Tax highlights from Budget 2021

After more than two years without a federal budget, there was no shortage of speculation about what the long-awaited document tabled on Monday would contain. Many clients will be relieved that some of the most controversial items discussed in recent weeks were not included.

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“Certainly the big things people were worried about — an increase in the capital gains inclusion rate, a tax on principal residence and a wealth tax — did not appear,” said Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth Management in Toronto.

“I suspect the government might be waiting [until] after an election to see if they can come back with a majority to pass more controversial-type measures such as those.”

But while there weren’t a lot of major structural tax changes in the 2021 budget, “there’s really something there for everyone,” Golombek said.

For starters, the Liberal government is expanding its Covid-19 benefits and changing the rules around how benefits are claimed for tax purposes.

“One of the things that was 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,” Golombek said. “That posed a problem for some who may have received a letter requiring them to repay the [Canada Emergency Response Benefit] that they received last year but didn’t get around to paying it until this year.”

In those cases, there could be a “mismatch” of that deduction against the income, he said. Under the rules announced in Monday’s budget, Covid benefit recipients can “claim the deduction in the year of receipt as opposed to in the year of repayment.”

Another change relates to old age security. Seniors who will be 75 or older as of June 2022 will receive a one-time $500 special payment this August. The budget said the Liberal government will increase payment for pensioners 75 and older by 10% on an ongoing basis beginning in July 2022.

The government is also making it easier to qualify for the disability tax credit by expanding the criteria for mental functions necessary for everyday life and for life-sustaining therapy, Golombek said.

For students, the Liberals are extending student loan interest forgiveness until the end of March 2023 and making it easier to qualify for repayment assistance, he said. The budget said the government would increase the minimum income threshold for repayment assistance from $25,000 in earnings per year to $40,000.

There’s also a retroactive change in the rules for post-doctoral fellows and how earned income is treated for RRSP contribution limits. “Anyone who received post-doctoral fellowship income since 2011 can actually go back and get that qualified as earned income for RRSP purposes,” he said.

A couple of other notable items relate to new taxes on luxury items and on vacant homes owned by non-residents.

The Liberals are introducing a long-promised “luxury tax” on cars and airplanes that cost more than $100,000 and on boats that cost more than $250,000. “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,” Golombek said.

Details on a new 1% annual tax on the “unproductive use of Canadian housing by foreign owners” will come in the months ahead, he said. Both taxes will take effect on Jan. 1, 2022.

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