2020 Federal Economic Update

Here’s what you need to know from yesterday’s Federal economic update.

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On Monday, November 30, 2020, Deputy Prime Minister and Minister of Finance Chrystia Freeland presented the Fall Economic Statement 2020 which contains several measures of interest to IG Wealth Management and its clients. This summary contains highlights of these proposals, which are not yet law. Clients should contact their IG Wealth Management Consultant for information on how these proposals may affect their financial plans.

COVID-19 Related Measures - Personal

Support for Families with Young Children

In recognition of the struggles faced by families with young children, the government proposes to provide four additional payments to families entitled to the Canada Child Benefit (CCB). These payments proposed for 2021 would be paid in the following quarterly amounts based on the income thresholds under the normal CCB rules:

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

These additional payments can be made retroactively to individuals determined to be entitled to the CCB by the end of 2023 and will be split in situations where there are shared-custody parents.

Home Office Expense Deduction

Currently there are a number of criteria to be met before an employee can claim a tax deduction for employment-related expenses. These criteria include the requirement that the employer provide a completed copy of CRA Form T2200 to the employee certifying that the employee meets some of those criteria.

Due to the recent shift in work arrangements of many employees as a result of COVID-19, the CRA will allow employees working from home in 2020 to claim up to $400 in employment related expenses without the need to track detailed expenses and without the need for a signed Form T2200. Further details will be communicated by the CRA in the coming weeks.

Eliminating Interest on Canada Student Loans and Apprentice Loans

The government intends to eliminate the interest owing on the repayment of the federal portion of the Canada Student Loans and Canada Apprentice Loans for 2021-2022.

GST/HST Relief on Face Masks and Face Shields

The Fall Economic Statement proposes to temporarily remove (zero-rate) the GST/HST on certain face masks and face shields. This measure will apply to supplies of these items made after December 6, 2020 and will stay in effect until their use is no longer broadly recommended by public health officials for the COVID-19 pandemic.

COVID-19 Related Measures - Businesses

Canada Emergency Wage Subsidy

The Base Canada Emergency Wage Subsidy (CEWS) is available for all businesses that have experienced a decline in revenues. The amount of the subsidy will vary according to the amount of revenue decline experienced. A Top-Up subsidy is available to employers most adversely affected by COVID-19.

Currently, for periods eight through 10, the maximum base subsidy available is 40%. The Fall Economic Statement provides the CEWS rates for periods 11 through 13, proposing to maintain the base rate of 40% but increase the maximum top-up subsidy of 25% (that applied in periods five through 10) to 35% for periods 11 through 13. Details for the wage subsidy beyond period 13 will be proposed at a later date.

Combined CEWS Rate for Periods 11 through 13

 

  Period 11: Period 12: Period 13:
 

Dec 20 -Jan 16

Jan 17 – Feb 13

Feb 14 – Mar 13

Maximum weekly

benefit per employee

Up to $847 (for example, $1,129 x 75% = $847)

 Up to $847

 Up to $847

Revenue Drop

 

 

 

70% and over

40% base + 35% top-up = 75% CEWS

75%

75%

 50% to 69%

40% + 1.75 x (revenue drop – 50%) (for example, 40% + 1.75 x (60% revenue drop – 50%)) = 57.5% CEWS rate

40% + 1.75 x (revenue drop – 50%) (for example, 40% + 1.75 x (60% revenue drop – 50%)) = 57.5% CEWS rate

40% + 1.75 x (revenue drop – 50%) (for example, 40% + 1.75 x (60% revenue drop – 50%)) = 57.5% CEWS rate

0% to 49%

0.8 x revenue drop = CEWS rate

0.8 x revenue drop = CEWS rate

0.8 x revenue drop =CEWS rate

Support for furloughed employees

A separate wage subsidy rate is applicable for furloughed employees beginning in period nine. The Fall Economic Statement proposes to extend this subsidy rate until March 13, 2021.

The wage subsidy for a furloughed employee will be the lesser of:

  • The amount of the eligible remuneration paid in respect of the week; and
  • The greater of:
  • $500, and
  • 55% of the pre-crisis remuneration for the employee, up to a maximum subsidy of $595 (applying in period 11 through 13).

Canada Emergency Rent Subsidy

The Canada Emergency Rent Subsidy (CERS) provides rent and mortgage support until June 2021 for qualifying organizations. The Fall Economic Statement proposes to extend, until March 13, 2021, the current rate structure for the base subsidy.

Lockdown Support for Locations Affected by Public Health Restrictions

The Lockdown Support of 25% is available to entities, which are eligible for base rate subsidy under CERS, with locations that are temporarily forced to close or must severely restrict activities due to a public health order. The Fall Economic Statement proposes to extend, until March 13, 2021, the current 25% rate for the Lockdown Support.

Combined CERS

Revenue Drop Base Subsidy rate Lockdown Support

70% and over

65%

25%

50% to 69%

40% + 1.25 x (revenue drop – 50%)

25%

0% to 49%

0.8 x revenue drop = CERS rate

25%

Canada Emergency Business Account

As previously announced, the Canada Emergency Business Account (CEBA) will be expanded to allow an interest-free loan of up to $20,000 in addition to the original loan of up to $40,000. Half of the $20,000 loan would be forgivable if repaid by December 31, 2022. The Fall Economic Statement proposes to extend the deadline to apply for the CEBA to March 31, 2021.

Support for Highly Affected Sectors

The Fall Economic Statement proposes to introduce the Highly Affected Sectors Credit Availability Program (HASCAP) to offer 100% government-guaranteed financing for deeply impacted businesses, at rates which will be lower than under the Business Credit Availability Program and market rates. The program will provide loans of up to $1 million over extended terms, up to 10 years. More details on this program are coming soon. In addition, several targeted funding programs will be created to help the tourism, hospitality, live events, arts, air travel and innovation sectors.

Ongoing Measures Impacting Individuals

Employee Stock Options

Current tax rules provide preferential personal tax treatment to many holders of employee stock options in the form of a stock option deduction which, if available, can effectively tax the stock option benefit at a personal tax rate similar to a capital gain.

The Fall Economic Statement expands upon proposals previously announced in the 2019 Federal Budget, proposing that a $200,000 annual limit apply on employee stock option grants that can qualify for the employee stock option deduction. This limit will be based on the fair market value of the shares underlying the options at the time the options are granted. Employee stock options granted by Canadian- controlled private corporations (CCPCs) and by non-CCPC employers with annual gross revenues of $500 million or less will not be subject to the new limit.

In instances where these new rules apply, stock option benefits realized on options in excess of the $200,000 limit would not be eligible for the stock option deduction and would be fully taxable at the employee’s personal tax rate.

The new rules would apply to employee stock options granted on or after July 1, 2021.

Other Tax Measures

The Fall Economic Statement announces that the government proposes to:

  • Apply the GST/HST on cross-border digital products and services, goods supplied by non-resident vendors through fulfillment warehouses and platform-based short-term accommodation. These rules would generally apply to supplies made on or after July 1, 2021 and are intended to address a competitive disadvantage faced by physical and online retailers operating in Canada who are required to register and collect the GST/HST.
  • Implement a tax on corporations providing digital services in Canada effective January 1, 2022. Details will be announced in Budget 2021.
  • Implement a national, tax-based measure over the coming year that will be applied when a residential property is owned by individuals who are not citizens or permanent residents of Canada.
  • Provide an additional $606 million to the CRA over five years, starting in 2021-2022, to extend existing programs and establish new programs that target international tax evasion and aggressive tax avoidance.
  • Launch consultations in the coming months aimed at modernizing Canada’s anti-avoidance rules, in particular the General Anti-Avoidance Rule, to combat sophisticated and aggressive tax planning.