In a historic moment in Canadian history, Canada’s first female Minister of Finance (and Deputy Prime Minister), the Honourable Chrystia Freeland, presented the Government of Canada’s 2021 Federal Budget (“Budget 2021”) on April 19, 2021. Budget 2021 contains significant proposals to amend the Income Tax Act (Canada) (the “ITA”), the Excise Tax Act (the “ETA”) and the Excise Act, 2001 (the “EA”) while also providing updates on previously announced tax measures and policies.
Budget 2021 provided for significant proposals and updates including:
- extending the Canada Emergency Wage Subsidy (the “CEWS”) and Canada Emergency Rent Subsidy until September 25, 2021 and introducing a CEWS repayment requirement for public companies based on executive compensation;
- introduction of a new tax on the unproductive use of Canadian housing by foreign non-resident owners;
- consultations on Canada’s transfer pricing and mandatory disclosure rules;
- anti-avoidance rules intended to address transactions that circumvent section 160 of the ITA and comparable provisions in other federal legislation;
- implementing certain recommendations of the Base Erosion and Profit Shifting Action Plan with respect to interest deductibility and hybrid mismatch arrangements; and
- a number of GST/HST, Excise and other related tax measures, including amendments to the e-commerce GST/HST measures announced in November 2020, the introduction of a Digital Services Tax and the introduction of a Luxury Tax.
The good news to come out of Budget 2021 is that some of the tax measures, such as an increase in the capital gains inclusion rates, that strategists feared might be proposed, were not. This blog will highlight some of the proposals and tax measures that may have an impact on individuals and their planning.
Tax on Select Luxury Goods
Those purchasing luxury cars or personal aircraft priced over $100,000 or boats priced over $250,000 may soon be required to pay a “Luxury Tax” on those goods.
The proposed Luxury Tax would be applicable as follows:
- for vehicles and aircraft priced over $100,000, the amount of the tax would be the lesser of 10 per cent of the full value of the vehicle or the aircraft, or 20 per cent of the value above $100,000.
- for boats priced over $250,000, the amount of the tax would be the lesser of 10 per cent of the full value of the boat or 20 per cent of the value above $250,000.
The tax would generally apply at the final point of purchase of new luxury vehicles, aircraft and boats in Canada if the final sale price paid by the consumer (not including the GST/HST or provincial sales tax) is above the $100,000 and/or $250,000 price threshold. In the case of imports, application would generally be either at the time of importation (in cases where there will not be a further sale of the goods in Canada) or at the time of the final point of purchase in Canada following importation. The GST/HST would apply to the final sale price, inclusive of the proposed tax.
Upon purchase or lease, 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.
If passed, this measure will come into force on January 1, 2022. Further details will be announced in the coming months.
Beneficial Ownership Transparency
One of the most prevalent trends in recent years has been centered around the concept of transparency. It’s clear that the Government sees access to up-to-date information on individuals who own and control private corporations as a necessary measure to that goal.
Under the title Responsible Government, Part 4 of Budget 2021 has proposed to provide $2.1 million over two years to Innovation, Science and Economic Development Canada, to support the implementation of a publicly accessible corporate beneficial ownership registry by 2025. This follows on the heels of similar measures already adopted by some of the provinces.
Tax Avoidance and Evasion
Budget 2021 has proposed that an additional $304.1 million over the next five years (starting 2021-2022) be provided to the Canada Revenue Agency (“CRA”) to fund new initiatives and extend existing programs including enhancing CRA’s capacity to battle tax evasion involving trusts and to provide better service to executors and trustees.
Other Relevant Announcements
Budget 2021 further confirmed the federal government’s intention to move forward with the following tax measures:
- anti-avoidance rules consultation and income tax measures announced on November 30, 2020 in respect of inter alia, registered disability savings plans and employee stock options;
- legislative proposals announced on November 27, 2020 to facilitate the conversion of Health and Welfare Trusts to Employee Life and Health Trusts; and
- income tax measures announced in Budget 2018 to implement enhanced reporting requirements for certain trusts to provide additional information annually.
For those interested in learning more, my colleagues at Fasken LLP have written a bulletin that examines all of the proposals and updates announced as part of Budget 2021.