Finance Minister Chrystia Freeland presented the Government of Canada’s 2021 budget to the House of Commons on April 19, 2021. It has been two years since the Liberal government last announced a federal budget and this year’s is titled Recovery Plan for Jobs, Growth, and Resilience. In their own words, the budget is “the Government of Canada’s plan to finish the fight against COVID-19 – and ensure a resilient economic recovery that creates jobs and growth for Canadians.”1
Highlights of the budget include plans to create one million jobs and stimulate economic growth, increase job opportunities for women and young people, increase job opportunities in trades and skills development, increase investments in early learning and childcare, and address climate change.
Since we all have taxes on the brain, here are some of the personal income tax measures addressed in the 2021 federal budget. To view the entire budget, including business income tax measures, click here.
Increasing Old Age Security (OAS) for Canadians 75 and Over
- Provide a one-time payment of $500 in August 2021 to OAS pensioners who will be 75 or over as of June 2022.
- According to Canada Life analysts, this additional amount is taxable to the recipient, but because it’s not paid under the Old Age Security Act, this amount won’t be subject to the recovery tax (clawback).2
- Introduce legislation to increase regular OAS payments for pensioners 75 and over by 10% on an ongoing basis as of July 2022.3
Canada Emergency Benefits Extended
The budget proposes the following extensions to emergency income supports:
- Canada Recovery Benefit (CRB)
- Extended for up to 12 additional weeks
- To a maximum of 50 weeks
- First 4 additional 12 weeks to be paid at $500 per week
- Remaining 8 weeks at $300 per week
- New claimants after July 17, 2021 would receive the $30 per week benefit, available until September 25, 2021
- Canada Recovery Caregiving Benefit (CRCB)
- Extended for 4 additional weeks
- To a maximum of 42 weeks at $500 per week
- EI sickness benefits
- Enhance from 15 to 26 weeks, to take effect in summer 2022
- Legislative amendments to provide authority for additional potential extensions of the CRB and its associated suite of sickness and caregiving benefits, as well as regular EI benefits until no later than November 20, 2021, should they be needed.4
Tax Treatment of COVID-19 Benefits Amount
If the repayment of COVID-19 benefits does not occur in the same tax year as the receipt of the benefit, it is proposed to allow individuals the option to claim a deduction for the year in which the benefit amount was received rather than the year in which the repayment was made. This option would be available for benefit amounts repaid at any time before 2023.
For these purposes, COVID-19 benefits would include:
- Canada Emergency Response Benefits/Employment Insurance Emergency Response Benefits;
- Canada Emergency Student Benefits;
- Canada Recovery Benefits;
- Canada Recovery Sickness Benefits; and
- Canada Recovery Caregiving Benefits.5
Individuals may only deduct benefit amounts once they have been repaid. An individual who makes a repayment, but who has already filed their income tax return for the year in which the benefit was received, would be able to request an adjustment to the return for that year.6
Disability Tax Credit
The budget proposes to update the list of mental functions of everyday life used for assessment for the Disability Tax Credit. This would make the overall process more accessible, improve access to benefits and reduce delays.
It also proposes to recognize more activities in determining time spent on life-sustaining therapy and to reduce the minimum required frequency of therapy to qualify for the Disability Tax Credit.7
These proposed changes would apply to the 2021 and subsequent taxation years, for DTC certificates filed on or after Royal Assent of the legislation.8
Canada Workers Benefit (CWB)
Enhancements are proposed, starting in 2021, for the CWB for single taxpayers, couples, and for individuals eligible for the disability tax credit. This would provide a higher CWB for some individuals and couples and would result in more taxpayers being eligible for CSB.
Also proposed is the introduction of a “secondary earner exemption” for individuals with an eligible spouse. This change would allow up to $14,000 of income of the lower-income spouse to be excluded from adjusted family net income and therefore, more couples to benefit from the CWB.9
Northern Residents Deductions
This is a deduction from income, not a tax credit, so tax is saved at your marginal tax rate. There are two parts to the northern residents deduction – the residency deduction and the travel deduction.10
Budget 2021 proposes to expand access to the travel component of the deduction, for the 2021 and subsequent taxation years.11
Foreign owned residential real estate
The budget proposes to implement a national, annual 1% tax on the value of foreign owned residential real estate that is vacant or underused.12
- Effective January 1, 2022
- All owners, other than Canadian citizens or permanent residents of Canada must file a declaration as to the current use of property
- Significant penalties for failure to file13
Expert analysts at Canada Life also compiled a list of tax measures not addressed in the budget, despite speculation that they would be:
- An increase in the capital gains inclusion rate
- Measures that affect the principal residence exemption
- Tax measures helping intergenerational transfers of business
- Measures targeting capital gains planning
- A wealth tax14
Keep in mind, these are just a handful of changes proposed in the Government’s 2021 budget. Feel free to connect with us for clarity or to determine how some of the proposed changes may impact you.
3, 4, 5, 8, 9, 11, 13 https://www.taxtips.ca/federalbudget/budget-2021.htm