2021 Canadian Federal Budget Highlights

The Canadian government unveiled its 2021 spring federal budget on April 19, 2021 with an emphasis on economic recovery and supporting taxpayers through the financial challenges of COVID-19.

What does this budget mean for individuals and businesses from a tax perspective? We’ve highlighted the key updates in our summary below:

2021 Federal Budget Highlights

• No changes to capital gains tax rates

• No changes to principal residence exemption rules

• No changes to eliminate non-CCPC structure planning (i.e. structure to earn investment income without paying refundable tax)

• No changes in offshore trusts

Personal Tax Measures

• Increased requirements for electronic filing and communications with CRA

• Commitment to introduce rules implementing the previous stock option proposals that would limit the 50% deduction

• Broadening of disability tax credit rules

• Enhancement of Canada Workers Benefit non-refundable tax credit

• Amendment to allow individuals the option to deduct COVID-19 benefit repayments in the year the benefit was received (rather than the year repaid)

Business/International Tax Measures

• Temporary immediate expensing of certain property acquired after budget day by CCPCs that would otherwise be subject to CCA rules (must be available for use before 2024

• Proposes to implement rules consistent with BEPS Action 2 recommendations to address hybrid mismatch arrangements for years starting on or after January 1, 2023

• Proposes to implement rules consistent with BEPS Action 4 recommendations to address earnings stripping by introducing new interest deductibility rules (with some exemptions)

• New 3% Digital Services Tax

• Broadens the GST/HST rules to capture e-commerce businesses

• New mandatory disclosure on the adoption of uncertain tax positions (will only apply to corporations with at least $50m of assets)

Sales Tax/Other Tax Measures

• New 10%/20% tax on the sale of luxury cars and aircraft over $100,000 and boats over $250,000 (GST/HST to then be charged on tax)

• New 3% Digital Services Tax

• Proposed new 1% tax on value of unused or underused residential real estate owned by foreign non-residents (starting in 2022)

  • As of 2023, all noncitizens and non-permanent residents with Canadian real estate will have to file annual declarations to declare it, and determine whether they owe the tax

• New 10%/20% tax on the sale of luxury cars and aircraft over $100,000 and boats over $250,000 (GST/HST to then be applied to purchase price inclusive of proposed tax)