NOTABLE 2021 FEDERAL BUDGET MEASURES
While the 2021 Federal Budget did not include any changes to personal or corporate tax rates, it did include some notable measures that could affect seniors, high-income earners, and small business owners.
Budget Measure for Seniors
The Budget proposed to increase OAS for Canadians ages 75 and over with a one-time payment of $500 in August 2021 to Old Age Security (OAS) pensioners who will be age 75 or over as of June 2022. It also proposed to increase regular OAS payments for pensioners ages 75 and over by 10% on an ongoing basis as of July 2022. This would increase the benefits for approximately 3.3 million seniors, providing additional benefits of $766 to full pensioners in the first year, and will be indexed to inflation going forward.
New luxury tax on cars, boats, and planes
Budget 2021 proposed to introduce a new luxury tax on the sales of luxury cars and personal aircraft with a retail sales price over $100,000, and boats, with a price over $250,000 purchased on or after January 1, 2022.
The tax will be calculated at the lesser of 20% of the value above the threshold ($100,000 for cars and planes, $250,000 for boats) or 10% of the full value of the luxury car, boat, or personal aircraft.
The luxury tax will apply to all new passenger vehicles typically suitable for personal use, including coupes, sedans, station wagons, sports cars, passenger vans and minivans equipped to accommodate less than 10 passengers, SUVs, and passenger pick-up trucks. Motorcycles and certain off-road vehicles, such as all-terrain vehicles and snowmobiles, racing cars and motor homes (for example, recreational vehicles or RVs), construction vehicles or farm vehicles would be exempt from this tax.
The tax will apply to new boats such as yachts, recreational motorboats, and sailboats, typically suitable for personal use. The good news is that smaller personal watercraft (for example, water scooters), as well as floating homes, commercial fishing vessels, ferries, and cruise ships would not be subject to this tax.
The luxury tax would apply to all new aircraft typically suitable for personal use, including airplanes, helicopters, and gliders.
According to this new budget measure, when a car, boat, or plane is purchased or leased, the seller or lessor would be responsible for remitting the full amount of the federal tax owing, regardless of whether the good was purchased outright, financed, or leased over a period of time. The GST/HST would apply to the final sale price, inclusive of the proposed tax.
Therefore, if you are planning to buy a luxury car, boat, or plane, you should act before the end of 2021 to avoid paying this new luxury tax.
BUDGET MEASURES AFFECTING BUSINESS OWNERS
Extending the Canada Emergency Wage Subsidy
The Canada Emergency Wage Subsidy (CEWS) provides eligible employers who have faced revenue declines with a subsidy for wages paid to eligible employees. Budget 2021 proposed to extend the CEWS until September 25, 2021, and to gradually decrease the subsidy rate, beginning July 4, 2021. 2021
Canada Recovery Hiring Program
The government is proposing to introduce the new Canada Recovery Hiring Program (CRHP), to provide an alternative support for businesses affected by the pandemic to help them hire more workers as the economy reopens. The hiring program would be in place from June until November 2021, allowing employers to shift from the CEWS to this new support.
Eligible employers will be provided a subsidy of up to 50% of incremental remuneration paid. The 50% rate will eventually decline to a 20% rate. To qualify, employers will be required to have experienced certain revenue declines. Eligible employees for the purposes of the CRHP excludes employees who are on leave with pay.
Extending the Canada Emergency Rent Subsidy
The Canada Emergency Rent Subsidy (CERS) provides eligible organizations with direct and easy-to-access rent support. Importantly, it is available directly to tenants.
Lockdown Support provides organizations eligible for the CERS with additional support if they are subject to a lockdown or must significantly restrict their activities under a public health order. The program was set to expire in June 2021, but Budget 2021 proposed to extend the CERS, including the Lockdown Support, until September 25, 2021, and proposes to gradually decrease the base subsidy rate, beginning July 4, 2021.
The current 25% rate for the Lockdown Support, however, will remain in effect until September 25, 2021.
Extending the Canada Emergency Business Account (CEBA)
The Canada Emergency Business Account (CEBA) has provided interest-free, partially forgivable loans to more than 850,000 Canadian small businesses. In December 2020, the government increased the value of the loan from $40,000 to $60,000 to help small businesses bridge to recovery. If a business repays their loans by December 31, 2022, up to a third of the value of their loans (meaning up to $20,000) will be forgiven. The government recently extended the application deadline for CEBA to June 30, 2021.
A small number of businesses have faced challenges accessing the program, including Indigenous and rural businesses. Budget 2021 proposed to also extend the application deadline for similar support under the Regional Relief and Recovery Fund and the Indigenous Business Initiative until June 30, 2021.
Combatting Tax Collection Avoidance
According to the government, a small number of high-net-worth taxpayers are engaging in “complex transactions intended to avoid the collection of their tax debts.” This is accomplished by transferring their assets to a non-arm’s length person, such as a corporation controlled by that person, in a way that leaves them without the assets necessary to pay their tax debts while circumventing existing tax rules intended to prevent this type of scheme. Budget 2021 introduced new anti-avoidance rules to address this type of planning, as well as a penalty for anyone who should “devise and promote such schemes.” These measures will apply to transfers of property on or after April 19, 2021.
Tina Tehranchian, MA, CFP®, CLU®, CHFC®, MFA-PTM (Philanthropy) is a FP CanadaTM Fellow and a Senior Wealth Advisor at Assante Capital Management Ltd. in Richmond Hill Ontario. She can be reached at (905) 707-5220 or through her website at www.tinatehranchian.com. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances.