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Canada Budget Implementation Act 2021 No. 1 Receives Royal Assent — Orbitax Tax News & Alerts

On 8 July 2021, Canada published the Budget Implementation Act, 2021, No. 1, which received royal assent on 29 June 2021 and provides for the implementation of certain measures proposed as part of the Budget 2021. As provided in the included summary, part 1 of the legislation implements certain income tax measures by:

  • providing relieving measures in connection with COVID-19 in respect of the use by an employee of an employer-provided automobile for the 2020 and 2021 taxation years;
  • limiting the benefit of the employee stock option deduction for employees of certain employers;
  • providing an adjustment for payments or repayments of government assistance in determining capital cost allowance for certain zero-emission vehicles;
  • expanding the scope of the foreign affiliate dumping rules to further their objectives;
  • providing change in use rules for multi-unit residential properties;
  • establishing rules for advanced life deferred annuities;
  • providing for an option to deduct repaid emergency benefit amounts in the year of benefit receipt and clarifying the tax treatment of non-resident beneficiaries;
  • removing the time limitation for a registered disability savings plan to remain registered after the cessation of a beneficiary's eligibility for the disability tax credit and modifying grant and bond repayment obligations;
  • increasing the basic personal amount for certain taxpayers;
  • providing a temporary special reading of certain rules relating to the child care expense deduction and the disability supports deduction for the 2020 and 2021 taxation years;
  • providing flow-through share issuers with temporary additional time to incur eligible expenses to be renounced to investors under their flow-through share agreements;
  • applying the short taxation year rule to the accelerated investment incentive for resource expenditures;
  • introducing the Canada Recovery Hiring Program refundable tax credit to support the post-pandemic recovery;
  • amending the employee life and health trust rules to allow for the conversion of health and welfare trusts to employee life and health trusts;
  • expanding access to the Canada Workers Benefit by revising the applicable eligibility thresholds for the 2021 and subsequent taxation years;
  • amending the income tax measures providing support for Canadian journalism;
  • clarifying the definition of shared-custody parent for the purposes of the Canada Child Benefit;
  • revising the eligibility criteria, as well as the level of subsidization, under the Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS), extending the CEWS and the CERS until September 25, 2021, providing authority to enable the extension of these subsidies until November 30, 2021, and ensuring that the level of CEWS benefits for furloughed employees continues to align with the benefits provided through the Employment Insurance Act until August 28, 2021;
  • preventing the use by mutual fund trusts of a method of allocating capital gains or income to their redeeming unitholders where the use of that method inappropriately defers tax or converts ordinary income into capital gains;
  • extending the income tax deferral available for certain patronage dividends paid in shares by an agricultural cooperative corporation to payments made before 2026;
  • limiting transfers of pensionable service into individual pension plans;
  • establishing rules for variable payment life annuities;
  • preventing listed terrorist entities under the Criminal Code from qualifying as registered charities and providing for the suspension or revocation of a charity's registration where it makes false statements for the purpose of maintaining registration;
  • ensuring the appropriate interaction of transfer pricing rules and other rules in the Income Tax Act;
  • preventing non-resident taxpayers from avoiding Canadian dividend withholding tax on compensation payments made under cross-border securities lending arrangements with respect to Canadian shares;
  • allowing for the electronic delivery of requirements for information to banks and credit unions;
  • improving existing rules meant to prevent taxpayers from using derivative transactions to convert ordinary income into capital gains;
  • extending to a wider array of eligible automotive equipment and vehicles the 100% capital cost allowance write-off for business investments in certain zero-emission vehicles;
  • ensuring that the accelerated investment incentive for depreciable property applies properly in particular circumstances; and
  • providing rules for contributions to a specified multi-employer plan for older members.

Part 1 also makes related and consequential amendments to the Excise Tax Act, the Air Travellers Security Charge Act, the Excise Act, 2001, the Greenhouse Gas Pollution Pricing Act, the Income Tax Regulations, and the Canada Disability Savings Regulations.

Part 2 of the legislation implements certain Goods and Services Tax/Harmonized Sales Tax (GST/HST) measures by:

  • temporarily relieving supplies of certain face masks and face shields from the GST/HST;
  • ensuring that non-resident vendors supplying digital products or services (including traditional services) to consumers in Canada be required to register for the GST/HST and to collect and remit the tax on their taxable supplies to consumers in Canada;
  • requiring distribution platform operators and non-resident vendors to register under the normal GST/HST rules and to collect and remit the GST/HST in respect of certain supplies of goods shipped from a fulfillment warehouse or another place in Canada;
  • applying the GST/HST on all supplies of short-term accommodation in Canada facilitated through a digital platform;
  • expanding the eligibility for the GST rebate for new housing;
  • expanding the definition of freight transportation service for the purposes of the GST/HST;
  • extending the application of the drop-shipment rules for the purposes of the GST/HST;
  • treating virtual currency as a financial instrument for the purposes of the GST/HST; and
  • clarifying the GST/HST holding corporation rules and expanding those rules to holding partnerships and trusts.

Part 2 also makes related and consequential amendments to the New Harmonized Value-added Tax System Regulations, No. 2.

Lastly, part 3 implements certain excise measures by increasing excise duty rates on tobacco products along with corresponding increases to the excise duty rates on other tobacco products, and Part 4 implement various other measures.

Note, the Budget Implementation Act, 2021, No. 1 does not provide for the implementation of certain other key proposals of the Budget 2021, including enhanced mandatory disclosure rules and a digital services tax, as well as new earnings-stripping and hybrid mismatch rules. Further developments with regard to these proposals will be published once available.