On April 19th, 2021, the Deputy Prime Minister and Minister of Finance, the Honourable Chrystia Freeland presented “Budget 2021”, the first federal budget announced by Parliament in more than two years. Subtitled “A Recovery Plan for Jobs, Growth, and Resilience”, Budget 2021 addresses many key concerns of Canadians arising from the pandemic and proposes to invest in Canadians now to incentivize future economic growth.
Budget 2021 sets out to invest in Canadians by including new initiatives like the “National Early Learning and Child Care Plan”, a national program designed to reduce the national average childcare cost by 50% by 2022 with further cost reductions in following years.
Due to the pervasive effect COVID-19 has had on the Canadian economy, it is unsurprising that Budget 2021 projects significant deficits for the foreseeable future (including a projected $354 billion dollar shortfall for this coming fiscal year-end).
In order to support these new expenditures during a period of economic uncertainty and offset these projected shortfalls, the federal government has proposed modifications to Canada’s income tax regime. Some of these implementations will have significant impacts on the Canadian consumer and individual taxpayer.
Canada’s 2021 Budget – Excise Tax Act (GST/HST)
Canadian consumers will now be paying a bit more their streaming services. As previously proposed by the federal government, non-resident digital vendors of online services such as Netflix and Spotify will begin to collect GST/HST on the products and services they offer to Canadians, which could see an increase in federal tax revenue in the billions over next five years.
There will also be additional excise duties levied on luxury products like private planes and yachts that exceed cost thresholds outlined by Budget 2021. These luxury taxes will be applied at a rate of the lesser of 10% of the full value of the aircraft or watercraft or 20% of the value that exceeds the federal government’s prescribed thresholds ($100,000 for aircraft and vehicles; $250,000 for watercraft) and will be in addition to the existing sales taxes and purchase prices of these products.
For example: If a consumer purchases a boat in Ontario for $160,000, the lesser of 10% of the total value ($16,000) and 20% of the value that exceeds the federal government’s prescribed threshold (20% of $60,000; $12,000) would be added to the cost of the boat. Assuming all ancillary fees were included with the boat’s purchase price, the boat would cost:
A major objective of Budget 2021 surrounds the improved compliance of Canadian taxpayers with respect to filing. The federal government will be incentivizing taxpayers to file their returns electronically by lowering or eliminating return quantum thresholds of taxpayers and their tax preparers, allowing businesses to issue only electronic copies of T4As and T5s, and have eliminated the existing requirements for written signatures on prescribed forms. Some taxpayers that have registered for digital filing will also only receive some notices electronically from the CRA.
Budget 2021 will also be boosting the CRA’s existing budget for enforcement in order to capture funds that otherwise may have slipped through the CRA’s current enforcement framework. More than $500 million will be allocated to the CRA’s collections department and aggressive tax planning division and towards new programs to combat tax evasion.
While this upfront cost may seem considerable, the CRA is projected to return billions of dollars from these increased enforcement expenditures.
Budget 2021 also announced that the federal government is also planning to revisit (among others) the existing anti-avoidance rules, transfer-pricing rules and foreign affiliate dumping rules under the Income Tax Act in short order. These revisions could make aggressive tax planning increasingly risky for Canadian taxpayers; what was once strategic tax planning may soon fall under the new revisions to the Income Tax Act anti-avoidance provisions.
If you are concerned about your current tax planning strategy or the impact of any of the new implementations from Budget 2021, contact a tax professional at R&A Tax Law today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
James Pendergast is an Associate Lawyer at R&A Tax Law. James is entering his third and final year at the University of Toronto Faculty of Law. Outside of academics, James is a chair of the Faculty of Law’s Health and Wellness Committee, volunteers with the Law in Action Within Schools (LAWS) program and was an Associate Editor with the University of Toronto Law Review. This year, James competed for the University of Toronto at the 2019 Donald G. H. Bowman National Tax Moot.
Jason Rosen
Jason Rosen is a founding Partner at R&A Tax Law. Jason provides effective and aggressive representation by taking a proactive, client centered approach for his domestic and international clients alike. Throughout his time in the field, Jason has gained a comprehensive understanding of tax procedures and the dispute resolution process.
Canada’s 2021 Budget and its Impacts on Taxpayers
On April 19th, 2021, the Deputy Prime Minister and Minister of Finance, the Honourable Chrystia Freeland presented “Budget 2021”, the first federal budget announced by Parliament in more than two years. Subtitled “A Recovery Plan for Jobs, Growth, and Resilience”, Budget 2021 addresses many key concerns of Canadians arising from the pandemic and proposes to invest in Canadians now to incentivize future economic growth.
Budget 2021 sets out to invest in Canadians by including new initiatives like the “National Early Learning and Child Care Plan”, a national program designed to reduce the national average childcare cost by 50% by 2022 with further cost reductions in following years.
Due to the pervasive effect COVID-19 has had on the Canadian economy, it is unsurprising that Budget 2021 projects significant deficits for the foreseeable future (including a projected $354 billion dollar shortfall for this coming fiscal year-end).
In order to support these new expenditures during a period of economic uncertainty and offset these projected shortfalls, the federal government has proposed modifications to Canada’s income tax regime. Some of these implementations will have significant impacts on the Canadian consumer and individual taxpayer.
Canada’s 2021 Budget – Excise Tax Act (GST/HST)
Canadian consumers will now be paying a bit more their streaming services. As previously proposed by the federal government, non-resident digital vendors of online services such as Netflix and Spotify will begin to collect GST/HST on the products and services they offer to Canadians, which could see an increase in federal tax revenue in the billions over next five years.
There will also be additional excise duties levied on luxury products like private planes and yachts that exceed cost thresholds outlined by Budget 2021. These luxury taxes will be applied at a rate of the lesser of 10% of the full value of the aircraft or watercraft or 20% of the value that exceeds the federal government’s prescribed thresholds ($100,000 for aircraft and vehicles; $250,000 for watercraft) and will be in addition to the existing sales taxes and purchase prices of these products.
For example: If a consumer purchases a boat in Ontario for $160,000, the lesser of 10% of the total value ($16,000) and 20% of the value that exceeds the federal government’s prescribed threshold (20% of $60,000; $12,000) would be added to the cost of the boat. Assuming all ancillary fees were included with the boat’s purchase price, the boat would cost:
$160,000 + Ontario HST (13%; $20,800) + luxury taxes of $12,000 totalling $192,800.
Canada’s 2021 Budget – Filing and Reporting Taxes
A major objective of Budget 2021 surrounds the improved compliance of Canadian taxpayers with respect to filing. The federal government will be incentivizing taxpayers to file their returns electronically by lowering or eliminating return quantum thresholds of taxpayers and their tax preparers, allowing businesses to issue only electronic copies of T4As and T5s, and have eliminated the existing requirements for written signatures on prescribed forms. Some taxpayers that have registered for digital filing will also only receive some notices electronically from the CRA.
Canada’s 2021 Budget – Enhanced CRA Enforcement Budget
Budget 2021 will also be boosting the CRA’s existing budget for enforcement in order to capture funds that otherwise may have slipped through the CRA’s current enforcement framework. More than $500 million will be allocated to the CRA’s collections department and aggressive tax planning division and towards new programs to combat tax evasion.
While this upfront cost may seem considerable, the CRA is projected to return billions of dollars from these increased enforcement expenditures.
Budget 2021 also announced that the federal government is also planning to revisit (among others) the existing anti-avoidance rules, transfer-pricing rules and foreign affiliate dumping rules under the Income Tax Act in short order. These revisions could make aggressive tax planning increasingly risky for Canadian taxpayers; what was once strategic tax planning may soon fall under the new revisions to the Income Tax Act anti-avoidance provisions.
If you are concerned about your current tax planning strategy or the impact of any of the new implementations from Budget 2021, contact a tax professional at R&A Tax Law today!
**Disclaimer
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.
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