The 2020 Fall Economic Statement (FES) was presented on November 30, 2020 by the Honourable Chrystia Freeland, Deputy Minister and Finance Minister. This comes as we approach the end of a turbulent year, which has seen significant economic impacts to Canada and countries around the world. The FES provides a summary of the measures the government has introduced in response to the pandemic to help Canadian businesses and individuals through the economic turmoil. Extensions to the Canada Emergency Wage Subsidy, Canada Emergency Rent Subsidy and Lockdown Support were officially announced up to March 13, 2021, with the potential of further extension to June 2021.
The deficit has grown significantly as the government has continued to provide economic support throughout most of the 2020 calendar year. Although no official debt amount was provided in the FES, additional details will likely be available in the 2021 federal budget.
The following table shows how the projected deficit for the 2020-2021 fiscal year has increased since the 2019 federal budget.
Projected deficits over the next six years
Existing COVID measures
The following table provides a summary of the government’s most significant COVID-related support programs, including any updates from the FES, where applicable.
Home office expense
As announced in the FES, the CRA will allow employees working from home in 2020 due to COVID-19 to deduct up to $400, based on the amount of time working from home, under a simplified home office expense deduction on their 2020 income tax return. Previously, employers were required to complete and sign a T2200 form for each employee.
Additional details are expected to be announced in the coming days.
Employee stock options
An employee who receives a stock option is required to include a benefit in their income equal to the difference between the market price of the shares purchased and the option price actually paid, generally speaking. In certain scenarios, the benefit is reduced by the stock option deduction, which essentially reduces the tax rate on stock options to a rate similar to that on capital gains.
In its 2019 budget, the federal government proposed eliminating the stock option deduction in certain scenarios, mainly focusing on larger, mature firms. The Fall Economic Statement reiterates these measures and introduces proposed legislation, including:
- A $200,000 annual limit on the value of the shares for the stock option deduction
- Exempting Canadian-controlled private corporations from the above limit
- Ensuring the limit only applies to larger firms by exempting non-CCPCs with annual gross revenues of $500 million or less
- The new rules would apply to employee stock options granted after June 2021
Additional tax-related announcements
Foreign-owned housing: The government intends to implement a national, tax-based measure that would apply to domestic housing owned by a non-resident, non-Canadian.
Funding to combat tax evasion and aggressive tax avoidance: Additional $606 million of funding over five years to help the Canada Revenue Agency combat international tax evasion and aggressive tax avoidance.
Modernizing anti-avoidance rules: The government intends to launch consultations on updating anti-avoidance rules, particularly the General Anti-Avoidance Rule (GAAR) to address aggressive tax planning.
The FES proposes new rules that will begin to apply GST/HST to digital goods and services and goods and services provided through digital platforms. These new rules, discussed below, will generally apply as of July 1, 2021.
The government is seeking stakeholder input with respect to these three non-resident and platform proposals until February 1, 2021.
Digital products and services
Non-resident vendors that supply digital products or services (including traditional services) to consumers in Canada will be required to register for the GST/HST and to collect these sales taxes from Canadian consumers. These distribution platform operators will generally be required to register for the GST/HST and to collect and remit the tax on sales to Canadians through their platforms.
A simplified registration and filing framework will be introduced for non-resident vendors who are not otherwise registered or required to be registered for GST/HST. The simplified GST/HST will only be charged to purchasers who cannot provide a GST/HST registration number (e.g., most B2C transactions). Those using this simplified framework will not be able to claim input tax credits for GST/HST incurred; however, non-residents who wish to claim input tax credits will have the option to register instead under the full GST/HST system.
Modified "place of supply" rules for supplies taxed through the simplified framework will see the tax rate generally applying based on the place of residence of the Canadian consumer (as determined by two or more indicators, such as SIM card, home address, billing address and device IP address aligning), and with a number of exceptions for specific types of transactions.
For purchasers who are registered for GST/HST, but who will not use the purchased digital products or services exclusively in commercial activity, regular self-assessment rules continue to apply.
Goods supplied through fulfillment warehouses
Goods sold through distribution platforms with fulfillment warehouses in Canada are proposed to be taxed whether they are sold by a Canadian or non-resident vendor. Currently, mainly Canadian vendors using digital platforms and fulfillment warehouses in Canada are required to collect GST/HST.
The proposed changes would be as follows:
- GST/HST registration under the normal framework will be required by distribution platform operators hosting third-party goods for sale where those goods are stored in Canada.
- Goods sold by non-resident vendors through distribution platforms will be taxed under normal GST/HST rules, with the distribution platform operator being required to collect and remit GST/HST unless the vendor is registered.
- Non-resident vendors selling otherwise than through a fulfillment warehouse (i.e. directly) will be required to register for GST/HST if their goods are stored in a fulfillment warehouse located in Canada, and to collect GST/HST on sales made where the goods are shipped to a Canadian address from a place in Canada.
- Fulfillment businesses operating in Canada will have an obligation to inform the CRA of their activities and maintain information regarding their non-resident clients and the goods stored on their behalf.
- GST/HST will be collected on qualifying supplies of goods by distribution platform operators whether B2B or B2C.
- Input tax credits will be available to the platform operator and flowed through from non-resident suppliers where required.
- Distribution platform operators will be deemed not to have made a supply to non-registered third-party vendors relating to the deemed supply of goods through the platform, such that unrecoverable GST/HST is not incurred.
Platform-based short-term accommodation
It is proposed that the GST/HST should apply on all supplies of short-term accommodation in Canada facilitated through a digital platform.
Property owners registered for GST/HST will continue to collect and remit GST/HST as usual. However, where the property owner is not registered, the accommodation platform operator will be deemed to be the supplier and thus the person responsible to remit GST/HST.
Depending on the status of the platform operator, regular and simplified registration options may be available.
GST/HST relief on face masks and face shields
The government proposes to remove the GST/HST from the purchase of qualifying face masks and face shields, effective from December 7, 2020 until they are “no longer broadly recommended”.
New support measures
Highly Affected Sectors Credit Availability Program (HASCAP)
The government is introducing a new program to support businesses in highly-affected sectors as follows:
- Tourism and hospitality
- Arts and entertainment
The government proposes to work with financial institutions to offer 100 percent government-guaranteed low-interest loans of up to $1 million over extended terms, up to ten years. The interest rates on the loans will be lower than market rates and those offered in the Business Credit Availability Program (BCAP).
Black Entrepreneurship Program (BEP)
The government confirmed in the 2020 FES that it will work with Canadian financial institutions to launch the BEP to support Black business owners and entrepreneurs, including:
- National Ecosystem Fund: To help Black business owners and entrepreneurs access funding and capital, mentorship, financial planning services and business training
- Black Entrepreneurship Loan Fund: To provide $25,000 to $250,000 loans for Black business owners and entrepreneurs
- Black Entrepreneurship Knowledge Hub: To collect data on the state of Black entrepreneurship in Canada and help identify barriers to success, as well as opportunities for growth
Expanded Rental Construction Financing Initiative (RCFI)
The government will provide an additional $12 billion (totaling $25.75 billion) over seven years, starting in 2021-22, to the RCFI, which provides low-interest loans and mortgage insurance through the Canada Mortgage and Housing Corporation to support the construction of purpose-built rental housing.
Expanded first-time home buyer incentive
The government is expanding the first-time home buyer incentive for people from Toronto, Vancouver and Victoria:
Compensations to dairy, poultry and egg farmers
The government is announcing the following new compensations for the agriculture and agri-food sector:
- Dairy farmers: $1.4 billion in payments over three years, starting in 2020-21, including a payment of $468 million this year
- Chicken, egg, broiler hatching egg and turkey farmers: $691 million for ten-year programs to help farmers improve productivity and for marketing activities
Support for youth
Canada Student Loans and Canada Apprentice Loans: The government intends to waive the interest on repayment of the federal portion of the Canada Student Loans and Canada Apprentice Loans for 2021-22.
Canada Summer Jobs Funding: The government will expand the existing program to 2021-22 to allow employers to hire youth outside of the summer period and allow employers to claim up to 100 percent of the value of the minimum wage for each youth hired. The new program will also allow employers to hire part-time workers more easily. Overall, support will be provided for up to 120,000 job placements.
Youth Employment and Skills Strategy: Additional $575.3 million to be invested to provide 45,300 job placements for young people.
Support for families with young children
Canada Child Benefit: The government intends to provide families currently entitled to the CCB with four additional payments in 2021. Families with net income equal to or less than $120,000 will receive $300 per child under the age of six and families with net income above $120,000 will receive $150 per child under the age of six.
Top-up payments for individuals
The government provided the following top-up payments through existing programs in 2020:
- GST credit: Additional $443 for single adults and $580 for couples
- Old Age Security: Additional $300
- Guaranteed Income Supplement: Additional $200
- Disability Tax Credit: Additional support up to $600
- Veterans Emergency Fund (NEW): Additional $600,000 to support veterans whose well-being is at risk due to an emergency
Federal COVID-19 support programs – Summary of costs
* Costing obtained directly from Parliamentary Budget Office reports for each program, except where otherwise stated.
** The CERS was launched in November 2020. Prior to this, the Canada Emergency Commercial Rent Assistance program was available to assist with the cost of commercial rent. Based on a Department of Finance news release, the government had provided $1.8 billion of support as of early October.
*** Based on a Department of Finance news release, the government estimated it had provided over $30 billion in CEBA loans as of early October. The actual cost of the program will depend on the amount of loans that are eventually repaid.
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