On April 19, 2021, Canada’s Minister of Finance, Chrystia Freeland, released Canada’s 2021 Budget (Budget), the federal government’s first Budget in more than two years and first since before the pandemic.
The Budget addresses three fundamental challenges: (1) conquering COVID-19 itself, (2) climbing out of the COVID-19 economic recession, and (3) building a better, fairer and more innovative future.
The first challenge, conquering COVID-19 itself, includes securing and distributing vaccines to the provinces, and continuing to provide financial support to businesses to make it through the third wave of lockdowns. This includes, among other measures, extending the Canada Emergency Wage Subsidy (CEWS), the Canada Emergency Rent Subsidy (CERS), and other subsidy and benefit programs.
The second challenge, climbing out of the economic recession, includes new investments and other financial support to help businesses hire employees and expand their operations after the lockdowns of the third wave are over, and a substantial portion of Canadians are vaccinated.
The third challenge, building a better, fairer and more innovative future, includes the most significant and far-reaching measures in the Budget. For example, it includes a commitment to a universal affordable childcare program within 18 months; significant tax measures to incentivize green transformation; details on taxing digital service providers; a luxury tax on aircrafts, vehicles and boats; measures to increase corporate taxes on multinational entities; proposals for increased disclosure on tax returns; and enhanced audit powers for the Canada Revenue Agency (CRA). There is a clear focus on attempting to correct the perceived inequalities in the tax system, something the government started in November’s Fall Economic Statement, and now continues with full force and vigor in the 2021 Budget.
Leading up to the Budget there has been conversation about potential tax measures and increases the government might propose, but the Budget is largely silent on this front. In particular, the Budget does not include:
A change to the federal corporate income tax rates or the $500,000 small business limit (except to reduce the rates for certain manufacturing and processing income, as set out below);
An increase to federal personal income tax rates;
A wealth tax;
An elimination or cap on the principal residence exemption; or
An increase in the capital gains tax rate.
This tax alert summarizes the business and personal income and indirect tax measures in the 2021 Budget relevant to the middle market, including international tax and transfer pricing considerations, credits and incentives, and audit and enforcement measures.
Read our complete commentary at https://rsmcanada.com/our-insights/budget-commentary.html