Tax Update 2021

In this article, we will see the major changes that are coming for 2021.

Enhancements to the Canada Worker’s Benefit (CWB)

Phase-in rate will be increased for single individuals and families from 26% to 27%;
Phase-out thresholds are increased from $13,194 to $22,944 for single individuals without dependants and from $17,522 to $26,177 for families;
Phase-out rate from 12 per cent to 15 per cent;
New secondary earner exemption that allows the spouse or common-law partner with lower working income to exclude up to $14,000 of their working income in the computation of the couple’s adjusted net income.

Disability Tax Credit

Extension to the definition of mental functions necessary for everyday life, which will now include:

·    attention;
·    concentration;
·    memory;
·    judgement;
·   perception of reality;
·   problem-solving;
·   goal-setting;
·   regulation of behaviour and emotions;
·   verbal and non-verbal comprehension; and
·   adaptive functioning.

Extension to the definition of life-sustaining therapy to allow for previously excluded activities, such as:

·  allow reasonable time spent determining dietary intake and/or physical exertion to be considered part of the therapy, where this information is essential to, and is undertaken for the purpose of, determining the dosage of medication that must be adjusted on a daily basis;

·   clarify that the exclusion of time for medical appointments does not apply to appointments to receive therapy or to determine the daily dosage of medication;

·  provide that the exclusion of time for recuperation after therapy does not apply to medically required recuperation; and

·   in the case of therapy that requires the daily consumption of a medical food or medical formula to limit intake of a particular compound to levels required for the proper development or functioning of the body, allow reasonable time spent on activities that are directly related to the determination of the amount of the compound that can be safely consumed to be considered part of the therapy.

Amendments to current recognized activities:

·        Individuals incapable of performing their therapy on their own due to the impacts of their disability, the time reasonably required by another person to assist the individual in performing and supervising the therapy would be allowed to be counted

·        Requirement that therapy be administered at least three times each week be reduced to two times each week. The requirement that therapy be of a duration averaging not less than 14 hours a week would remain unchanged.

Northern Residency Deduction

New flat-rate option of $1,200 ($600 for zone B) for the travel component.
The claim for eligible trips for individual and each “eligible family member” is now the choice of:

·    the amount of employer-provided travel benefits the taxpayer received in respect of travel by that individual; or

·    $1,200 (($600 for zone B) standard amount that may be allocated across eligible trips taken by that individual.

Under this change, claims for a given trip would be limited to the least of:

·    the amount of the employer-provided travel benefit received in respect of the trip or the amount allocated to that particular trip by the taxpayer out of the $1,200 ($600 for zone B) standard amount;

·    the total travel expenses paid for that trip; and

·    the cost of the lowest return airfare to the nearest designated city.

Postdoctoral Fellowship Income

Postdoctoral fellowship income will now be considered as “earned income” for the purpose of determining the RRSP contribution limit.
This measure would apply in respect of postdoctoral fellowship income received in the 2021 and subsequent taxation years.
This measure would also apply in respect of postdoctoral fellowship income received in the 2011 to 2020 taxation years, where the taxpayer submits a request in writing to the Canada Revenue Agency for an adjustment to their RRSP room for the relevant years.

Employee Stock Options

A $200,000 limit is proposed on the amount of employee stock options that may vest in an employee in a calendar year and continue to qualify for the stock option deduction. The limit is per employer; any amount above this limit is fully taxable.
For employers, in regard to employee stock options above the $200,00 limit, the employer would be entitled to an income tax deduction in respect of the stock option benefit included in the employee’s income.
Employers subject to the new rules would be able to choose whether to grant employee stock options under the existing tax treatment, up to the $200,000 limit per employee, or whether to grant employee stock options under the new tax treatment (i.e. ineligible for the employee stock option deduction, and instead eligible for a deduction for corporate income tax purposes).
Employers that are Canadian-controlled private corporations (CCPCs) would generally not be subject to the new rules.
Non-CCPC employers whose annual gross revenue does not exceed $500 million would generally not be subject to the new rules.
New rules are applicable starting July 1^st, 2021.

COVID-19 Benefits Repayment

Repayments for COVID-19 benefits can be deducted for the year in which the benefit amount was received rather than the year in which the repayment was made.
This option would be available for benefit amounts repaid at any time before 2023.

Eligible Educator School Supply Tax Credit

Tax credit increase from 15% to 25% of eligible expenditures, which are capped at $1,000.
Removal of the requirement that teaching supplies must be used in a school or a regulated child care facility to be eligible.
The following items would be added to the list of prescribed durable goods:

·    calculators (including graphing calculators);
·    external data storage devices;
·    web cams, microphones and headphones;
·    wireless pointer devices;
·    electronic educational toys;
·    digital timers;
·    speakers;
·    video streaming devices;
·    multimedia projectors;
·    printers; and
·   laptop, desktop and tablet computers, provided that none of these items are made available to the eligible educator by their employer for use outside of the classroom.

An eligible educator making a claim would be required to provide a certificate from their employer attesting to the eligible supplies, including the additional conditions with respect to laptop, desktop and tablet computers.

Home Office Expenses - Temporary Flat-Rate Method

The temporary flat-rate method, introduced for the 2020 tax year, has been extended for the 2021 tax year. The maximum amount allowable has also been enhanced, from $400 to $500 for the year (250 days).

Immediate Expensing of Capital Property

Temporary immediate expensing in respect of eligible property acquired by a Canadian-Controlled Private Corporation (CCPC), unincorporated businesses carried on directly by Canadian resident individuals (other than trusts) and certain eligible partnerships.
This measure applies to eligible property acquired by a CCPC on or after Budget Day (April 19, 2021) and that becomes available for use before January 1, 2024, up to a maximum amount of $1.5 million per taxation year (all classes combined). For unincorporated businesses and eligible partnerships, this measure would be effective for investments made on or after January 1, 2022, that become available for use before 2025.
Eligible property under this new measure would be capital property that is subject to the CCA rules, other than property included in CCA classes 1 to 6, 14.1, 17, 47, 49 and 51, which are generally long-lived assets.
The $1.5 million limit would be shared among associated members of a group of CCPCs.
The half-year rule would be suspended for property for which this measure is used.

Tax Rate Reduction for Zero-Emission Technology Manufacturers

Budget 2021 proposes a temporary measure to reduce corporate income tax rates for qualifying zero-emission technology manufacturers.

The reduced tax rates would apply to taxation years that begin after 2021. The reduced rates would be gradually phased out starting in taxation years that begin in 2029 and fully phased out for taxation years that begin after 2031.

Capital Cost Allowance for Clean Energy Equipment

CCA classes 43.1 and 43.2 have been expanded to include the following:

·        pumped hydroelectric storage equipment;

·        electricity generation equipment that uses physical barriers or dam-like structures to harness the kinetic energy of flowing water or wave or tidal energy;

·        active solar heating systems, ground source heat pump systems, and geothermal energy systems that are used to heat water for a swimming pool;

·        equipment used to produce solid and liquid fuels (e.g., wood pellets and renewable diesel) from specified waste material or carbon dioxide;

·        a broader range of equipment used for the production of hydrogen by electrolysis of water; and

·        equipment used to dispense hydrogen for use in hydrogen-powered automotive equipment and vehicles.