INTRODUCTION
On April 19, 2021, the Deputy Prime Minister and Minister of Finance, Chrystia Freeland, presented Budget 2021: A Recovery Plan for Jobs, Growth, and Resilience.
The budget proposes to extend business and income support measures through to the fall and provides for investments to create jobs. It also aims to fight climate change and support small and medium-sized businesses through several transformative programs.
Here are the highlights of the 2021 budget.
PERSONAL INCOME TAX MEASURES
INCREASING OLD AGE SECURITY FOR CANADIANS 75 AND OVER
The budget proposes to meet provide a one-time payment of $500 in August 2021 to Old Age Security (OAS) pensioners who will be 75 or over as of June 2022.
The budget then proposes to introduce legislation to increase regular OAS payments for pensioners 75 and over by 10% on an ongoing basis as of July 2022. This would provide additional benefits of $766 to full pensioners in the first year and indexed to inflation going forward.
DISABILITY TAX CREDIT
To be eligible for the Disability Tax Credit (DTC), an individual must have a certificate confirming that they have a severe and prolonged impairment in physical or mental functions.
MENTAL FUNCTIONS NECESSARY FOR EVERYDAY LIFE
To ensure that the eligibility criteria for the DTC better articulate the range of mental functions necessary for everyday life, the budget proposes that, for the purposes of the DTC, mental functions necessary for everyday life 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.
LIFE-SUSTAINING THERAPY
To better recognize the aspects of therapy for the purposes of calculating time spent on therapy, the budget proposes to:
- 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.
The budget also proposes that:
- the time reasonably required by another person to assist the individual in performing and supervising the therapy would be allowed to be counted;
- the 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.
These proposed changes would apply to the 2021 and subsequent taxation years, in respect of DTC certificates filed with the Minister of National Revenue on or after Royal Assent.
CANADA WORKERS BENEFIT
The budget proposes to enhance the Canada Workers Benefit (CWB) starting in 2021. This enhancement would increase:
- the phase-in rate from 26% to 27% for single individuals without dependants as well as families;
- the phase-out thresholds from $13,194 to $22,944 for single individuals without dependants and from $17,522 to $26,177 for families; and the phase-out rate from 12% to 15%.
Corresponding changes would be made to the disability supplement’s phase-in and reduction rates as well as the reduction threshold.
To improve work incentives for secondary earners in a couple, the budget also proposes to introduce a “secondary earner exemption” to the CWB, a special rule for individuals with an eligible spouse. This would allow the spouse or commonlaw partner with the lower working income to exclude up to $14,000 of their working income in the computation of their adjusted net income, for the purpose of the CWB phase-out.
These measures would apply to the 2021 and subsequent taxation years. Indexation of amounts relating to the CWB would continue to apply after the 2021 taxation year, including the secondary earner exemption.
NORTHERN RESIDENTS DEDUCTIONS
The budget proposes to expand access to the travel component of the Northern Residents Deductions. Under the new approach, subject to the other restrictions noted above, a taxpayer would have the option to claim, in respect of each of the taxpayer and each “eligible family member”, up to:
- the amount of employer-provided travel benefits the taxpayer received in respect of travel by that individual; or
- a $1,200 standard amount that may be allocated across eligible trips taken by that individual.
After application of the 50% factor for residents of the Intermediate Zone, the second limit effectively becomes a $600 standard amount.
For these purposes, an eligible family member would be an individual living in the taxpayer’s household who is:
- the spouse or common-law partner of the taxpayer;
- a child of the taxpayer (including a child of the taxpayer’s spouse or common-law partner) under the age of 18; or
- another individual who is related to the taxpayer and who is wholly dependent on the taxpayer (and/or on the taxpayer’s spouse or common-law partner) for support, and who is, except in the case of a parent or grandparent of the taxpayer, so dependent by reason of mental or physical infirmity.
The budget proposes that across all taxpayers in a given individual’s household, a maximum of two trips taken by that individual would be allowed to be claimed in total for non-medical personal travel in a year. A taxpayer would continue to be able to claim any number of trips for medical purposes.
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 standard amount;
- the total travel expenses paid for that trip; and
- the cost of the lowest return airfare to the nearest designated city.
This measure would apply to the 2021 and subsequent taxation years.
POSTDOCTORAL FELLOWSHIP INCOME
The budget proposes to include postdoctoral fellowship income in “earned income” for RRSP purposes.
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.
TAX TREATMENT OF COVID-19 BENEFIT AMOUNTS
The budget proposes to allow individuals the option to claim a deduction in respect of the repayment of a COVID-19 benefit amount in computing their income 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.
For these purposes, COVID-19 benefits would include:
- 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.
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.
The budget 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. As a result, COVID-19 benefits received by these non-resident persons would be taxable in Canada in a manner generally similar to employment and business income earned in Canada.
