On April 19, 2021, the Federal Government released their 2021 budget. We have broken down the highlights of the financial measures in this budget into three different sections:
Personal Tax Changes
Extending Covid -19 Emergency Business Supports
All of the following COVID-19 Emergency Business Supports will be extended from June 5, 2021, to September 25, 2021, with the subsidy rates gradually decreasing:
Canada Emergency Wage Subsidy (CEWS) – The maximum wage subsidy is currently 75%. It will decrease down to 60% for July, 40% for August, and 20% for September.
Canada Emergency Rent Subsidy (CERS) – The maximum rent subsidy is currently 65%. It will decrease down to 60% for July, 40% for August, and 20% for September.
Lockdown Support Program – The Lockdown Support Program rate of 25% will be extended from June 4, 2021, to September 25, 2021.
Only organizations with a decline in revenues of more than 10% will be eligible for these programs as of July 4, 2021. The budget also includes legislation to give the federal government authority to extend these programs to November 20, 2021, should either the economy or the public health situation make it necessary.
Canada Recovery Hiring Program
The federal budget introduced a new program called the Canada Recovery Hiring Program. The goal of this program is to help qualifying employers offset costs taken on as they reopen. An eligible employer can claim either the CEWS or the new subsidy, but not both.
The proposed subsidy will be available from June 6, 2021, to November 20, 2021, with a subsidy of 50% available from June to August. The Canada Recovery Hiring Program subsidy will decrease down to 40% for September, 30% for October, and 20% for November.
Interest Deductibility Limits
The federal budget for 2021 introduces new interest deductibility limits. This rule limits the amount of net interest expense that a corporation can deduct when determining its taxable income. The amount will be limited to a fixed ratio of its earnings before interest, taxes, depreciation, and amortization (sometimes referred to as EBITDA).
The fixed ratio will apply to both existing and new borrowings and will be phased in at 40% as of January 1, 2023, and 30% for January 1, 2024.
Support for small and medium-size business innovation
The federal budget also includes 4 billion dollars to help small and medium-sized businesses innovate by digitizing and taking advantage of e-commerce opportunities. Also, the budget provides additional funding for venture capital start-ups via the Venture Capital Catalyst Program and research that will support up to 2,500 innovative small and medium-sized firms.
Personal Tax Changes
Tax treatment and Repayment of Covid-19 Benefit Amounts
The federal budget includes information on both the tax treatment and repayment of the following COVID-19 benefits:
Canada Emergency Response Benefits or Employment Insurance Emergency Response Benefits
Individuals who must repay a COVID-19 benefit amount can claim a deduction for that repayment in the year they received the benefit (by requesting an adjustment to their tax return), not the year they repaid it. Anyone considered a non-resident for income tax purposes will have their COVID-19 benefits included in their taxable income.
Disability Tax Credit
Eligibility changes have been made to the Disability Tax Credit. The criteria have been modified to increase the list of mental functions considered necessary for everyday life, expand the list of what can be considered when calculating time spent on therapy, and reduce the requirement that therapy is administered at least three times each week to two times a week (with the 14 hours per week requirement remaining the same).
Old Age Security
The budget enhances Old Age Security (OAS) benefits for recipients who will be 75 or older as of June 2022. A one-time, lump-sum payment of $500 will be sent out to qualifying pensioners in August 2021, with a 10% increase to ongoing OAS payments starting on July 1, 2022.
Waiving Canada Student Loan Interest
The budget also notes that the government plans to introduce legislation that will extend waiving of any interest accrued on either Canada Student Loans or Canada Apprentice Loans until March 31, 2023.
Support for Workforce Transition
Support to help Canadians transition to growing industries was also included in the budget. The support is as follows:
$250 million over three years to Innovation, Science and Economic Development Canada to help workers upskill and redeploy to growing industries.
$298 million over three years for the Skills for Success Program to provide training in skills for the knowledge economy.
$960 million over three years for the Sectoral Workforce Solutions Program to help design and deliver training relevant to the needs of small and medium businesses.
Federal Minimum Wage
The federal budget also introduces a proposed federal minimum wage of $15 per hour that would rise with inflation.
New Housing Rebate
The GST New Housing Rebate conditions will be changed. Previously, if two or more individuals were buying a house together, all of them must be acquiring the home as their primary residence (or that of a relation) to qualify for the GST New Housing Rebate. Now, the GST New Housing Rebate will be available as long as one of the purchasers (or a relation of theirs) acquires the home as their primary place of residence. This will apply to all agreements of purchase and sale entered into after April 19, 2021.
Unproductive use of Canadian Housing by Foreign Non-Resident Owners
A new tax was introduced in the budget on unproductive use of Canadian housing by non-resident foreign owners. This tax will be a 1% tax on the value of non-resident, non-Canadian owned residential real estate considered vacant or underused. This tax will be levied annually starting in 2022.
All residential property owners in Canada (other than Canadian citizens or permanent residents of Canada) must also file an annual declaration for the prior calendar year with the CRA for each Canadian residential property they own, starting in 2023. Filing the annual declaration may qualify owners to claim an exemption from the tax on their property if they can prove the property is leased to qualified tenants for a minimum period in a calendar year.
Excise Duty on Vaping and Tobacco
The budget also includes a new proposal on excise duties on vaping products and tobacco. The proposed framework would consist of:
A single flat rate duty on every 10 millilitres of vaping liquid as of 2022
An increase in tobacco excise duties by $4 per carton of 200 cigarettes and increases to the excise duty rates for other tobacco products such as tobacco sticks and cigars as of April 20, 2021.
Luxury Goods Tax
Finally, the federal budget proposed introducing a tax on certain luxury goods for personal use as of January 1, 2022.
For luxury cars and personal aircraft, the new tax is equal to the lesser of 10% of the vehicle’s total value or the aircraft, or 20% of the value above $100,000.
For boats over $250,000, the new tax is equal to the lesser of 10% of the full value of the boat or 20% of the value above $250,000.
If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!
Contrary to misinformation being shared on-line, receiving a COVID-19 vaccine will have no effect on the ability to obtain coverage or benefits from life insurance or supplementary health insurance.
The CLHIA is aware of misinformation that is being spread through social media claiming that individuals who get the vaccine will not be able to get life insurance or may be denied their life insurance benefits. These claims are incorrect and have no basis in fact whatsoever.
Canada’s life and health insurers stress that vaccination is one of the most effective ways to protect yourself and others from serious illness and death from COVID-19. Receiving the vaccine will not affect your individual or workplace life or health insurance policies, or ability to apply for future coverage.
As with any medication approved for use in Canada, the COVID-19 vaccines have been found safe and effective through Health Canada’s independent scientific and medical assessment process.
Individuals who have questions about their coverage are encouraged to consult their policy and contact their insurer directly.
“Getting the vaccine will not affect your insurance coverage. No one should be afraid and choose to not protect themselves from COVID-19 because they are worried about it affecting their benefits. All of Canada’s life and health insurers are supportive of Canadians receiving government approved vaccinations to protect themselves from serious illness and death.”
On Friday, February 19, 2021, Prime Minister Justin Trudeau announced an extension to several of the COVD-19 federal emergency benefits. The goal of this extension is to support Canadians who are still being financially impacted by the COVID-19 pandemic.
The following benefits are impacted:
Canada Recovery Benefit
Canada Recovery Caregiving Benefit
Canada Recovery Sickness Benefit
Canada Recovery Benefit
The Canada Recovery Benefit (CRB) provides income support to anyone who is:
Employed or self-employed, but not entitled to Employment Insurance (EI) benefits.
Has had their income reduced by at least 50 percent due to COVID-19.
You can receive up to $1,000 ($900 after taxes withheld) a week every two weeks for the CRB. The recent changes now allow you to apply for this benefit for a total of 38 weeks – previously the maximum was 26 weeks.
Canada Recovery Caregiving Benefit
The Canada Recovery Caregiving Benefit (CRCB) helps support people who cannot work because they must supervise a child under 12 or other family members due to COVID-19. For example, a school is closed due to COVID-19 or your child must self-isolate because they have COVID-19.
You can receive $500 ($450 after taxes withheld) for each 1-week period you claim the CRCB. The recent extension made now allows you to apply for this benefit for a total of 38 weeks instead of the previous 26 weeks.
Canada Recovery Sickness Benefit
The $500 a week ($450 after taxes) Canada Recovery Sickness Benefit (CRSB) is also getting a boost. If you cannot work because you are sick or need to self-isolate due to COVID-19, you can now apply for this benefit for a total of four weeks. Previously, this benefit would only cover up to two missed weeks of work.
Finally, the government will also be increasing the amount of time you can claim Employment Insurance (EI) benefits. You will now be able to claim EI for a maximum of 50 weeks – this is an increase of 24 weeks from the previous eligibility maximum.
Great news for some ineligible self-employed Canadians who received the Canada Emergency Response Benefit (CERB). As per canada.ca:
“Today, the Government of Canada announced that self-employed individuals who applied for the Canada Emergency Response Benefit (CERB) and would have qualified based on their gross income will not be required to repay the benefit, provided they also met all other eligibility requirements. The same approach will apply whether the individual applied through the Canada Revenue Agency or Service Canada.
This means that, self-employed individuals whose net self-employment income was less than $5,000 and who applied for the CERB will not be required to repay the CERB, as long as their gross self-employment income was at least $5,000 and they met all other eligibility criteria.
Some self-employed individuals whose net self-employment income was less than $5,000 may have already voluntarily repaid the CERB. The CRA and Service Canada will return any repaid amounts to these individuals. Additional details will be available in the coming weeks.”
It’s a great time to review your business finances now that we are nearing year-end. Your business may be affected by recent tax changes or new measures to help with financial losses due to COVID-19. Figuring out the tax ramifications of these new measures can be complicated, so please don’t hesitate to consult your accountant and us to determine how this may affect your business finances.
We’re assuming that your corporate year-end is December 31. If it’s not, then this information will be useful when your business year-end comes up.
Below, we have listed some of the critical areas to consider and provide you with some helpful guidelines to make sure that you cover all the essentials. We have divided our tax planning tips into four sections:
Year-end tax checklist
Business Year-End Tax Checklist
Accruing your salary/bonus
Stock option plan
Paying family members
COVID-19 wage subsidy measures for employers
Claiming the small business deduction
Passive investment income including eligible and ineligible dividends
Lifetime capital gains exemption
What is your salary and dividend mix?
Individuals who own incorporated businesses can elect to receive their income as either salary or as dividends. Your choice will depend on your situation. Consider the following factors:
Your current and future cash flow needs
Your personal income level
The corporation’s income level
Tax on income splitting (TOSI) rules. When TOSI rules apply, be aware that dividends are taxed at the highest marginal tax rate.
Passive investment income rules
Also consider the difference between salary and dividends:
Can be used for RRSP contribution
Reduces corporate tax bill
Subject to payroll tax
Subject to CPP contribution
Subject to EI contribution
Does not provide RRSP contribution
Does not reduce a corporate tax bill
No tax withholdings
No CPP contribution
No EI Insurance contribution
Depending on the province¹, receive up to $50,000 of eligible dividends at a low tax rate provided you have no other sources of income
¹The amount and tax rate will vary based on province/territory you live in.
It’s worth considering ensuring that you receive a salary high enough to take full advantage of the maximum RRSP annual contribution that you can make. For 2020, salaries of $154,611 will provide the maximum RRSP room of $27,830 for 2021.
Is it worth accruing your salary or bonus this year?
You could consider accruing your salary or bonus in the current year but delaying payment of it until the following year. If your company’s year-end is December 31, your corporation will benefit from a deduction for the year 2020. The source deductions are not required to be remitted until actual salary or bonus payment in 2021.
Stock Option Plan
If your compensation includes stock options, check if you will be affected by the stock option rules that went into effect on January 1, 2020. These new rules cap the amount of specific employee stock options eligible for the stock option deduction at $200,000 as of January 1, 2020. These rules will not affect you if a Canadian controlled private corporation grants your stock options.
If you own your corporation, pay yourself tax-free amounts if you can. Here are some ways to do so:
Pay yourself rent if the company occupies space in your home.
Pay yourself capital dividends if your company has a balance in its capital dividend account.
Return “paid-up capital” that you have invested in your company
Do you employ members of your family?
Employing and paying a salary to family members who work for your incorporated business is worth considering. You could receive a tax deduction against the salary you pay them, providing that the salary is “reasonable” with the work done. In 2020, the individual can earn up to $13,229 (increased for 2020 from $12,298) and pay no federal tax. This also provides the individual with RRSP contribution room, CPP and allows for child-care deductions. Bear in mind there are additional costs incurred when employing someone, such as payroll taxes and contributions to CPP.
COVID-19 wage subsidy measures for employers
To deal with the financial hardships introduced by COVID-19, the federal government introduced two wage subsidy measures:
The Canada Emergency Wage Subsidy (CEWS) program. With this, you can receive a subsidy of up to 85% of eligible remuneration that you paid between March 15 and December 19, 2020, if you had a decrease in revenue over this period. You must submit your application for the CEWS no later than January 31, 2021.
The Temporary Wage Subsidy (TWS) program. With this program, which reduces the amount of payroll deductions you needed to remit to the CRA, you can qualify for a subsidy equal to 10% of any remuneration that you paid between March 18, 2020, and June 19, 2020. You can claim up to a maximum of $1,375 per employee and $25,000 in total.
You can apply for both programs if you are eligible. If you qualify for the TWS but did not reduce your payroll remittances, you can still apply. The CRA will then either pay the subsidy amount to you or transfer it over to your next year’s remittance.
Claiming the Small Business Deduction
Are you able to claim a small business deduction? The federal small business tax rate decreased to 9% in 2019. It did not increase in 2020, nor is it expected to increase in 2021. From a provincial level, there will be changes in the following provinces:
Therefore, a small business deduction in 2020 is worth more than in 2021 for these provinces.
Should you repay any shareholder loans?
Borrowing funds from your corporation at a low or zero interest rate means that you are considered to have received a taxable benefit at the CRA’s 1% prescribed interest rate, less actual interest that you pay during the year or thirty days after the end of the year. You need to include the loan in your income tax return unless it is repaid within one year after the end of your corporation’s taxation year.
For example, if your company has a December 31 year-end and loaned you funds on November 1, 2020, you must repay the loan by December 31, 2021; otherwise, you will need to include the loan as taxable income on your 2020 personal tax return.
Passive investment income
If your corporation has a December year-end, then 2020 will be the second taxation year that the current passive investment income rules may apply to your company.
New measures were introduced in the 2018 federal budget relating to private businesses, which earn passive investment income in a corporation that also operates an active business.
There are two key parts to this:
Limiting access to dividend refunds. Essentially, a private company will be required to pay ineligible dividends to receive dividend refunds on some taxes. In the past, these could have been refunded when an eligible dividend was paid.
Limiting the small business deduction. This means that, for impacted companies, the small business deduction will be reduced at a rate of $5 for every $1 of investment income over $50,000. It is eliminated if investment income exceeds $150,000. Ontario and New Brunswick are not following these federal rules. Therefore, the provincial small business deduction is still available for income up to $500,000 annually.
Suppose your corporation earns both active business and passive investment income. In that case, you should contact your accountant and us directly to determine if there are any planning opportunities to minimize the new passive investment income rules’ impact. For example, you can consider a “buy and hold” strategy to help defer capital gains.
Think about when to pay dividends and dividend type
When choosing to pay dividends in 2020 or 2021, you should consider the following:
Difference between the yearly tax rate
Impact of tax on split income
Impact of passive investment income rules
Except for two provinces, Quebec and Alberta, the combined top marginal tax rates will not change from 2020 to 2021 at a provincial level. Therefore, it will not make a difference for most locations if you choose to pay in 2020 or 2021.
In Quebec and Alberta, as there will be increases in the combined marginal tax rate, you will have potential tax savings available if you choose to pay dividends in 2020 rather than 2021.
When deciding to pay a dividend, you will need to decide whether to pay out eligible or ineligible dividends. Consider the following:
Dividend refund claim limits: Eligible refundable dividend tax on hand (ERDTOH) vs Ineligible Refundable dividend tax on hand (NRDTOH)
Personal marginal tax rate of eligible vs. ineligible dividends (see chart below)
Given the passive investment income rules, typically, it makes sense to pay eligible dividends to deplete the ERDTOH balance before paying ineligible dividends. (Please note that ineligible dividends can also trigger a refund from the ERDTOH account.)
Eligible dividends are taxed at a lower personal tax rate than ineligible dividends (based on top combined marginal tax rate). However, keep in mind that when ineligible dividends are paid out, they are subject to the small business deduction; therefore, the dividend gross-up is 15% while eligible dividends are subject to the general corporate tax rate, a dividend gross-up is 38%. It’s important to talk to a professional to determine what makes the most sense when selecting the type of dividend to pay out of your corporation.
It might be time to revisit your corporate structure, given recent changes to private corporation rules on income splitting and passive investment income to provide more control on dividend income distribution.
Before you issue dividends to other shareholders in your private company (this includes your spouse, children, or other relatives), review the TOSI rules’ impact with us or your tax and legal advisors.
Another reason to reassess your structure is to segregate investment assets from your operating company for asset protection. You don’t want to trigger TOSI, so make sure you structure this properly. If you are considering succession planning, this is the time to evaluate your corporate structure as well.
Another aspect of corporate reorganization can be loss consolidation – where you consolidate losses from within related corporate groups.
Ensure your will is up to date
If your estate plan includes an intention for your family members to inherit your business using a trust, ensure that this plan is still tax-effective; income tax changes from January 1, 2016 eliminated the taxation at graduated rates in testamentary trusts and now taxes these trusts at the top marginal personal income tax rate. Review your will to ensure that any private company shares that you intend to leave won’t be affected by the most recent TOSI rules.
Consider a succession plan to ensure your business is transferred to your children, key employees or outside party in a tax-efficient manner.
Lifetime Capital Gains Exemption
If you sell your qualified small business corporation shares, you can qualify for the lifetime capital gains exemption (In 2020, the exemption is $883,384), where the gain is entirely exempt from tax. The exemption is a cumulative lifetime exemption; therefore, you don’t have to claim the entire amount at once.
The issues we discussed above can be complicated. Contact your accountant and us if you have any questions. We can help.
On November 30, Finance Minister Chrystia Freeland provided the government’s fall economic update. The fall economic update provided information on the government’s strategy both for dealing with the COVID-19 pandemic and its plan to help shape the recovery. We’ve summarized the highlights for you.
Corporate Tax Changes
Information on several subsidy programs was included in the update. These changes apply from December 20, 2020 to March 13, 2021.
The government has provided an increase in the Canada Emergency Wage Subsidy (CEWS) to a maximum of 75% of eligible wages.
If you are eligible for the Canada Emergency Rent Subsidy (eligibility is based on your revenue decline), you can claim up to 65% of qualified expenses.
The Lockdown Support Subsidy has also been extended – if you are eligible, you can receive a 25% subsidy on eligible expenses.
Also, there were two other significant corporate tax changes:
Starting January 1, 2022, the government plans to tax international corporations that provide digital services in Canada if no international consensus on appropriate taxation has been reached.
The tax deferral on eligible shares paid by a qualifying agricultural cooperative to its members has been extended to 2026.
Personal Tax Changes
The following personal tax changes were included in the update:
The update confirmed the government’s plan to impose a $200,000 limit (based on fair market value) on taxing employee stock options granted after June 2021 at a preferential rate. Canadian-controlled private corporations (CCPCs) are not subject to these rules.
If you started working from home due to COVID-19, you could claim up to $400 in expenses.
The Canada Child Benefit (CCB) has temporarily been increased to include four additional payments. Depending on your income, you could receive up to $1200.
Additional modifications were proposed to how the “assistance holdback” amount is calculated for Registered Disability Savings Plans (RDSP). The goal of these modifications is to help RDSP beneficiaries who become ineligible for the Disability Tax Credit after 50 years of age.
Indirect Tax Changes
GST/HST changes impacting digital platforms were included in the update. They will be applicable as of July 1, 2021:
Foreign-based companies that sell digital products or services in Canada must collect and remit GST or HST on their taxable sales. Also, foreign vendors or digital platform operators with goods for sale via Canadian fulfillment warehouses must collect and remit GST/HST.
Short-term rental accommodation booked via a digital platform must charge GST/HST on their booking. The GST/HST rate will be based on the province or territory where the short-term accommodation is located.
And some good news on a GST/HST removal! As of December 6, and until further notice, the government will not charge GST/HST on eligible face masks and face shields.
A lot of changes came out of the fall update – and you may be feeling overwhelmed. But help is at hand!
Contact us to learn more about how these changes could impact your personal and business finances.
Canada Emergency Business Account (CEBA) $20,000 expansion available now
Now that we are reaching the end of the tax year, it’s an excellent time to review your finances. We’ve listed below some of the critical areas to consider and provide you with useful guidelines.
We have divided our tax planning tips into five sections:
Individual tax issues
Family tax issues
Managing your investments
Tax Deadlines for 2020 Savings
December 31, 2020:
If you reached the age of 71 in 2020, you can’t contribute to your RRSP after this date
Use up your TFSA contribution room
Contribute to an RESP to get the Canadian Education Savings Grant (CESG) and the income-tested Canada Learning Bond (if eligible).
Contribute to an RDSP to get the Canada Disability Savings Grant (CDSG) and the income-tested Canada Disability Savings Bond (if eligible).
Investment counsel fees, interest and other expenses relating to investments
Some payments for child and spousal support
Fees for union and professional memberships
Student loan interest payments
Deductible legal fees
January 30, 2021
Interest on intra-family loans
The interest you must pay on employer loans to reduce your taxable benefit
March 1, 2021
Contributions to provincial labour-sponsored venture capital corporations
RRSP Repayment under Home Buyers Plan or Lifelong Learning Plan
Deductible contributions to a personal or spousal RRSP
Individual Tax Issues
To help Canadians deal with financial hardships due to job loss because of COVID-19, the Canadian government introduced several benefit programs. If you received any of these benefits, you should be aware of the tax ramifications.
The Canada Emergency Response Benefit (CERB) was the first benefit program issued by the government and ran until September 26, 2020. If you received the CERB at all during 2020, the government will issue you at T4A, showing how much money you received from the CERB program. You must then declare that as income when filing your 2020 income tax return. Since no tax was taken off at the source, be sure to put aside money to pay for potential income taxes on your CERB income.
As of September 27, 2020, the government offered three replacement benefit programs:
Canada Recovery Benefit (CRB) This is for people impacted by COVID-19 who work but are not eligible for EI (e.g. self-employed).
Canada Recovery Sickness Benefit (CRSB) This is for people who are employed cannot work due to COVID-19 and do not have access to paid sick leave.
Canada Recovery Caregiving Benefit (CRCB) This is for people who must miss work to care for a family member who has COVID-19.
For all three of these programs, the government will be withholding 10% in taxes upfront, but you may end up owing extra tax, depending on the rest of your income for 2020, so it’s important to set extra money aside for taxes.
Also, there is a unique condition for the CRB only. If you make over $38,000 in 2020 (excluding the CRB), you will have to pay back the CRB at a rate of 50 cents for each dollar of CRB you earned above the threshold.
If you paid interest on an eligible student loan in 2020, you can claim a non-refundable tax credit in the amount of interest you paid by December 31. In addition, you should be aware that student loan payments were frozen for six months – from March 30 to September 30. No interest accrued on student loans during that period.
Family Tax Issues
Check your eligibility for the Canada Child Benefit
(CCB) To receive the Canada Child Benefit in 2021/22, you need to file your tax returns for 2020 as the benefit is calculated using your family income from the previous year. Eligibility for the CCB depends on set criteria such as your family’s income, how many children you have, and how old they are. You may qualify for a full or partial amount, depending on whether you have full custody or shared custody.
Consider family income splitting
The CRA offers a prescribed low-interest rate on family loans. Therefore, it makes sense to consider setting up an income splitting loan arrangement with your family members. If you do this, you can potentially lock in a family loan at a low-interest rate of 1% and then invest the borrowed money into a higher return investment while benefitting from your family member’s lower tax status. Don’t forget to adhere to the Tax on Split Income rules.
Managing Your Investments
Use up your TFSA contribution room
If you can, it’s worth contributing the full $6,000 to your TFSA for 2020. You can also contribute more (up to $69,500) if you are 29 or older and haven’t made any previous TFSA contributions.
Contribute to a Registered Education Savings Plan (RESP)
The Registered Education Savings Plan (RESP) is a savings plan for parents and others to save for a child’s education. The Canada Education Savings Grant (CESG) will match up to 20% of your contributions up to a maximum of $2,500.
That means the CESG can add a maximum of $500 to an RESP each year. The grant room accumulates until your child turns 17. Therefore, any unused CESG amounts for the current year are automatically carried forward for possible use in the future years.
The income-tested Canada Learning Bond (CLB) is paid directly to a child’s RESP by the Canadian government to low-income families. No personal contributions are required to receive the CLB.
Contribute to a Registered Disability Savings Plan (RDSP)
The Registered Disability Savings Plan (RDSP) is a savings plan for parents and others to save for the financial security of a person who is eligible for the Disability Tax Credit (DTC). The government will pay a matching Canada Disability Savings Grant (CDSG) up to 300% – depending on the beneficiary’s adjusted family net income and amount contributed.
Also, low-income Canadians with disabilities may be eligible for a Canada Disability Savings Bond (CDSB). If you qualify, it will be paid directly to your RDSP.
The government will pay matching grants or bonds into the RSDP up to and including the end of the year the recipient turns 49. Be aware that there is a 10-year carry-forward of CDSG and CDSB entitlements.
Donate securities to charity
Donating by year-end will provide you with tax savings. If you donate eligible securities or mutual funds, capital gains tax does not apply, and you can receive a tax receipt for their full market value. Also, the charity gets the full value of the securities.
Think about selling any investments with unrealized capital losses
It might be worth doing this before year-end to apply the loss against any net capital gains achieved during the last three years. The last trading date for 2020 for Canadian and US publicly traded stocks will be Tuesday December 29th in order to record the gain or loss in the 2020 taxation year.
Conversely, if you have investments with unrealized capital gains that cannot be offset with capital losses, it may be worth selling them after 2020 to be taxed on the income the following year.
Consider the timing of purchasing of certain non-registered investments
Suppose you are considering purchasing an interest-bearing investment like a guaranteed investment certificate (GIC) with a maturity date of one year or more. In that case, you may consider delaying the purchase to the following year, so you don’t have to pay tax on accrued interest until 2021. You should also consider this with mutual funds that make taxable distributions before the end of 2020, consider delaying this until early 2021. Don’t pay taxes earlier than necessary.
Check if you have investments in a corporation
The new passive investment income rules apply to tax years from 2018 onwards. They state that the small business deduction is reduced for companies with between $50,000 and $150,000 of investment income. Therefore, the small business deduction has entirely stopped for corporations that earn a passive investment income of more than $150,000.
Note – At a provincial level, both Ontario and New Brunswick do not follow the federal rules to limit access to the small business deduction.
Make the most of your RRSP
The deadline for making contributions to your RRSP for the year 2020 is March 1, 2021. The deduction limit for 2020 is limited to 18% of the income you earned in 2020, to a maximum of $27,230. This maximum amount is impacted by the following:
Any pension adjustment
Any previous unused RRSP contribution room
Any pension adjustment reversal.
Remember that deducting your RRSP contribution reduces your after-tax cost of making said contribution.
Check when your RRSP is due to end
If you reach the age of 71 during 2020, you must wind up your RRSP this year. You must make your final contribution to it by December 31, 2020.
Convert to RRIF before year-end
If you turned 65 during 2020 or are already older than 65, you’re entitled to a pension credit that can fully or partly offset the tax on the first $2,000 of eligible income annually. Consider setting up an RRIF before year-end to pay out $2,000 annually if you don’t have any other eligible pension income.
If you have any questions about your taxes for 2020, contact us – we can help you!
For businesses, non-profits and charities facing uncertainty and economic challenges due to COVID-19, the Government of Canada is now taking applications for the new Canada Emergency Rent Subsidy (CERS). The CERS delivers direct and targeted rent support without the need to claim assistance through landlords and provides:
up to 65% of rent for businesses, charities and non-profits impacted by COVID-19.
an additional 25% Lockdown Support during a public health lockdown order.
Canadian businesses, non-profit organizations, or charities who have seen a drop in revenue due to the COVID-19 pandemic may be eligible for a subsidy to cover part of their commercial rent or property expenses, starting on September 27, 2020, until June 2021.
This subsidy will provide payments directly to qualifying renters and property owners, without requiring the participation of landlords.
If you are eligible for the base subsidy, you may also be eligible for lockdown support if your business location is significantly affected by a public health order for a week or more.
To be eligible to receive the rent subsidy, you must meet all four of the following criteria – you:
Meet at least one of these conditions:
You had a CRA business number on September 27, 2020
You had a payroll account on March 15, 2020, or another person or partnership made payroll remittances on your behalf
You purchased the business assets of another person or partnership who meets condition 2 above, and have made an election under the special asset acquisition rules These special asset acquisition rules are the same for the Canada Emergency Wage Subsidy (CEWS). OR
You meet other prescribed conditions that might be introduced Note: there are no prescribed conditions at this time
If you don’t have a business number but you qualify under condition b or c, you will need to set one up before you are able to apply for CERS. You do not need a payroll account to apply for CERS.
Are an eligible business, charity, or non-profit (eligible entity)
The Canada Recovery Benefit (CRB) is now open for applications.
As described on the Canada.ca website, the CRB gives income support to employed and self-employed individuals who are directly affected by COVID-19 and are not entitled to Employment Insurance (EI) benefits. The CRB is administered by the Canada Revenue Agency (CRA).
This program replaces the Canada Emergency Response Benefit (CERB) and, if eligible, provides $1,000 ($900 after taxes withheld) for a 2-week period.
If your situation continues past 2 weeks, you will need to apply again. You may apply up to a total of 13 eligibility periods (26 weeks) between September 27, 2020 and September 25, 2021.
To be eligible for the CRB, you must meet all the following conditions for the 2-week period you are applying for:
During the period you’re applying for:
you were not working for reasons related to COVID-19 OR
you had a 50% reduction in your average weekly income compared to the previous year due to COVID-19
You did not apply for or receive any of the following:
Canada Recovery Sickness Benefit (CRSB)
Canada Recovery Caregiving Benefit (CRCB)
short-term disability benefits
workers’ compensation benefits
Employment Insurance (EI) benefits
Québec Parental Insurance Plan (QPIP) benefits
You were not eligible for EI benefits
You reside in Canada
You were present in Canada
You are at least 15 years old
You have a valid Social Insurance Number (SIN)
You earned at least $5,000 in 2019, 2020, or in the 12 months before the date you apply from any of the following sources:
employment income (total or gross pay)
net self-employment income (after deducting expenses)
maternity and parental benefits from EI or similar QPIP benefits
You have not quit your job or reduced your hours voluntarily on or after September 27, 2020, unless it was reasonable to do so
You were seeking work during the period, either as an employee or in self-employment
You have not turned down reasonable work during the 2-week period you’re applying for
You need all of the above to be eligible for the CRB.
On October 9th, the Federal Government announced the new Canada Emergency Rent Subsidy (CERS), the extension of the Canada Emergency Wage Subsidy (CEWS) and additional loans through the Canada Emergency Business Account (CEBA).
New Canada Emergency Rent Subsidy for businesses
The Canada Emergency Rent Subsidy (CERS) is the replacement for the Canada Emergency Commercial Rent Assistance (CECRA).
When launched, the new program will allow businesses to apply directly for rent relief through CRA. The original CECRA faced criticism because it required landlords to apply for the assistance and absorb a 25% reduction in rent which may explain the low uptake.
Prime Minister Justin Trudeau stated that the new rent subsidy will be available for businesses that continue to experience revenue decline due to COVID-19. From Canada.ca:
The new Canada Emergency Rent Subsidy, which would provide simple and easy-to-access rent and mortgage support until June 2021 for qualifying organizations affected by COVID-19. The rent subsidy would be provided directly to tenants, while also providing support to property owners. The new rent subsidy would support businesses, charities, and non-profits that have suffered a revenue drop, by subsidizing a percentage of their expenses, on a sliding scale, up to a maximum of 65 per cent of eligible expenses until December 19, 2020. Organizations would be able to make claims retroactively for the period that began September 27 and ends October 24, 2020.
A top-up Canada Emergency Rent Subsidy of 25 per cent for organizations temporarily shut down by a mandatory public health order issued by a qualifying public health authority, in addition to the 65 per cent subsidy. This follows a commitment in the Speech from the Throne to provide direct financial support to businesses temporarily shut down as a result of a local public health decision.
Allowing businesses to apply for the rent subsidy directly will make obtaining support for those in need as straightforward and simple as possible.
The new CERS is set to be available until June 2021.
Canada Emergency Wage Subsidy extended to June 2021
The Canada Emergency Wage Subsidy (CEWS) will continue to provide wage relief for employers until June 2021. As well, the subsidy will remain at the current rate of up to a maximum of 65% of eligible wages until December 19th and will not decrease on a sliding scale as previously planned.
Canada Emergency Business Account – additional $20,000 interest-free loan
The Canada Emergency Business Account (CEBA) will be expanded to provide an additional $20,000 loan with $10,000 forgivable if repaid by December 31, 2022. Additionally, the application deadline for CEBA is being extended to December 31, 2020. Businesses applying for the loan will be required to prove they have faced income loss caused by COVID-19.