Minister of Finance Chrystia Freeland tabled Canada’s Federal Budget on April 19, 2021. It featured significant stimulus spending aimed at bolstering Canada’s economic growth following the COVID-19 pandemic. In particular, the government announced critical measures to help businesses operating in the consumer products industry.
This articles summarizes the various measures announced in the budget that consumer products businesses should leverage. For more details on the measures mentioned below as well as other tax measures, please reference the 2021 Canada Federal Budget: Detailed Commentary article.
Pandemic response measures
- The consumer products sector is undergoing significant changes, from rapidly changing consumer preferences to continued changes in technology and innovation. The budget proposed numerous key measures for the consumer products sector that businesses should consider in the context of their shifting business environments.
Canada Recovery Hiring Program and Canada Emergency Wage Subsidy
The budget proposes to introduce the Canada Recovery Hiring Program (CRHP) from June to November 2021, to enable businesses to hire back laid-off workers or hire new employees. The CRHP will provide eligible employers with a subsidy of up to 50% on the eligible remuneration paid to the rehired and newly hired employees between June 6, 2021, and Nov. 20, 2021. If a business applies for the CHRP, it cannot also receive the Canada Emergency Wage Subsidy (CEWS).
The government also proposes to extend the CEWS to Sept. 25, 2021. However, beginning July 4, 2021, only employers that suffer a revenue decline of more than 10% will be eligible for the CEWS. In addition, the potential subsidy amount will decrease incrementally each month. These measures are particularly important for CP businesses that have had to reduce staff as a result of COVID-19, particularly those in the retail sector.
CP business should evaluate the optimal claim structure considering both the CHRP and the CEWS in order to maximize government support and manage cash flow effectively.
Canada Emergency Rent Subsidy
The Canada Emergency Rent Subsidy (CERS) provides qualifying organizations with a subsidy in respect of qualifying rent expenses, with the maximum base rent subsidy rate set at 65% of eligible expenses until June 5, 2021. Like the CEWS, the budget proposes to set a minimum revenue decline of 10% and gradually reduce the potential subsidy amount.
In addition, particularly relevant for retailers and other ‘non-essential’ businesses, the budget proposes to extend the current 25% subsidy rate for Lockdown Support under CERS from June 6, 2021 to Sept. 25, 2021.
Growth and innovation investments
Canada technology adoption fund
The budget proposes to launch the Canada Digital Adoption Program, allowing eligible businesses to receive micro-grants and access zero-interest financing to help offset the costs of transitioning to digital operations. As consumers have increasingly looked to digital options, particularly e-commerce and online shopping adoption throughout COVID-19, this program can be particularly impactful for middle market businesses as they adapt to such changing consumer preferences.
Credit card fees
With the increase of online and e-commerce transactions due to COVID-19, middle market businesses have also experienced significant increases in credit card fees. In the budget, the government noted that it will engage with key stakeholders to
- Lower the average overall cost of interchange fees for merchants
- Ensure that small and middle market businesses benefit from pricing that is similar to large businesses
- Protect existing rewards points for Canadian consumers
Home energy retrofits
The Budget proposes to allocate $4.4 billion to the home energy retrofit initiative. Led by the Canada Mortgage and Housing Corporation (CMHC), the program will provide up to $40,000 in interest-free loans to assist owners on making their house greener. The program is set to begin in summer 2021. With this new initiative, consumer products businesses that focus on providing green energy solutions to households in Canada should see an increase in business.
Corporate tax changes
Digital services tax
The budget proposes to implement a digital services tax (DST) at a rate of 3% on revenue from digital services that rely on data and content contributions from Canadian users – this includes the collection, processing, and monetizing of data and content contributions from users. The tax would apply as of Jan. 1, 2022 to large businesses with gross revenue from all sources of €750 million or more, and in-scope revenue associated with Canadian users of more than $20 million in a calendar year.
While most Canadian consumer products businesses will be exempt from the DST, the DST will apply to large corporations that are prominent in the supply chain of consumer products businesses, such as social media giants. As such, it will be important for consumer products businesses to monitor the implications of the DST as it might have an indirect impact.
The budget proposes a tax on the purchase of new personal-use luxury cars, aircraft and boats. Beginning on Jan. 1, 2022, the tax will apply to:
- Luxury cars and personal aircrafts with a retail price over $100,000 (the lesser of 10% of the full value of the vehicle or the aircraft, or 20% of the value above $100,000), and
- Boats with a price over $250,000 (the lesser of 10% of the full value of the boat or 20% of the value above $250,000)
Many consumer products companies require capital property to operate. The capital cost allowance (CCA) arrangement permits deductions each year for income tax purposes in respect of the capital cost of its depreciable property. The budget proposes to provide temporary immediate expensing in respect of certain property acquired by a Canadian-controlled private corporation on or after April 19, 2021, and which becomes available for use before Jan. 1, 2024.
Indirect tax changes
GST/HST for remote sellers
The Budget proposes several amendments to the GST/HST rules for remote sellers and digital platform operators originally proposed in November’s Fall Economic Statement to clarify certain provisions and to help ensure the rules operates effectively.
Platform operators are required to register for, charge and report GST/HST on taxable supplies made on behalf of underlying vendors who are not registered for GST/HST and who sell through the operators’ platforms. Platform operators must rely on the seller (i.e., whether registered for GST/HST or not) to determine if GST/HST is collectible on the sale.
Platform operator information returns
Platform operators will be required to file annual information returns if they facilitate supplies of short-term accommodation in Canada through the platform, or facilitate sales of tangible goods located in fulfillment warehouses in Canada by non-registered vendors. The budget proposes to clarify that the filing of information returns by platform operators applies only to those that are registered for, or are required to be registered, for GST/HST.
The Budget proposes that the third-party seller and the platform operator be jointly and severally liable for the collection and remittance of tax if the seller provides false information to the platform operator. Furthermore, the proposals will limit the liability of the platform operator for failing to collect and remit tax if the platform operator reasonably relied on information provided by the seller.
GST/HST on certain supplies made by billing agents
The budget proposes an amendment to relieve GST/HST on the supply of services by billing agents to persons who are registered for GST/HST under the simplified framework. This proposal will ensure that businesses registered under the simplified framework are not paying unrecoverable GST/HST on services supplied by billing agents, given ITCs cannot be claimed under the simplified framework.
Enhancements to ITC documentary requirements rules
Currently, the ITC information rules require basic information on an invoice, receipt or other source document, to validate the refund claim on pre-tax purchases less than $30. Additional source document information must be obtained by a claimant where the purchase amount is $150 or more.
The budget proposes to increase these thresholds to $100 and $500 respectively, presumably to alleviate issues for ITC claimants and their vendors that provide the necessary information on source documents. This change is proposed to take effect for transactions on or after April 20, 2021.