This bulletin is a summary of selected tax measures in the 2021 Federal Budget ("Budget 2021") announced on April 19, 2021 ("Budget Day") by the Government of Canada (the "Federal Government") that may be relevant to employers with employees working in Canada. A complete analysis of Budget 2021 can be found in our previously written bulletin, "Selected Tax Measures in the 2021 Federal Budget - Canada".
Emergency Business Supports – CEWS and CERS
Budget 2021 proposes to extend the Canada Emergency Wage Subsidy (the "CEWS") and Canada Emergency Rent Subsidy ("CERS") to September 25, 2021 and provide the Federal Government with the legislative authority to add qualifying periods until November 20, 2021.
Budget 2021 proposes to require public companies to repay CEWS amounts for a qualifying period that begins after June 5, 2021 in the event that its aggregate compensation for specified executives during the 2021 calendar year exceeds its aggregate compensation for specified executives during the 2019 calendar year.
A public company's specified executives will be its Named Executive Officers whose compensation is required to be disclosed under Canadian securities laws in its annual information circular or similar executives in the case of a company listed in another jurisdiction.
The amount of CEWS required to be repaid would be equal to the lessor of: (i) the total of all CEWS received in respect of active employees for qualifying periods that begin after June 5, 2021; and (ii) the amount by which the corporation's aggregate specified executives' compensation for 2021 exceeds its aggregate specified executives' compensation for 2019. This requirement would apply to any CEWS amounts paid to any entity in the same group.
The CEWS support for active employees will be gradually phased out from a maximum subsidy rate of 75% (for the qualifying period ending July 3rd, 2021) to 20% (for the qualifying period ending September 25, 2021) based on the relevant revenue decline.
The CEWS support for furloughed employees will continue to be available and remain aligned with benefits available under the Employment Insurance ("EI") program for the relevant period until August 28, 2021. Employers will also continue to be entitled to claim under the CEWS their portion of contributions to the Canada Pension Plan, EI, the Quebec Pension Plan and the Quebec Parental Insurance Plan in respect of furloughed employees.
Budget 2021 proposes to gradually phase out the CERS subsidy rate from a maximum subsidy rate of 65% (for the qualifying period ending July 3, 2021) to 20% (for the qualifying period ending September 25, 2021) based on the relevant revenue decline.
Budget 2021 proposes to extend the lockdown support to September 25, 2021. The lockdown support is additional assistance for locations that must cease operations or significantly limit their activities under a public health order. The lockdown support rate will remain at 25%.
Canada Recovery Hiring Program
Budget 2021 proposes to introduce the Canada Recovery Hiring Program ("CRHP") to provide eligible employers with a subsidy of up to 50% on the incremental remuneration paid to eligible employees between June 6, 2021 and November 20, 2021.
An eligible employer would be permitted to claim either the CRHP or the CEWS for a particular qualifying period, but not both.
Employers eligible for the CEWS would generally be eligible for the hiring subsidy. However, a for-profit corporation would be eligible only if it is a Canadian-controlled private corporation. Eligible employers would be required to have a payroll account open with the CRA on March 15, 2020.
An eligible employee must be employed primarily in Canada by an eligible employer throughout a qualifying period. The hiring subsidy would not be available for furloughed employees.
Eligible remuneration would be remuneration eligible for the CEWS.
Incremental remuneration for a qualifying period means the difference between an employer's total eligible remuneration paid to eligible employees for the qualifying period and the employer's total eligible remuneration paid to eligible employees for the baseline period. In both the qualifying period and the baseline period, eligible remuneration for each eligible employee would be subject to a maximum of $1,129 per week.
For the duration of the CRHP, there would be six qualifying periods, with the first period of the CRHP being Period 17 of the CEWS. The relevant baseline period for the calculation of incremental remuneration would be March 14 to April 10, 2020.
If an eligible employer's decline in revenue exceeds the revenue-decline threshold for a qualifying period, the employer's subsidy in that period would be its incremental remuneration multiplied by the applicable hiring subsidy rate. The hiring subsidy rates would be 50% for the first three periods, 40% for the fourth period, 30% for the fifth period and 20% for the final sixth period.
To qualify for a hiring subsidy in a qualifying period, an eligible employer would have to have experienced a decline in revenue that would be sufficient to qualify for CEWS. For qualifying periods when the CEWS is no longer in effect, an eligible employer would have to have a decline in revenue of more than 10%. An employer's decline in revenues would be determined in the same manner as under the CEWS. Employers would be required to continue to use the approach that they have previously used for the CEWS, be it the general approach or the alternative approach.
The deadline for an application for the hiring subsidy for a qualifying period would be 180 days after the end of the qualifying period.
Tax Treatment of COVID-19 Benefit Amounts
Budget 2021 proposes to allow individuals to claim a deduction in respect of the repayment of an amount for the COVID-19 benefits listed below for the year in which the benefit was received rather than the year in which the repayment was made:
- Canada Emergency Response Benefits/Employment Insurance Emergency Response Benefits;
- Canada Emergency Student Benefits;
- Canada Recovery Benefits;
- Canada Recovery Sickness Benefits; and
- Canada Recovery Caregiving Benefits.
This option will be available for benefit amounts repaid at any time before 2023.
Individuals may only deduct benefit amounts once they have been repaid. An individual who makes a repayment, but who has already filed their income tax return for the year in which the benefit was received, would be able to request an adjustment to the return for that year.
Budget 2021 also proposes to ensure that the COVID-19 benefit amounts noted above, and similar provincial or territorial benefit amounts, are included in the taxable income of those individuals who reside in Canada but are considered non-resident persons for income tax purposes, and taxed in a manner generally similar to employment and business income earned in Canada.
Correspondence with Businesses
Budget 2021 proposes to change the default method of correspondence for businesses that use the CRA's My Business Account portal to electronic only. However, businesses could still choose to also receive paper correspondence.
This measure will come into force on Royal Assent of the enacting legislation.
Budget 2021 proposes to allow issuers of T4A (Statement of Pension, Retirement, Annuity and Other Income) and T5 (Statement of Investment Income) information returns to provide them electronically without having to also issue a paper copy and without the taxpayer having to authorize the issuer to do so.
This measure will apply in respect of information returns sent after 2021
Filing of Information Returns
Budget 2021 proposes that the threshold for mandatory electronic filing of income tax information returns for a calendar year be lowered from 50 to 5 returns, in respect of a particular type of information return. Entities that file more than 5 information returns of a particular type for a calendar year would be required to file them electronically.
This measure will apply in respect of calendar years after 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.