2021 Federal Fall Economic and Fiscal Update

On December 14, 2021, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, delivered the Federal Government’s Fall Economic and Fiscal Update.

No personal or corporate tax rate changes were announced, however the Government announced several tax measures to continue supporting Canadians. 

There were no changes announced with respect to the current provisions under Bill C-208 relating to intergenerational transfers of family businesses.

We also continue to wait on legislation from the Government on measures previously announced (such as immediate expensing).

Personal Income Tax Measures

Enhanced Home Office Expense Deduction

To continue to support Canadians working from home due to the pandemic, the Government will extend the simplified rules for deducting home office expenses and increase the annual temporary flat rate to $500 (from $400). These rules will apply to the 2021 and 2022 tax years.

Enhanced Support for Teachers

The Government proposes to increase the rate of the refundable tax credit available to teachers and childhood educators on the purchase of eligible supplies up to $1,000, to 25 percent (from 15 percent). Additionally, there will no longer be a requirement teaching supplies be used in a school or regulated childcare facility to be considered eligible. The list of eligible supplies will also be expanded to include certain electronic devices.

Teachers and other educators may be required to provide a certificate from their employer to support the tax credit claimed. 

This measure will apply to the 2021 and subsequent taxation years.

Business Income Tax Measures

Tax Incentive for Carbon Capture, Utilization, and Storage

Budget 2021 proposed an investment tax credit for capital invested in carbon capture, utilization, and storage projects with the goal of substantially reducing emissions. The Government has engaged in consultations with stakeholders from industrial subsectors, provincial and territorial governments, and other interested parties to provide input on the design of this tax credit and will outline the design of the proposed tax credit in Budget 2022.

Return of Proceeds from the Price on Pollution Directly to Farmers

The Government proposes to return fuel charge proceeds directly to farming businesses in backstop jurisdictions (currently, Ontario, Manitoba, Saskatchewan, and Alberta) via a refundable tax credit, starting for the 2021-22 fuel charge year.

The return of proceeds would be available to corporations, individuals and trusts that are actively engaged in earning income from farming and incur total farming expenses of $25,000 or more, all or a portion of which are attributable to backstop jurisdictions. This would include where business is carried on through a partnership (special rules may apply to calculate a partner’s credit entitlement). Credit amounts must be included in the taxable income of the business in the taxation year claimed.

The credit would be equal to the eligible farming expenses attributable to backstop jurisdictions in the calendar year when the fuel charge year starts, multiplied by the specified payment rate for the year.

Small Businesses Air Quality Improvement Tax Credit

The Government proposes a temporary Small Business Air Quality Improvement Tax Credit to encourage small businesses to invest in better ventilation and air filtration systems. This refundable tax credit would apply to qualifying expenses incurred between September 1, 2021 and December 31, 2022. The refundable tax credit rate of 25 percent will apply to qualifying expenditures up to a maximum of $10,000 per qualifying location and a maximum of $50,000 across all qualifying locations. The credit is available to unincorporated sole proprietors and Canadian-controlled private corporations with taxable capital employed in Canada for the associated group of less than $15 million in the immediately preceding taxation year. 

Other Tax Measures

Underused Housing Tax

In Budget 2021, the Government announced its intention to implement a national, annual one-percent tax on the value of non-resident, non-Canadian owned residential real estate in Canada that is considered to be vacant or underused (the Underused Housing Tax).

Based on stakeholder consultations, it is proposed that an owner’s interest in a residential property would be exempt from the Underused Housing Tax for a calendar year if it 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 (exceptions apply). Exemptions are planned for vacation / recreational properties.

The Underused Housing Tax is proposed to be effective for the 2022 calendar year. 

Digital Services Tax

As an interim measure, Budget 2021 proposed to implement a Digital Services Tax (DST), which would apply at a rate of three percent on revenue earned by large businesses from digital services that rely on data and content contributions from Canadian users. The Government announced on October 8, 2021 it would move ahead with legislation to enact the DST, which would take effect as of January 1, 2024 (in respect of revenues earned as of January 1, 2022) if there was no tax treaty in force to implement a new multilateral tax regime by that time. The Government continues to work with its international partners on the multilateral tax regime.

Luxury Tax

Budget 2021 proposed to introduce a tax on the sales of luxury cars and personal aircraft (with a retail sales price exceeding $100,000) and boats (with a retail sales price exceeding $250,000) for personal use. The tax would be calculated at the lesser of (i) 20 percent of the value above the retail sales price thresholds or (ii) 10 percent of the full value of the luxury car, boat or personal aircraft. The Government will release draft legislation in early 2022.

Extension of various benefits

• Legislation introduced to extend the Canada Recovery Caregiving Benefit and the Canada Recovery Sickness Benefit until May 7, 2022.
• The Government proposes to provide a one-time payment to guaranteed income supplement recipients who received Canada Emergency Response Benefit or the Canada Recovery Benefit in 2020.