Tax Highlights From Budget 2021

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Jamie Golombek

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Jamie Golombek. I’m the managing director of tax and estate planning with CIBC Private Wealth Management in Toronto.

Today’s federal 2021 budget is the first budget we’ve had in over two years. And there was really something there for everyone, although not a lot of major tax structural changes. Certainly the big things that people were worried about, in terms of an increase in the capital gains inclusion rate, tax on principal residence, and a wealth tax, did not appear. So, here are some of the highlights that you want to be aware about. Number one: with Covid benefits, they’ve extended the number of weeks of Covid benefit — the Canada Recovery Benefit is certainly the main benefit. And what they’ve done is they’ve added an additional 12 weeks to that, to a maximum of 50 weeks. The first four of those weeks will continue to be paid at $500 a week; the remaining eight weeks drops down to $300 per week.

What they’ve also done is extended the Canada Recovery Caregiving Benefit for an additional four weeks, to a maximum of 42 weeks. That’s $500 a week, in the event that caregiving options, particularly for those who are supporting young children, are not available. One of the things that was also troubling until today was if you received a Covid benefit that you had to repay, you could only deduct the repayment in the year that you made the repayment. And that posed a problem for some people that may have received a letter requiring them to repay the CERB that they received last year, but didn’t get around to paying it until this year. There could be a mismatch of that deduction against the income. The government has now corrected that with the legislative change, which allows you to now claim a deduction in the year of receipt, as opposed to in the year of repayment.

There was a change to the Canada Workers Benefit. As a reminder, that’s a refundable tax credit that supplements the earnings of low- and modest-income employees. What they’ve done now is increased the dollar amount of income that one can earn before you start to lose some of those benefits. So, that certainly is helpful for lower- and modest-income employees.

For seniors, they’ve increased the OAS for people at least 75 years of age, by providing a one-time special payment of $500 in August of this year to any OAS pensioner who will be at least 75 years of age or over as of next June. It’s also going to increase regular OAS payments for pensioners 75 and over by 10% on an ongoing basis, as of next July.

For students, a few things. Student loan interest is currently forgiven and now going to forgive the interest until the end of March 2023. So that’s positive. In terms of student loan repayments, right now there’s repayment assistance to about 350,000 students who have borrowed money if your income is below $25,000 a year; they’re going to increase that threshold to $40,000 a year. For Postdoctoral Fellows who have received income, that income is not exempt. It doesn’t qualify under the scholarship exemption. However, it is taxable. Until today, that income was not considered to be earned income for the purpose of making an RRSP contribution. That is now changing. In fact, it will be changing retroactively. So anyone who received postdoctoral fellowship income since 2011, can actually go back and get that qualified as earned income for RRSP purposes.

There’ll be a positive change to the disability tax credit. The Disability Advisory Committee just released its second report a couple of weeks ago, which contained a variety of recommendations towards improving eligibility for the disability tax credit, particularly in the two areas of mental functioning and life-sustaining therapy. So, the new changes announced today will make it a little bit easier for individuals to qualify in those categories of disability, and also allowing them to perhaps get more government benefits and open up an RDSP.

You might’ve heard that there’s a new luxury tax coming on Jan. 1st, 2022 for cars, boats and airplanes. Starting Jan. 1st, 2022, if you buy a car or an airplane with a value over $100,000 or a boat of a value of over $250,000, there’ll be a tax. The tax is calculated at the lesser of 20% of the value above those thresholds, or 10% of the full value of that car, boat or personal aircraft.

There’ll be a new tax coming next year — Jan. 1st, 2022 — on what they call unproductive use of Canadian housing by foreign owners. That’s the foreign ownership tax. It’s a 1% annual tax on the value of non-resident, non-Canadian owned residential real estate. Details of that will be coming up in the months ahead.

Those are some of the highlights of the personal tax changes that we saw in today’s Federal Budget 2021. As far as the measures that we didn’t see like that capital gains inclusion rate increase, or principal residence wealth tax, et cetera. Again, I suspect the government might be waiting after an election to see if they can come back with a majority to pass more controversial-type measures such as those.