2021 Federal Budget: Ottawa in Recovery and Election Mode

This first budget from the Canada’s Finance Minister of the Liberal minority government is part of an economic stimulus… and green plan!

With a general election potentially looming, the Minister of Finance, the Honourable Chrystia Freeland, is keeping the floodgates of economic aid open with a three-year, $100 billion stimulus plan, but without any short-term measures to put public finances in order.

This translates into several important investments to the benefit of numerous taxpayers, especially SMEs, the country’s economic driving force.

Recovery stimulus: A few key measures

Emergency Business Support

Measures for businesses include extending the Canada Emergency Wage Subsidy, Canada Emergency Rent Subsidy and Lockdown Support to September 25, 2021. In addition to the previously announced extension of the Canada Emergency Business Account, these extensions represent $12.1B in additional support.

Recovery Hiring Program

Furthermore, the government is creating a Recovery Hiring Program which will run from June to November 2021 and provide $595M to make it easier for businesses to hire back laid-off workers or to bring on new ones.

Canada Digital Adoption Program

The federal government is injecting $4B to help some 160,000 Canadian SMEs invest in new technologies and innovation. The Canada Digital Adoption Program will also provide businesses with the advice and help they need to get the most out of these new technologies. The program will make it possible to train 28,000 Canadians – a Canadian technology corps – and send them out to work with SMEs.

Zero Net Accelerator

In terms of green recovery, the budget is proposing an unprecedented $5G investment over seven years, starting in 2021-2022, in Net Zero Accelerator. This support is on top of the $3B announced by the government to encourage even more businesses to invest in reducing their greenhouse gas emissions.

Some tax measures

With respect to the capital cost allowance, the budget is authorizing the immediate expensing of up to $1.5M of eligible investments by Canadian-controlled private corporations for each of the next three years. These significant deductions will help 325,000 businesses make essential investments and achieve overall savings of $2.2B in the next five years.

Tax on digital services and luxury goods

The budget is also proposing to introduce a Digital Services Tax to ensure the services pay their fair share. This 3% tax would apply on revenue from digital services that rely on Canadian data and content. This measure would make it possible to raise $3.4B in revenue over five years beginning this year.

A new luxury tax is introduced. The tax would apply to the purchase of automobiles and private aircraft worth more than $100,000 and pleasure boats worth more than $250,000. This should bring in tax revenue of $604M over the next five years.

Public finances: Situation and prospects

The 2020-2021 deficit is now $354.6B, whereas it was expected to be $154.7B by the end of 2021-2022. The budget is not expected to be balanced in the medium term and the deficit for fiscal 2025-2026 could be $30.7B, that is slightly less than the pre-pandemic deficit of $39.4B in March 2020. The federal debt would rise from $1,079B to $1,411B by 2026.

Raymond Chabot Grant Thornton had recommended in its pre-budget recommendations, bold tax measures that would apply temporarily to increase the collection of unrealized taxes at a lower rate, thereby enabling the government to collect additional income on the near future, without increasing Canadian taxpayers’ taxes. The funds could be allocated to reducing the pandemic debt.

For more information on the tax measures announced in the 2021 federal budget, please read our Tax bulletin.