2021 Federal Budget
April 19, 2021, Finance Minister Chrystia Freeland has released the 2021 federal budget which will amount to $354 billion.
Increasing Old Age Security for Canadians 75 and Over
- The increase comes 2 ways. Individuals who will be 75 or over as of June 2022 will receive a one-time payment of $500 in August of this year.
- As of July 2022, OAS payments for pensioners 75 and over will increase by 10 per cent on an ongoing basis. This will provide additional benefits of $766 to full pensioners in the first year and be indexed to inflation going forward.
GST New Housing Rebate
The rebate entitles homebuyers to recover 36 percent of the GST (or federal component of HST) paid on the purchase of a new home priced up to $350,000, with a phase-out for new homes priced between $350,000 and $450,000, and a cut off for new homes priced at $450,000 or more. The maximum rebate is $6,300. The home must be acquired as the primary place of residence of any one of the purchasers (or a relation of a purchaser). The proposal would apply to purchase agreements entered into after Budget Day (or for owner-built homes where construction/substantial renovation is substantially completed after Budget Day).
Establishing a Canada-Wide Early Learning and Child Care System
The federal government will work towards the goal of bringing fees for regulated child care down to $10 per day on average within the next five years. Furthermore, by the end of 2022, the government is aiming to achieve a 50 percent reduction in average fees for regulated early learning and child care to make it more affordable for families.
Establishing a $15 Federal Minimum Wage
The feds will establish a federal minimum wage of $15 per hour, rising with inflation, with provisions to ensure that where provincial or territorial minimum wages are higher, that higher wage will prevail.
Providing Additional Weeks of COVID-19 Recovery Benefits
- Canada Recovery Benefit (CRB) – up to 12 additional weeks to a maximum of 50 weeks. The first four of these 12 weeks will be paid at $500 per week. The remaining 8 weeks of this extension will be paid at a lower amount of $300 per week claimed. All new CRB claimants after July 17, 2021, would also receive the $300 per week benefit, available up until September 25, 2021.
- Canada Recovery Caregiving Benefit (CRCB) – an additional 4 weeks, to a maximum of 42 weeks, at $500 per week.
Tax Treatment of COVID-19 Benefit Amounts
Benefits are taxed at the recipient’s marginal tax rate. Where an individual was not eligible for a benefit, the subsequent repayment amount could only be deducted from income in the year the repayment takes place. Where the repayment year differs from the year of receipt of the benefit, 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 in computing 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. Individuals may only deduct benefit amounts once they have been repaid but could request an adjustment where they had already filed their income tax return for the year in which the benefit was received.
Budget 2021 also proposes that COVID-19 benefit amounts including provincial or territorial benefits should be included in the taxable income of individuals who reside in Canada but are considered non-resident persons for income tax purposes. These benefits would be taxable like employment and business income earned in Canada.
Disability Tax Credit – expanded access
The Disability Tax Credit (DTC) is a non-refundable tax credit that is intended to recognize the impact of non-itemizable disability-related costs on the ability to pay tax. For 2021, the value of the credit is $1,299. To be eligible for the DTC, an individual must have a certificate confirming that they have a severe and prolonged impairment in physical or mental functions.
To ensure that the eligibility criteria for the DTC better articulates the range of mental functions necessary for everyday life, the Budget proposes to expand the list of mental functions necessary for everyday life. Further, Budget 2021 has expanded the timing requirement associated with life-sustaining therapy that allows individuals to qualify for the DTC. This will also make it easier to qualify to open a registered disability savings plan.
These proposed changes would apply to the 2021 and subsequent taxation years, in respect of DTC certificates filed with the Minister of National Revenue on or after Royal Assent
Enhancing the 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. The Budget proposes to enhance the CWB starting in 2021. The CWB also features a supplement that is available to individuals who are eligible for the DTC. Corresponding changes would also be made to the disability supplement.
To improve work incentives for secondary earners in a couple, Budget 2021 also proposes to introduce a “secondary earner exemption” to the CWB, a special rule for individuals with an eligible spouse. This would allow the spouse or common-law partner with the lower working income to exclude up to $14,000 of their working income in the computation of their adjusted net income.
These measures would apply to the 2021 and subsequent taxation years. Indexation of amounts relating to the CWB would continue to apply after the 2021 taxation year, including the secondary earner exemption.
Postdoctoral Fellowship Income
Although fully included in taxable income, and similar in nature to employment income, postdoctoral fellowship income does not currently qualify as “earned income” for the purpose of determining an individual’s contribution limit for a registered retirement savings plan (RRSP).
Budget 2021 proposes to include postdoctoral fellowship income in “earned income” for RRSP purposes. This will provide additional RRSP room to make deductible RRSP contributions.
This measure would apply in respect of postdoctoral fellowship income received in the 2021 and subsequent taxation years. This measure would also apply in respect of postdoctoral fellowship income received in the 2011 to 2020 taxation years, where the taxpayer submits a request in writing to the Canada Revenue Agency (CRA) for an adjustment to their RRSP room for the relevant years.
Adjustment of RRSP contribution room due to error
Sometimes an error can create an under or over-contribution in a defined contribution pension plan. The budget proposes to allow these errors to be corrected and for an individual’s RRSP contribution room to be adjusted upwards in the year the amount is refunded by the plan, or downwards in the year following the year in which the amount is contributed retroactively to the plan.
Tax on Vacant Residential Property Owned by Non-Residents
A 1% tax on the value of non-resident non-Canadian-owned residential real estate considered to be vacant or underused. This tax would be levied annually beginning in 2022.
Charities and Disbursement Quota
Currently public and private foundations are required to spend 3.5% of their capital each year on charitable initiatives. The government has indicated that there is currently a gap of approximately $1 billion in charitable expenditures. That is, the investment assets in these foundations is significantly exceeding the qualifying disbursement made each year. As such, the government is proposing public consultations with a goal of increasing the disbursements from public and private foundations.
Luxury Goods Tax
A luxury tax, which will come into force on January 1st, 2022. This luxury tax would apply to new luxury vehicles and aircraft priced over $100,000 and boats priced over $250,000. This applies to both purchases (both outright and financed) and leases. Either the seller or lessor will be responsible for remitting the full amount of the federal tax owing. Further, GST/HST would be applicable to the final sale price, inclusive of the proposed luxury tax. The luxury tax is calculated as the lesser of 10 percent of the full value OR 20 percent of the value above the respective threshold.