Federal Budget Highlights 2021
04 May 2021
On April 19, 2021, the Minister of Finance released the 2021 federal budget. There has been no change in terms of income tax rates or the capital gains inclusion rate. However, other new tax measures are summarized below.
COVID-19 support and economic recovery measures
Changes to the existing subsidy program
The changes related to the Canadian Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) are as follows:
- Extension of the current program to September 25, 2021, and additional qualifying periods may be added to further extend the two programs to November 20, 2021.
- CEWS and CERS subsidy rates will be gradually phased out beginning July 4, 2021.
- Continuing the CEWS payment to eligible furloughed employees until August 28, 2021.
- Adding a similar business acquisition rule that is available with CEWS to CERS.
Proposed Canada Recovery Hiring Program (CRHP)
The CRHP is an alternative to the existing CEWS program. This program allows certain eligible employers to claim a subsidy amount from June 5 to November 20, 2021. The key features of this program are:
- Eligible employers include Canada Controlled Private Corporations (CCPCs), individuals, not-for-profit organizations, registered charities and certain partnerships.
- The subsidy would apply to incremental remuneration paid at the rate of 50% to eligible employees.
- An eligible employer can claim either under the current CEWS or CRHP program.
- Similar CEWS revenue decline test will apply to the CRHP program.
Business tax measures
New immediate expensing deduction
An eligible CCPC can immediately expense certain capital property acquired. The key features of this program include:
- CCPCs can claim $1.5 million annual deduction limit on eligible capital expenditures purchased and put into use on or after April 19, 2021, and before January 1, 2024.
- The $1.5 million limit must be shared by an associated group.
- Eligible property under this new measure would be capital property that is subject to the CCA rules, other than property included in CCA classes 1 to 6, 14.1, 17, 47, 49 and 51, which are generally long-lived assets.
Rate Reduction for Zero-Emission Technology Manufacturers
The budget proposes to temporarily reduce the tax rates for qualifying zero-emission technology manufacturers. In specific, these taxpayers would be able to apply a reduced tax rate on eligible zero-emission manufacturing processing income of:
- 7.5% if the taxable income would otherwise be subject to the 15% general tax rate; and
- 4.5% if the taxable income would otherwise be subject to the 9% small business tax rate.
Interest deductibility limits
The budget also proposes to limit interest deductions for corporations, trusts, partnerships, and branches.
The interest expense is limited to earnings before interest, taxes, depreciation and amortization (EBITDA) determined on the tax basis. The maximum deduction will be limited to 40% of EBITDA for taxation years beginning on or after January 1, 2023, but before January 1, 2024, and to 30% for later years.
Certain exemptions apply for CCPCs and associated groups with taxable capital of less than $15 million, and for groups of corporations and trusts with an aggregated net interest expense of $250,000 or less. Interest income and expenses related to debt owing between Canadian members of a corporation would generally be excluded.