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December 2, 2020

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On November 30, 2020, the Department of Finance released the Government of Canada’s Fall Economic Statement 2020 (FES 2020). Ahead of the 2021 Federal Budget, the FES 2020 includes a number of proposed tax changes, summarized as follows:

COVID-19 Relief Measures

Canada Emergency Wage Subsidy (CEWS)

The current combined maximum base subsidy and top-up wage subsidy is set at 65% for the current qualifying period, ending on December 19, 2020. The FES 2020 proposes to extend the CEWS to March 13, 2021 with a combined maximum base subsidy and top-up wage subsidy of 75% beginning on December 20, 2020. 

To support furloughed employees, it is proposed that the weekly wage subsidy for a furloughed employee from December 20, 2020 – March 13, 2021 will be the lesser of the amount of eligible remuneration paid in respect of the week; and the greater of $500 and 55% of pre-crisis remuneration, up to a maximum subsidy amount of $595.

Canada Emergency Rent Subsidy (CERS)

The FES 2020 proposes to extend the CERS for three additional periods to March 13, 2021 at the current maximum subsidy rate of 65%. 

Temporary Canada Child Benefit (CCB) Increase

The FES 2020 proposes a temporary increase to the CCB for the July 1, 2020 to June 30, 2021 benefit year. The proposal provides for four additional quarterly payments of:

  • $300 per child under age 6 where the family net income is less than $120,000; and
  • $150 per child under age 6 where family net income is greater than $120,000.

Income Tax Measures

Employee Stock Options

In June 2019, the Department of Finance issued draft legislation proposing changes to the employee stock option rules that would limit the benefit of the employee stock option deduction for high-income individuals employed by large firms. The FES 2020 proposes to proceed with these legislative changes for options granted after June 2021.

The new rules restrict the ability for an employee to claim the 50% stock option deduction on stock options that vest in a calendar year in excess of $200,000 (based on the fair market value of the underlying shares at the time of grant). For employee stock options in excess of this $200,000 limit, the employer would be entitled to a deduction in respect of the stock option benefit included in the employee’s income in the year of exercise.

The new rules generally will not apply to Canadian-controlled Private Corporations (“CCPCs”) as well as non-CCPCs with consolidated gross annual revenues of not more than $500 million. 

Work-From-Home Expenses

The FES 2020 proposes administrative relief for the deduction of employee home office expenses in 2020. The proposal will allow employees to deduct up to $400 of home office expenses in 2020 without obtaining a signed form from their employer or the need to track detailed expenses.

Other Measures

  • Tax Avoidance – The government will seek to modernize the anti-avoidance rules, including the general anti-avoidance rule. Significant resources are proposed to fund the hiring of additional CRA auditors focused on limiting offshore tax avoidance.
  • Digital services – In light of potential delays in the OECD efforts to reform taxing rights for countries where multinational corporations are providing digital services to their consumers, the Canadian government intends to implement a tax on corporations providing digital services effective 2022.

Sales Tax Measures

GST/HST on Digital Products and Services

The FES 2020 proposes a requirement for non-resident vendors and non-resident distribution platform operators to register for and collect GST/HST when selling digital products and services to Canadian consumers.  The applicable GST/HST rate will generally be based on the consumer’s province of residence.

This proposal includes a simplified online GST/HST registration and remittance framework for non-resident vendors and non-resident distribution platform operators. Under this simplified system, no input tax credits (ITCs) would be available to recover any GST/HST paid on business inputs. Non-residents will need to register under the normal GST/HST registration process to claim ITCs.

These proposed changes would apply for cross-border supplies that become due on or after July 1, 2021.

GST/HST on Sales through Fulfillment Warehouses

The FES 2020 proposes to require fulfillment warehouses in Canada to register for and collect GST/HST when sales are made through their distribution platforms on behalf of non-registered non-resident sellers. Where sales are not made through their distribution platforms, but are delivered via a fulfillment warehouse in Canada, the non-resident seller would be responsible for registering for and collecting GST/HST.

Fulfillment businesses in Canada will also be required to notify CRA that they are carrying on a fulfillment business and maintain records regarding their non-resident customers.

These proposed changes would come into effect starting July 1, 2021.

GST/HST on Short-Term Accommodations

The FES 2020 proposes a requirement for short-term accommodation platform operators to register for and collect GST/HST where the owner of the property is not a GST/HST registrant. The applicable GST/HST rate will be based on the location of the short-term accommodation property.

The platform operators will also be required to maintain and provide to CRA information regarding the third-party owners of the properties.

These proposed changes would come into effect starting July 1, 2021.

Temporary GST/HST Exemption for COVID-19 PP&E

The FES 2020 proposes to temporarily zero-rate supplies of face masks, respirators and face shields in Canada from December 6, 2020 until after the COVID-19 pandemic.

 

 

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