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The federal government Dec. 14 economic statement did not contain any fireworks or huge changes. And on Feb. 4, the government released draft proposals that cover some, but not all, of these items. It’s still worth a summary to see what might be coming down the pike this year.
The 2021 Fall Economic Statement proposes to increase the 15% refundable tax credit for teachers and early childhood educators to 25% (based on expenditures of up to $1,000 in a taxation year for “eligible supplies”). Additionally, this measure would clarify and broaden the rules regarding the locations where teaching supplies are permitted to be used by removing the requirement that teaching supplies must be used in a school or regulated child care facility to be eligible. This measure would also expand the list of eligible durable goods to include certain electronic devices.
The following items would be added to the list of prescribed durable goods:
The educator must provide a certificate from their employer certifying that the supplies were purchased for the purpose of teaching or facilitating students’ learning. This measure would apply to the 2021 and subsequent taxation years.
To encourage small businesses to invest in better ventilation and air filtration to improve indoor air quality, the government introduced this temporary tax credit, which is available to eligible entities in respect of qualifying expenditures attributable to air-quality improvements in qualifying locations incurred between Sept. 1, 2021, and Dec. 31, 2022.
This refundable tax credit is equal to 25% of qualifying expenditures up to $10,000 per qualifying location and a maximum of $50,000 across all qualifying locations. The limits on qualifying expenditures would need to be shared among affiliated businesses.
Eligible entities include unincorporated sole proprietors and Canadian-controlled private corporations with taxable capital employed in Canada of less than $15 million (associated corporations must share this $15 million threshold).
The credit would also be available to members of a partnership that are qualifying corporations or individuals (other than trusts), and would be based on their proportionate interest in the partnership.
Qualifying expenditures include the purchase, installation, upgrade, or conversion of mechanical heating, ventilation and air conditioning (HVAC) systems, as well as the purchase of devices designed to filter air using high-efficiency particulate air (HEPA) filters, the primary purpose of which is to increase outdoor air intake or to improve air cleaning or air filtration. It should be highlighted that a qualifying expenditure would be reduced by the amount of any government assistance received by the eligible entity in respect of that expense.
Qualifying expenditures incurred before Jan. 1, 2022 would be claimed by an eligible entity for its first taxation year that ends on or after Jan. 1, 2022. Qualifying expenditures incurred on or after Jan. 1, 2022 would be claimed by an eligible entity for the taxation year in which the expenditure was incurred.
Recognizing that many farmers use natural gas and propane in their operations, and consistent with the Budget 2021 commitment, the government proposes to return fuel charge proceeds directly to farming businesses in backstop jurisdictions via a refundable tax credit, starting for the 2021-22 fuel charge year. Backstop jurisdictions currently include Ontario, Manitoba, Saskatchewan, and Alberta.
The return of fuel-charge proceeds would be available to corporations, individuals, and trusts that are actively engaged in either the management or day-to-day activities of earning income from farming (i.e., the raising of animals and harvesting of plants in a controlled environment) and incur total farming expenses of $25,000 or more, all or a portion of which are attributable to those aforementioned backstop jurisdictions.
In Budget 2021, the government announced its intention to implement a national, annual 1% tax on the value of non-resident, non-Canadian owned residential real estate in Canada that is considered to be vacant or underused (the “Underused Housing Tax”). After engaging in consultations that ended on Sept. 17, 2021, the government announced further details of the Underused Housing Tax. Specifically, an owner’s interest in a residential property would be exempt from the Underused Housing Tax for a calendar year if a residence that is part of the residential property is the primary place of residence of: (1) the owner; (2) the owner’s spouse or common-law partner; or (3) an individual that is the child of the owner or of the owner’s spouse or common-law partner, but only if the child is in Canada for the purposes of authorized study and the occupancy relates to that purpose.
Furthermore, there will be an exemption for vacation/recreational properties, which would apply to an owner’s interest in a residential property for a calendar year if the property: (1) is located in an area of Canada that is not an urban area; and (2) is personally used by the owner (or the owner’s spouse or common-law partner) for at least four weeks in the calendar year.
The Economic Statement reaffirmed the Government’s intention to implement the following tax measures previously announced in Budget 2021:
* Digital Services Tax (DST), which would apply at a rate of 3% on revenue earned by large businesses from digital services that rely on data and content contributions from Canadian users.
* Tax on Select Luxury Goods, such as the sales of luxury cars and personal aircraft (with a retail sales price exceeding $100,000) and boats (with a retail sales price exceeding $250,000) for personal use. The tax would be calculated at the lesser of (i) 20% of the value above the retail sales price thresholds or (ii) 10% of the full value of the luxury car, boat or personal aircraft. It is anticipated that the government will release draft legislation in early 2022;
* Investment Tax Credit for capital investments in carbon capture, utilization, and storage projects, the final design of which will be outlined in Budget 2022.
Samantha Prasad, LL.B., is a Partner with Toronto law firm Minden Gross LLP, a Meritas Law Firm Worldwide affiliate, and specializes in corporate, estate, and international tax planning. She writes frequently on tax issues, and is the co-author of Tax and Family Business Succession Planning, 3rd Edition. She is also co-editor of various Wolters Kluwer Ltd. tax publications. This article first appeared in The TaxLetter, © 2021 by MPL Communications Ltd. Used with permission.
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Content copyright © 2022 by Samantha Prasad. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.
The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
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