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Thinking of buy a new sports car, yacht or private jet in the near future? Better do it before Dec. 31.
The Liberals today unveiled its mammoth 724-page federal budget, the first one in over two years, which contained a variety of tax measures affecting individual taxpayers. Here’s some of the highlights.
Additional weeks of COVID benefits
Five ways the federal budget could affect your taxes
When the Canada Emergency Response Benefit (CERB) ended last year, it was replaced with a trio of new benefits: the Canada Recovery Benefit (CRB), the Canada Recovery Caregiving Benefit (CRCB), and the Canada Recovery Sickness Benefit (CRSB). In March 2021, about 3.5 million Canadians received income support through the recovery benefits and EI.
In Feb. 2021, the government increased the number of weeks available under the CRB and the CRCB by 12 weeks to a total of 38 weeks, and the number of weeks of EI regular benefits available by 24 weeks up to a maximum of 50 weeks. It also doubled the number of weeks available under the CRSB to four weeks from two weeks.
In today’s budget, the government proposed to provide up to 12 additional weeks of CRB, to a maximum of 50 weeks, the first four of which will be paid at $500 per week, and the remaining eight weeks to be paid at a lower amount of $300 per week for recipients who have claimed the full 42 weeks at $500, as well as for new claimants. The budget also proposed to extend the CRCB by an additional four weeks, to a maximum of 42 weeks, at $500 per week, in the event that caregiving options, particularly for those supporting children, are not available.
Tax treatment of COVID benefit repayments
In late 2020, the CRA sent out 441,000 “educational letters” warning individuals that they may not be eligible for the CERB. The letters were sent out to individuals whom the CRA said it was “unable to confirm … employment and/or self-employment income of at least $5,000 in 2019, or in the 12 months prior to the date of their application.”
Individuals who needed to repay the CERB were encouraged to return it in 2020 (vs. in 2021) since the CERB amounts are taxable and would be reported on the T4A tax information slip for inclusion in the year they were received. If the CERB wasn’t returned until 2021, CERB recipients were to have paid tax on the full CERB amount received in 2020, and then claimed a deduction for this amount on their 2021 tax return. While for many, this is simply a cash flow or timing difference, for others, who may not have enough income in 2021 to benefit from the deduction, this could have resulted in many Canadians effectively paying tax on CERB funds they ultimately had to return.
Fortunately, the government realized that this harsh treatment would be unfair to many Canadians and as a result, today’s budget proposed a change in the law to allow individuals the option of claiming a deduction for the repayment of a COVID benefit amount for the year in which the benefit amount was received, rather than the year in which the repayment was made. This option will be available for benefit amounts repaid at any time before 2023.
For these purposes, COVID-19 benefits would include: the CERB, EI emergency response benefits, the Canada Emergency Student Benefits, the CRB, CRSB and the CRCB.
If you recently made a repayment, but already filed your 2020 return for the year in which you received the benefit, you can ask the CRA to adjust your return for that year.
Increasing OAS for Canadians 75+
Older seniors may be getting some additional cash this summer as a result of Monday’s budget. The government announced it will be providing a one-time payment of $500 in August 2021 to Old Age Security (OAS) pensioners who will be 75 or over as of June 2022. It also proposes to increase regular OAS payments for pensioners 75 and over by 10 per cent on an ongoing basis as of July 2022. This would increase the benefits for approximately 3.3 million seniors, providing additional benefits of $766 to full pensioners in the first year, and indexed to inflation going forward.
Improving access to the disability tax credit
The disability tax credit (DTC) is a non-refundable tax credit intended to recognize the impact of various non-itemizable disability-related costs. For 2021, the value of the federal credit is $1,299. Provincial and territorial credits are also available. To be eligible for the DTC, an individual must have a certificate confirming that they have a “severe and prolonged impairment in physical or mental functions.”
Earlier this month, the CRA’s Disability Advisory Committee released its second report which contained a variety of recommendations towards improving the eligibility criteria for the DTC in the areas of mental functions and life-sustaining therapy. To help more families and people living with disabilities access the benefits of the DTC, including the ability to open up a Registered Disability Savings Plan (RDSP), the budget proposes to update the list of mental functions of everyday life that is used for assessment for the DTC.
Under current rules, mental functions necessary for everyday life include: memory, problem-solving, goal-setting and judgement (taken together), and adaptive functioning. The budget proposes to expand this list to include a wider array of mental functions necessary for everyday life, including: attention, concentration, memory, judgment, perception of reality, problem-solving, goal-setting, regulation of behaviour and emotions, verbal and non-verbal comprehension and adaptive functioning.
In addition, the budget proposes to recognize more activities in determining time spent on life-sustaining therapy and to reduce the minimum required frequency of therapy to qualify for the DTC.
New luxury tax on cars, boats and aircraft
Thinking of buying a new sports car, yacht or private jet in the near future? If so, you best make your purchase by Dec. 31, 2021 to avoid the new luxury tax.
“If you’ve been lucky enough, or smart enough, or hard-working enough, to afford to spend $100,000 on a car, or $250,000 on a boat — congratulations!” reads Monday’s budget document introducing the new luxury tax. “Thank you for contributing a little bit of that good fortune to help heal the wounds of COVID and invest in our future collective prosperity… Those who can afford to buy luxury goods can afford to pay a bit more.”
The new tax kicks in on Jan. 1, 2022 and applies to sales of luxury cars and personal aircraft with a retail sales price over $100,000, and boats, with a price over $250,000. The tax will be calculated at the lesser of 20 per cent of the value above those thresholds, or 10 per cent of the full value of the luxury car, boat, or personal aircraft.
Upon purchase or lease of the car, boat or plane, the seller or lessor will be responsible for remitting the full amount of the federal tax owing, regardless of whether the good was purchased outright, financed, or leased over a period of time.
And, by the way, the GST/HST applies to the total sales price, inclusive of the new luxury tax.
Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Private Wealth Management in Toronto.