Canadian Federal Budget 2021

Canadian Federal

Budget 2021

Episode 4: Personal Tax and impacts on Main Street

Musical intro

Announcer of intense speculation and rumor in the months leading up to the budget announcement. So Aaron and Shauna, what were you Hello and welcome. In this latest episode of our Federal Budget hearing and where did we actually land? podcast series, we will be discussing the personal tax measures announced in the budget, specifically what they mean for Aaron Gillespie individual Canadians and on Main Street across Canada. I'll take that and then I'll pass it over to Shauna. So, a few of them This budget was less about tax and more about creating jobs and that come to mind are firstly just corporate and personal tax rates to prosperity for Canadians, including initiatives to pull more begin with. So tax rates did not increase, no changes to them up or Canadians into the middle class. To explore this topic, joining us down, and that's very much in line with a poll that KPMG had today is Aaron Gillespie in Hamilton, Ontario and Shauna Forret in conducted prior to the budget where we found that 83% of London, Ontario. Shauna and Aaron are both with KPMG’s respondents believe that this is not the time to increase taxes. Enterprise Tax practice, which supports private enterprises across Canada. In terms of rumors circulating before the budget, a big one was around the capital gains inclusion rate and this is currently at 50%, Aaron, we know the budget announced $101.4 billion in stimulus meaning that half of your capital gain that you realize is included in spending to fund a wide array of relief measures, programs and your income and half is not, and it's been higher in the past where incentives to help the economy rebound and grow. From your it's been included at 67% or 75%, for example. And it certainly perspective, what did this budget reveal about some of the would be a big area where the government could generate challenges facing our economy and Canadians? significant tax revenue, but that wasn't in the budget.

Aaron Gillespie Another one that that certainly people had their eye on was whether the government would make changes to the principal residence Yeah, thanks, it's great to be here. So as we all know, many of exemption. And this is the tax benefit where it allows each the regions across Canada continue to experience lockdowns and household to shelter one property per year from taxes on a capital, this is having an impact on our recovery and job creation and this gain realized when the property is sold. And with housing prices has prompted the federal government to spend more money, as soaring across the country the way they are, the amount of gains you said. The projected national deficit is $354 billion for fiscal that are going untaxed is getting larger and larger each year. And as 2020-2021 and projects to be $155 billion for fiscal 2021-2022. we know, the federal government is well aware of this hot housing And the government’s approach in my view, is very much of market, and I'd suggest that they may be looking at ways of a pro growth strategy where it's based on the concept or idea of implementing something in the future around this measure. So it the best way to pay for this spending, is to grow our economy could look something like, perhaps based on size of the sale price or and that would be my take on it. the size of the gain itself over certain base.thresholds if you will, and that might be an approach that would lessen the impact on that so Announcer called middle class. Aaron and Shauna, let's focus on individual or personal tax And I'll I'll give one more that was on my mind that I was looking for, measures. Perhaps the best way to start this discussion is to and this is something that the the federal NDP Party has been focus on what wasn't in the budget rather than what was pushing for and it's called a wealth tax, and what the federal NDP announced. Party was proposing was a tax on annual tax on household net worth There were several potential tax measures that were the source in excess of a threshold. such as $20 million, for example, is what they were throwing out there, and so we didn't see anything around

that, but I'd expect to see that the NDP will continue to push that, and will attempt to keep it on the government's radar. Announcer Announcer All good insights. Shauna, what did you hear leading up to the Aaron, can you describe any changes related to the tax treatment budget? of some of the benefit measures?.

Shauna Forret Aaron Gillespie

Yeah, thanks. Just one item that kind of comes to front of mind Sure, as it relates to the CERB which Shauna was speaking to, that's been kind of percolating in the background for, actually the notable change that was introduced in the budget is with a number of years, and that relates to any announcements that respect to those who are subject to repayment of the CERB, and are around the succession planning rules for family businesses so what the budget proposes to do is to provide individuals with and family farm corporations to facilitate those intergenerational the option to claim a deduction in respect of the repayment of transfers. I know we we've heard some commentary on this in the benefit for the year in which the benefit amount was terms of we were looking for recommended tax measures received, rather than the year in which the repayment was dating all the way back to 16 again, it was highlighted in both actually made. And essentially the goal here is is to align the the 2020 and 2021 pre budget reports and again we heard it in deduction and the taxation in the same tax year, so as to ease the platform for the 2019 federal election. I think the the the tax burden on those taxpayers. And this option would be desired outcome of this legislation, and when it does come available for benefits that are repaid before 2023 and individuals, I forward, is really to grant the seller the same benefits when a must note that individuals may only deduct benefits once they've farmer small business is sold from a parent to a child as the actually been repaid. And then where an individual has already same as if you were selling it to an unrelated party. filed a tax return for a previous year, the year in which the benefit was received, they can request an adjustment to that return in However, there has been some progress. A private members order to again match the deduction to the income received. bill was brought forward in February of 20. That really was to address some of these proposed amendments to the Income Announcer Tax Act. The legislation recently was passed in the House of Commons, so we'll have to wait and see whether or not this The budget recognized that low wage workers in Canada have legislation progresses through the Senate. faced both significant infection risks and layoffs. Many full-time workers continue to live below the poverty line. Shauna, what Announcer was announced regarding Canada’s Workers Benefit and other relevant tax measures or credits? Shauna, can you take us through the key changes to the federal COVID-19 relief benefits for individuals. Such as the former Shauna Forret Canada Emergency Response Benefit (CERB), EI, and the various other Canada recovery benefits? Right so, just as a background, the Canada Workers Benefit is a nontaxable refundable tax credit that supplements the earnings Shauna Forret of low and modest income earners.

Yes, for sure. So to ensure continued support for Canadians, the The budget proposed to expand the Canada Workers Benefit and government announced it will maintain flexible access to invest another $8.9 billion over the next six years in additional employment benefits for another year until the fall of 2022. If you support for low wage workers. The enhancement to the Canada recall, when the pandemic first hit the initial benefit plan, was the Workers Benefit will increase the phase in rate and the phase out Canada Emergency Response Benefit, known as CERB. It was rate, which really means the calculated amount of the benefit and introduced, which over time ceased and and transitioned into EI the phase out income thresholds starting in 2021 and subsequent and other benefit programs. So as part of the budget, the Canada years. The result will provide an overall increase in the amount of Recovery Benefit that was created to support Canadians not benefit received and an increase in the number of workers that covered by EI, so people like self employed individuals. That would be entitled to the benefit. program itself was extended for an additional 12 weeks, and so will remain in place up until September 25th. The measures in the budget are also expected to extend income top ups to approximately a million more Canadians and help lift The budget also extended the timeline for other sickness and people out of poverty. The budget also introduced legislation to caregiving benefits. Being the Canada Recovery caregiving establish a federal minimum wage of $15.00 an hour, rising with benefit and the Canada Recovery sickness benefit. So as it inflation. relates to the number of weeks for regular EI benefits that you could qualify for, that too was also increased from 24 weeks up In addition, Minister Freeland announced a new Canada Recovery to a maximum of 50 weeks. Hiring program for employers to allow them to have funds to provide for increased wages being paid to employees, to increase The budget also authorized further extensions of these benefit the number of hours that an employee is able to work, to hire programs, if needed up until November of 2021. new employees or to bring back potentially laid off employees to the workplace faster.

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So to be eligible for the disability tax credit, an individual must have a certificate confirming they have a severe and prolonged This new hiring incentive program is available between June 6th impairment in physical or mental functions, that even with and November 20th of this year. devices or medication or therapy, the individual is markedly restricted in their ability to perform basic activities of daily living Announcer or would be restricted without therapy, or they're significantly restricted in their ability to perform more than one basic activity Aaron, one of the most talked about personal tax measures in the of daily living. budget is of course the new luxury tax. Can you explain how this tax will be applied and who will be affected? So in order for more families and people living with disabilities to access the disability tax credit and other related benefit Aaron Gillespie measures, the budget proposes to update the list of mental functions of everyday life that's used for the assessment of the Yeah sure, maybe I'll lead out with who will be affected. So disability tax credit, which will make it easier to be assessed, firstly, not a lot of people. However, it is something that I think reduce leads in assessing the eligibility, and improve access to people will certainly be interested in learning more about. And benefits. what it is, it's a new tax on the retail sale of new luxury cars and personal aircraft priced over $100,000 and boats priced over The budget also proposes to recognize more activities in $250,000. The new tax will apply at the point of sale and will be determining the time spent as therapy, which is used in their effective January 1st, 2022. assessment in terms of the eligibility. It's estimated that as a result of these proposed changes, an additional 45,000 people It will also apply to the import of these vehicles, aircraft and will qualify for the disability tax credit and related benefit boats. So how much tax is it? The amount of tax will be the programs. Again, these changes are all effective starting in 2021. lesser of 20% of the value above the threshold, so that $100,000 for cars and aircraft and $250,000 for boats, or 10% of the full Announcer value of the car, aircraft or boat. And the last comment I'll make about it is that GST/HST would apply to the final sale price, Okay, shifting gears a bit. Aaron, you mentioned earlier the hot inclusive of this proposed tax. So further details will be housing market. announced in the coming months. To what extent do we see tax measures in the budget that Announcer address the challenges of owning a home in the current domestic housing market? It's also worth highlighting there were measures in the budget to enhance old age security (OAS) and make it easier for persons Aaron Gillespie with disabilities to access the refundable disability tax credit. Shauna, at a high level, can you describe what those changes Yeah, there's something very interesting that was introduced and were? there will be consultations with respect to this proposed change. And what it is that it addresses is something that the Finance Shauna Forret Minister stated in the speech, which was that housing should not be a passive investment vehicle for offshore money. That was a Yes, for sure. You know, during the pandemic many of our pretty strong statement. seniors faced economic challenges and took on extra costs just to stay safe. They also recognize that many seniors are living So what the government proposes to do is on January 1st, 2022, longer and relying on those monthly benefits to afford retirement. the government will introduce Canada's first national tax on certain residential properties owned by non resident, non So to alleviate some of these financial pressures, the budget Canadians and the proposed tax would apply annually and would announced enhancements to the Old Age Security benefits by be equal to 1% of the value of the property. And again, this introducing a one time payment of $500 and a 10% increase to would apply to non resident, non Canadians and it would apply to regular, ongoing Old Age security payments. The enhancements residential real estate that's considered to be vacant, or applied to pensioners who will be 75 years of age as of June underutilized. 2022. In addition, another disclosure item I'll call it is that the budget Announcer requires all owners of residential property in Canada, either Canadian citizens or permanent residents other than, sorry, What were some of the changes to the disability tax credit and Canadian citizens or permanent residents of Canada, to file an who will be affected? annual declaration for the prior calendar year with the CRA for each Canadian residential property they own, beginning in 2023. And in that declaration, the owner will need to report information Shauna Forret such as the address and the value of their interest in the property. So again, a bit of background. The disability tax credit is a nonrefundable tax credit that is intended to recognize the impact But again, before this tax comes into effect, the government has of disability related costs on the ability to pay tax.

stated that they will do consultations, and so what they're trying Shauna Forret to do there is, they'll release a background or to provide stakeholders with an opportunity to comment further on these And I think, you know, from KPMG's polling, it revealed that parameters of the proposed tax and weigh in on what the Canadians really care about the survival of the local mom and pop definition of a residential property will look like, and what the shops and the restaurants, and retails in their neighborhoods. You value of the tax should be, and also how it relates to smaller know, which have been really struggling due to the closures and resort tourism based communities as well. So it’ll be interesting mounting burden of debt, and we hope the COVID support that's to see how this one rolls out. been announced, you know will be sufficient to help them.

Announcer You know, the investments being made to support Canada’s transition to a greener digital economy are also key to keeping Okay, let's focus on jobs for a moment. In the budget, the our country and businesses competitive in the new reality, and Finance Minister stated the government is on track to fulfill their there were a number of commitments made to these areas. 2020 commitment to create over 1 million jobs by the end of this year. So we talk about building back better. I believe a number of these measures are a positive step forward for the country. What measures are on the agenda now to create the jobs needed to restore employment to pre-pandemic levels? Announcer

Shauna Forret Thanks for joining us today, Shauna and Aaron.

Right, I'll take that one. As part of the budget proposals the As legislation to implement a number of these budget measures government stated they'll create almost 500,000 new job and makes its way through the House of Commons, we'll be training opportunities for Canadians, including 215,000 new watching to see some of the changes this budget brings to opportunities for youth. The budget also proposes to make an Canadians and on Main Street. Thank you. investment of $30 billion over five years in a Canada wide affordable, early learning and childcare system to allow more Aaron Gillespie Canadians to return to the workforce and stay in the workforce. Yeah, my pleasure. In addition, investments are being made in an expansive jobs and growth plan to provide all women in Canada with the ability to fully participate in our economy. Shauna Forret

Announcer Thank you, my pleasure as well.

And finally, in your view, Aaron and Shauna, what do you expect Announcer to be the greatest impact that Canadians can expect to see in their communities coming out of this historic budget? For more information and resources, visit home.kpmg/ca/federalbudget2021. Aaron Gillespie Join us again next time and if you have any questions about today's episode, email us at [email protected]. Yeah, I think there's a number of non-tax items which relate to commitments made to social causes that we should highlight. Thanks for listening. I think the investment in the national child care program will make child care more accessible and affordable, particularly for Musical outro low income women and families, so that's extremely important. There was $5.7 billion investment earmarked for Canada's youth by providing access to funding for postsecondary education and this will be applicable to approximately 350,000 low income students, so that will be huge. And certainly the focus on vaccines and healthy communities is critical to all of us in terms of trying to support this economic recovery. And then finally, I would say that there was a lot of support for, what I'll call traditionally marginalized groups, that will certainly have a huge impact. And so, for example, financial support for. working women, indigenous communities, to advance reconciliation for black entrepreneurs, LGBTQ+ community, persons with disabilities and others, and also money put towards strengthening Canada's anti-racism strategy. So I think all of that type of financial support will also be very impactful.