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On April 19, the Government of Canada released its 2021 Federal Budget: A Recovery Plan for Jobs, Growth, and Resilience. Eric Saumure, CPA, CA, Principal of Zenbooks and Wagepoint Partner, summarizes the key announcements from the budget and what they mean for your Canadian small business:
Massive deficit in 2020 — The new federal budget noted that there would be at least five more years before balancing the budget. It also disclosed just how big of a fiscal impact COVID-19 has had on government spending in 2020. The 2020/2021 deficit was $382B, which is actually more than the total actual revenue of the Government of Canada in 2019–2020.
The Government feels that while their total debt has increased considerably, Canada is still in an enviable fiscal position by having the lowest debt-to-GDP ratio of the G7 countries.
New programs to support small business owners
- Extension of COVID-19 programs — The budget announced the extension of the various COVID relief programs (CRB, CEWS, CERS, etc). The Canada Recovery Benefit (CRB) will get curtailed from $500/week to $300/week and will get extended from 38 weeks to 50 weeks.
- Canada Recovery Hiring Program (CRHP) — This is a new program for June 2021 to November 2021 that's designed to help transition business owners from the Canada Emergency Wage Subsidy (CEWS). It aims to help Canadian-controlled private corporation (CCPCs) and non-profits by providing for 50% of the increase in pay to employees. It'll be easier to qualify than the CEWS as small businesses simply have to show that they've experienced revenue decline. Since there's no minimum amount of revenue decline, small businesses that haven't qualified for CEWS should consider the CRHP because the criteria is easier to meet for funding.
- Canada Digital Adoption Program (CDAP) — This program is intended to help small businesses offset some costs related to adopting new technology and provide them with the help to set-up e-commerce opportunities. Small businesses will receive micro-grants to help recap some of the costs of going digital. The CDAP will also provide support to digital trainers from a network of up to 28,000 well-trained young Canadians. While the full details of the program aren't yet released, this is a big incentive for businesses to upgrade their technology. Keep an eye out for this because every business should adapt and upgrade their technologies regularly. This could be a good way to subsidize the implementation costs of new projects and software.
- Accelerated Capital Cost Allowance (CCA) — They've announced accelerated CCA on furniture, equipment, vehicles, tools, machinery and computers. This means you can fully expense these purchases against your business income in 2021. Just don't try to accelerate buildings, intangible property (class 14.1) or a few other classes (1 to 6, 14.1, 17, 47, 49, and 51). If you've been deferring your purchases, now is the time to make them.
See our comprehensive list of small business tax deductions.
- Increasing federal minimum wage — The Canadian Government proposed to increase the minimum wage for federally regulated private sector to $15/hour (rising with inflation). If the provincial or territorial minimum wages are higher, they'll prevail. This may have an impact on businesses in air transportation, banking, feed mills, radio and television broadcasting, road transportation services and telecommunications. It may also make it increasingly more competitive to hire employees for your business. Even if you’re not part of these industries, your prospective employees now have options to pursue higher wage jobs.
- Disability Tax Credit (DTC) becomes more accessible — By easing the criteria for acceptance of mental health matters, the Canadian Government will make the disability tax credit (DTC) more accessible. This will be very important in a year where many have endured traumatic and long-lasting psychological impacts of the pandemic. If you or anyone you know have been dealing with mental health issues over the pandemic, consider approaching your physician about the DTC. Once you have the DTC, you'll also be able to benefit from the registered disability savings plan (RDSP) or Henson trusts as well.
- Child care for all — The Government plans to mirror the Québec childcare program and make childcare affordable for all Canadians. The plan is to bring childcare services costs down to $10/day by 2026. The intended impact is also to help families return to work. This could mean a larger worker pool for small business owners when hiring, hopefully helping employers find better candidates and bringing families back into the working economy.
See how Canadian Small Businesses have shown resilience over the past year.
- National vacancy tax — The budget proposed a new tax on vacant properties owned by non-resident and non-Canadians to help cool the housing market. This tax would be levied annually starting in 2022. It's unclear how this new tax may impact Toronto’s plans to tax vacant properties.
- Luxury tax — Expected to take effect on January 1, 2022, a luxury tax has been proposed on big-ticketed items like high-priced cars, private aircraft over $100,000 and boats over $250,000. Various vehicles will be exempt from the new tax, including motorcycles, all-terrain vehicles, snowmobiles, racing cars and recreational vehicles. We expect more vehicles will be classified as recreational or all-terrain vehicles. Be sure to make your purchases before the end of the year and you'll be fine!
- Digital services tax — This new tax primarily targets big tech companies (AirBnB, Netflix, Google, Amazon, Spotify). This additional tax is expected to be added to the cost of your streaming service or other subscription. It'll be a 3% on revenue from web giants and is estimated to raise $3.4 billion in revenue over the next five years, starting this year.
- No national PharmaCare — The budget didn't propose a national PharmaCare program, yet has been promised by the Liberal Government many times in the past. There were no significant advancements of the topic in this budget.
- Limit on fees to apply for the Disability Tax Credit (DTC) — The Government is restricting the fees accountants can charge to apply for the DTC to $100. It is unclear how tax preparers will react. Some DTC applications can take multiple hours, while other applications can be as quick as 30 minutes. Some tax preparers have claimed they'll stop providing this service for clients altogether given the unprofitable nature of the work. It’s an interesting precedent to have the Government regulate and control the cost of services they determine to be too high.
- No wealth tax — Interestingly enough, there was no mention of a wealth tax in the 2021 Federal Budget. A wealth tax based on the fair value of assets(>$20M) was previously proposed by the NDP and Green Party as an idea to help pay for government COVID-19 programs. It’s expected that the implementation of this tax would be onerous and many accountants have already discussed planning strategies to mitigate these additional taxes. Therefore, it is unclear if the Government is still interested in this method of taxation.
- No increases to capital gains tax — There was also no mention of increasing the inclusion rate of capital gains from 50%. The idea of an increase in capital gains tax is is to tax those who are living on proceeds of investments and possibly to tax capital gains on primary residences given the hot housing market. These additional taxes were not proposed and it is unclear if the Government is still interested in this additional tax revenue. I would not recommend selling your investments in anticipation of rule changes. We’ve heard of financial advisors suggesting to sell investments to make sure to benefit from capital gains inclusion rates. However, more likely than not there will be a transition period of capital gains on investments.
- No universal basic income — A universal basic income was supported by 77% of Liberal members recently, yet the budget did not mention this idea. It’s unclear if the Government is still interested in this type of program, but it wasn't part of their fiscal plan.
Helping Canadian small business owners
Thank you Eric and Zenbooks for helping small business owners across Canada by summarizing the 2021 Canadian Federal Budget! Reach out to Eric to talk budget or anything small business.
The advice we share on our blog is intended to be informational. It does not replace the expertise of accredited business professionals.