Fall economic statement 2020 – Income tax measures

COVID-19 federal recovery measures

Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) Extension

The Government proposes to formally extend the CEWS and CERS to periods 11 to 13, which will be as follows:

• Period 11 – December 20, 2020 to January 16, 2021,
• Period 12 – January 17, 2021 to February 13, 2021, and
• Period 13 – February 14, 2021 to March 13, 2021,

Reference periods

Both the CEWS and CERS use the same calculation to determine an organization’s revenue decline. As a result, the same reference periods are used to calculate an organization’s decline in revenues for the wage subsidy and the rent subsidy. Likewise, if an entity elects to use an alternative method for computing its revenue decline under the CEWS, it must use that alternate method for the CERS.

The table below outlines the proposed reference periods used by both CEWS and CERS for determining an eligible employer’s decline in revenues from December 20, 2020 to March 13, 2021.

Employers that had chosen to use the general approach for prior periods would continue to use that approach. Similarly, employers that had chosen to use the alternative approach would continue to use the alternative approach. All the other parameters of the program would remain unchanged.

CEWS rate change

The government proposes to increase the maximum wage subsidy to 75 per cent for the qualifying periods from December 20, 2020 to March 13, 2021 (periods 11 to 13).

The maximum base subsidy would remain at 40 per cent and the maximum top-up wage subsidy rate would increase to 35 per cent, as set out in the table below.

Support for furloughed employees

To ensure that the wage subsidy for furloughed employees remains aligned with benefits available under EI, the Government proposes that the weekly wage subsidy for a furloughed employee from December 20, 2020 to March 13, 2021 (periods 11 to 13) be the lesser of:

• the amount of eligible remuneration paid in respect of the week; and
• the greater of:
  • $500, and
  • 55 per cent of pre-crisis remuneration for the employee, up to a maximum subsidy amount of $595.

Employers will also continue to be entitled to claim under the wage subsidy their portion of contributions in respect of the Canada Pension Plan, EI, the Quebec Pension Plan and the Quebec Parental Insurance Plan in respect of furloughed employees.

CERS rate structure unchanged

The Government proposes to maintain the current rate structure until March 13, 2021 for the base rent subsidy, as shown below.

The Government also proposes to maintain the current 25 per cent rate for the Lockdown Support until March 13, 2021.

Canada Emergency Rent Subsidy (CERS) – Rent paid or payable

The Government also confirms its intention to proceed with the proposed change to the rent subsidy, details of which were announced on November 19, 2020, that would allow amounts to be considered to have been paid when they become due, provided certain conditions are met.

Canada Emergency Business Account (CEBA)

The deadline to apply for a CEBA loan has been extended to March 31, 2021. 

Highly Affected Sectors Credit Availability Program (HASCAP)

The government is proposing to create a new program for the hardest hit businesses, including those in sectors, like tourism and hospitality, hotels, arts and entertainment. This stream will offer 100 percent government-guaranteed financing for heavily impacted businesses, and provide low-interest loans of up to $1 million over extended terms, up to ten years. Rates will be lower than those offered in BCAP and beneath typical market rates for hard hit sectors. The government will provide details on the Highly Affected Sectors Credit Availability Program soon.

Simplifying the home office expense deduction

Canadians working from home may be able to deduct certain home office expenses for tax purposes if certain rules are met. First-time claimants may not be familiar with the rules and the claim process imposes an administrative burden on employers who are already dealing with the broader impacts of the pandemic and have to fill out additional information for their employees who qualify.

To simplify the process for both taxpayers and businesses, the CRA will allow employees working from home in 2020 due to COVID-19 with modest expenses to claim up to $400, based on the amount of time working from home, without the need to track detailed expenses, and will generally not request that people provide a signed form from their employers. Further detail will be communicated by the CRA in the coming weeks.

Student debt

The government proposes to ease the burden of student debt by eliminating interest on repayment of the federal portion of Canada Student Loans and Canada Apprentice Loans for 2021-22.

Immediate Support for Families with Young Children

In order to provide immediate support for families with young children, the Government proposes to amend the Income Tax Act to provide, in 2021, four payments of:

• $300 per child under the age of six to families entitled to the CCB with family net income equal to or less than $120,000, and
• $150 per child under the age of six to families entitled to the CCB with family net income above $120,000.

GST/HST Relief on Face Masks and Face Shields

In order to support public health during the COVID-19 pandemic, the Government proposes to temporarily relieve (i.e., zero rate) supplies of certain face masks and face shields from the Goods and Services Tax/Harmonized Sales Tax (GST/HST). This measure would apply to supplies of these items made after December 6, 2020, and is proposed to only be in effect until their use is no longer broadly recommended by public health officials for the COVID-19 pandemic.

Business tax measures

Employee Stock Options

Budget 2019 announced the Government’s intention to move forward with changes to limit the benefit of the employee stock option deduction for high-income individuals employed at large, long-established, mature firms. The Government is proposing that these new rules would apply for employee stock options granted after June 2021. The existing rules would continue to apply to options granted before July 2021. The new tax rules are summarized as follows:

$200,000 Limit

A $200,000 limit is proposed on the amount of the employee stock options that may vest in an employee in a calendar year and continue to qualify for the stock option deduction. The vesting amount in any calendar year would be considered to be equal to the fair market value of the underlying shares at the time the options are granted.

This limit would generally apply to all stock option agreements between the employee and the employer or any corporation that does not deal at arm's length with the employer.

Employee Tax Treatment

Where an employee exercises an employee stock option that is in excess of the $200,000 limit, the difference between the fair market value of the share at the time the option is exercised and the amount paid by the employee to acquire the share would be treated as a taxable employment benefit. The full amount of the employment benefit would be included in the income of the employee for the year the option is exercised, consistent with the treatment of other forms of employment income. The employee would not be entitled to the stock option deduction in respect of this employment benefit.

Employer Tax Treatment

For employee stock options in excess of the $200,000 limit, the employer would be entitled to an income tax deduction in respect of the stock option benefit included in the employee’s income.

There are currently a number of conditions that must be met for an employee to be eligible for the stock option deduction. These conditions would be required to be met for an employer to be entitled to a deduction under the new rules.

Employers subject to the new rules will be required to notify its employees in writing and notify the Canada Revenue Agency if the options granted are subject to the new tax treatment.

Employers Subject to the New Tax Rules

The new rules would apply to employers (corporations or mutual fund trusts) with the following exceptions:

• 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.

Agricultural Cooperatives: Patronage Dividends Paid in Shares

Currently there is a tax deferral for patronage dividends paid by an eligible agricultural cooperative to its members in the form of eligible shares issued after 2005 and before 2021. This measure, originally introduced in the 2005 budget, and further extended in the 2015 budget, has been proposed to be further extended to eligible shares issued before 2026.

Other Tax Measures

Taxing unproductive use of Canadian housing by foreign non-resident owners

The government will take steps over the coming year to implement a national, tax-based measure targeting the unproductive use of domestic housing that is owned by non-resident, non-Canadians. The intention of this tax-based measure is to limit foreign non-resident owners from using Canada as a place to passively store their wealth in housing.

New CRA funding initiatives

The government proposes an additional $606 million over 5 years, starting in 2021-22, to allow the CRA to fund new initiatives and extend existing programs targeting international tax evasion and aggressive tax avoidance.

Modernizing anti-avoidance rules

The government will launch consultations in the coming months on the modernization of Canada’s anti-avoidance rules, in particular the General Anti-Avoidance Rule .

Registered Disability Savings Plan – Cessation of Eligibility for the Disability Tax Credit

Budget 2019 proposed changes to the Registered Disability Savings Plan (RDSP) regime for beneficiaries with episodic disabilities. The Government proposes to maintain the implementation timeline for this measure. Any excess repayments of Canada Disability Savings Grants and Canada Disability Savings Bonds in respect of withdrawals made after 2020 and before the measure is enacted would be returned to a beneficiary’s RDSP following enactment.

RDSP issuers will have the normal flexibilities with respect to time to implement these changes.

Registered Disability Savings Plan – Modification to Assistance holdback formula

The Government proposes an additional modification to the formula put forward in Budget 2019 for determining the amount of grants and bonds held back from a withdrawal, in the following manner:

For a beneficiary who ceases to be eligible for the disability tax credit after the calendar year in which they attain 49 years of age, the reference period for the assistance holdback amount would begin on January 1 of the year that is 10 years before the year in which the event (e.g., withdrawal or plan closure) occurs and end on the day preceding the day on which the beneficiary ceased to be eligible for the DTC. The assistance holdback amount would be equal to the total amount of grants and bonds paid into the RDSP during that period, less any repayments of those amounts.