their operations, and consistent with the Budget 2021 commitment, the government proposes to return fuel charge proceeds directly to farming businesses in backstop jurisdictions via a refundable tax credit, starting for the 2021-22 fuel charge year. It is estimated farmers would receive $100 million in the first year.

Individual Tax Measures

Enhancing Home Office Expense Deduction

The government will extend the simplified rules for deducting home office expenses and increase the temporary flat rate to $500 annually. These rules will apply to the 2021 and 2022 tax years.

Help for Seniors 

The government proposes to provide up to $742.4 million for one-time relief payments to seniors who had the Guaranteed Income Supplements and Allowances clawed back due to them receiving the Canada Emergency Response Benefit (CERB) or the Canada Recovery Benefit in 2020. 

Help for Students

The government proposes to provide debt relief to students who received, but were ineligible for, the CERB but were eligible for the Canada Emergency Student Benefit (CESB) by allowing their CERB-related debt to be offset by the amount they would have received from CESB during the same benefit period. The fiscal impact of this measure is estimated at $67.9 million.

Enhanced Support for Teachers

Teachers and early childhood educators currently are eligible for a 15% non-refundable tax credit based on $1,000 of eligible expenditures for eligible supplies. The update proposes to increase the rate of the refundable tax credit to 25% and extending the list of eligible supplies. An eligible educator would be required to provide a certificate from their employer attesting to the eligible supplies. This proposed measure would apply to 2021 and subsequent taxation years.

Underused Housing Tax

Budget 2021 proposed to introduce a new national 1% tax on the value of vacant or underused real estate owned by non-resident, non-Canadians. The tax would be levied annually beginning in 2022. Affected individuals would be required to file tax returns to report this tax for the 2022 tax year with the CRA on or before April 30, 2023 and tax payable would be due on or before that date.

The government has proposed to exempt individuals for a calendar if the residence is the primary place of residence of:

1. the owner; 
2. the owner’s spouse or common-law partner; or 
3. an individual that is the child of the owner or of the owner’s spouse or common-law partner, but only if the child is in Canada for the purposes of authorized study and the occupancy relates to that purpose.

The government also plans to bring forward an exemption for vacation/recreational properties if the property:

1. is located in an area of Canada that is not an urban area within either a census metropolitan area or a census agglomeration having 30,000 or more residents; and 
2. is personally used by the owner (or the owner’s spouse or common-law partner) for at least four weeks in the calendar year.

An owner eligible for either exemption would still be required to file an annual return with the CRA claiming the exemption.

Support for Live Performance Sector

To support workers in Canada’s live performance industry, the government proposes $60 million in 2022-23 to establish the new Canada Performing Arts Workers Resilience Fund. This temporary program will aim to fund new or enhanced sector-led and -delivered initiatives that improve the economic, career, and personal circumstances of individual Canadian workers in the live performance sector. The government will provide Canadian Heritage with $2.3 million to administer the fund.

Resources

Economic and Fiscal Update 2021

Government of Canada Releases Economic and Fiscal Update 2021

Protecting Our Recovery by Finishing the Fight Against COVID-19

Supporting Canadians through the Recovery

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.