Federal Economic and Fiscal Update

On Dec. 14, 2021, Canada’s Minister of Finance, Chrystia Freeland, released Canada’s Economic and Fiscal Update (the Update).

There is no indication in the Update that the government will increase corporate tax rates, personal tax rates, or capital gains tax rates, or will further enhance audit and enforcement measures beyond the measures announced in the 2021 Budget. The government may still consider changes to the tax rates and to audit and enforcement measures in the 2022 Budget, which is expected to be released in the spring. However, there are updates on new taxes proposed in the 2021 Budget, specifically the Underused Housing Tax, the Digital Services Tax and the Luxury Tax.

Corporate Income Tax

COVID subsidies and loan programs for businesses: Extending existing programs and introducing new programs
As Canada faces another wave of COVID, the government proposes to extend the Highly Affected Sectors Credit Availability Program (HASCAP) to March 31, 2022. It had been set to expire on Dec. 31, 2021. The HASCAP provides government-guaranteed, low-interest loans of up to $1 million to organizations that have suffered significant revenue declines due to the pandemic. The Business Development Bank of Canada will continue to work with lenders to support access to capital for Canadian businesses of all sizes in all sectors and regions.

The Update also confirms the government’s proposals to extend the Canada Recovery Hiring Program (CRHP) wage subsidy until May 7, 2022. The CRHP is similar to the now-concluded Canada Emergency Wage Subsidy and applies to increases in salaries and to salaries paid to new hires. Eligible employers with revenue declines above 10% are potentially eligible for the CRHP, with the subsidy being as much as 50% of the increased salaries or new salaries, subject to the $1,129 maximum.

The government proposes to introduce three new subsidies for businesses that are hit especially hard by the pandemic:

These three programs will be available until March 12, 2022 at the rates set out above, and at half the rates from March 13 to May 7, 2022, as the government anticipates that COVID will be more firmly under control at that time.

Small businesses air quality improvement tax credit
To encourage small businesses to invest in improving indoor air quality, the government proposes to introduce a temporary Small Businesses Air Quality Improvement Tax Credit. The refundable tax credit would be available to eligible entities in respect of qualifying expenditures incurred between Sept. 1, 2021 and Dec. 31, 2022.
The tax credit is 25% on qualifying expenditures up to a maximum of $10,000 per qualifying location and a maximum of $50,000 in total across all qualifying locations. The limits on qualifying expenditures are to be shared among affiliated businesses. Eligible entities include sole proprietors, Canadian-controlled private corporations with taxable capital employed in Canada of less than $15 million and partnerships through their shareholders.

Qualifying expenditures include expenses directly attributable to the purchase, installation, upgrade or conversion of mechanical heating, ventilation and air conditioning systems, and purchase of devices designed to filter air using high-efficiency particulate air filters. The payments related to these upgrades must be paid to arm’s-length entities.
Qualifying locations would include properties used by an eligible entity primarily in the course of its ordinary commercial activities in Canada (including rental activities), excluding self-contained domestic establishments(i.e., a place of residence).

Consistent with the general treatment of business tax credits, this credit should be included in the taxable income in the taxation year the business claims the credit.

Personal Income Tax

The Update does not propose any changes to personal income tax rates, the capital gains inclusion rate or the principal residence rules. There are several new measures announced to help individuals, but the main personal tax measures are (i) extensions of current credit and benefit programs and (ii) clarity on the Underused Housing Tax, which goes into effect on Jan. 1, 2022.

Home office expenses
The government confirmed that employees can use the simplified process for deducting home office expenses in 2021 and in 2022. The government previously introduced the simplified process in respect of the 2020 taxation year, allowing employees to deduct home office expenses without burdening the employer to complete for T2200. This simplified claim process allows employees to claim a flat rate deduction based on the amount of time spent working from home and eliminates the need to track specific costs or retain receipts. Employees will be able to deduct up to $500 of expenses on their 2021 personal tax return, an increase from last year’s maximum deduction of $400.
Employees that worked from home in 2021 should analyze whether the fl at rate method is beneficial for their tax situation rather than obtaining a signed T2200 and deducting the home office expenses incurred.

Underused housing tax
In the 2021 Budget, the government proposed a tax on vacant and underused residential real estate owned by non-residents. After consulting with stakeholders in the summer, the Update provides details on the new Underused Housing Tax (UHT). The UHT is an annual tax equal to 1% of the value of the vacant and under used property owned by non-residents.
However, the Update provides for two exclusions from the UHT. A non-resident property owner would be exempt from the UHT for a calendar year if the property, or a residence that is part of the property, is:

      2. A vacation or recreation property that is:

The UHT goes into force in the 2022 calendar year, therefore, non-resident homeowners will be required to fi le a UHT return for the 2022 tax year and pay any tax owing on or before April 30, 2023. Non-resident home owners who meet either of the exemptions must still fi le a UHT return to claim the appropriate exemption.

Extension of COVID benefit programs for individuals
The government proposes to extend the Canada Recovery Caregiving Benefit (CRCB) and the Canada Recovery Sickness Benefit (CRSB) until May 7, 2022. Each benefit provides recipients with $500 per week ($450 after taxes are withheld).
In addition to extending the programs to May 7, 2022, the government proposes to increase the maximum duration for which an individual can receive each benefit. For the CRCB, an individual will be able to receive the benefit for up to 44 weeks (up from 42 weeks). For the CRSB, an individual will be entitled to receive the benefit for up to six weeks (up from four weeks).

New economic support for individuals
Canada Worker Lockdown Benefit (CWLB). The government proposes to introduce the CWLB to provide $300per week to workers who are unable to work due to government-imposed public health lockdowns at their place of employment. If the legislation is passed, this benefit is available to eligible workers from Oct. 24, 2021 to May 7,2022.

Support for workers in the live performance sector. Despite gradually easing public health restrictions, the live performance sector has been slow to recover, with many individuals in the live performance sector struggling with reduced opportunities, hours and income. The government proposes to establish the Canada Performing Arts Workers Resilience Fund, a temporary program that will fund new or enhanced initiatives to improve the circumstances of workers in this sector. The government will fund this program, and Canadian Heritage will administer the fund.

Paid sick leave. Employees in federally-regulated industries can expect to receive 10 days of paid sick leave if the proposed legislation passes. One of the purposes of this proposal is to allow workers to stay home when sick, thereby reducing the likelihood of COVID outbreaks in the workplace.

Other measures