2021 Federal Election: A comparison of the parties’ tax proposals
TAX ALERT |
On Aug. 15, 2021, Canada’s Prime Minister, Justin Trudeau, called a snap election sending Canadians to the polls with only 36 days to decide their vote. With the country still grappling with COVID, the parties’ platforms focus on pandemic recovery and restarting the economy.
All the parties in this election are offering up a myriad of tax proposals to win Canadians’ votes on Sept. 20, 2021. We have summarized these proposals below.
Liberal Party of Canada
Building on the 2021 Federal Budget released by the current Liberal government, the Liberal platform focuses on continuing its COVID relief and implementing measures to help Canadians achieve home ownership and to combat tax avoidance by targeting high income earners, large companies as well as certain non-resident investors.
- Introduce a minimum effective tax rate of 15% for individuals with taxable income above the threshold for the top bracket ($222,661 for 2022). The minimum tax will be calculated as 15% of taxable income and will replace the net federal tax where net federal tax is lower than the minimum tax. This measure is intended to remove the ability to artificially pay no tax through excessive use of deductions and credits. Foreign income taxes paid will be used to reduce the minimum tax payable, based on the share of foreign income in net income, to avoid double-taxation of income.
- Double the First-Time Home Buyers Tax Credit from $5,000 to $10,000. The Liberals are also proposing a Registered Home Savings Plan to allow Canadians under 40 to save up to $40,000 and make tax-free withdrawals from the savings account, and unlike the current Homebuyer’s Plan, there would be no need to repay the funds after the home is purchased. As the amounts contributed reduce individuals’ RRSP contribution limits, the funds in the savings account will convert to an RRSP where a home is not purchased before the age of 40.
- Introduce an anti-flipping measure on residential properties to require owners to hold property for at least 12 months. Specifically, the Liberals propose to remove access to the principal residence exemption when a property is sold within 12 months of purchase, excluding specified changes in life circumstances such as job loss or illness, among others.
- Introduce a Career Extension Tax Credit for seniors choosing to work past age 65 and expand the Canada Workers Benefit, as well as introduce a Labour Mobility Tax Credit.
- Introduce a new EI benefit for self-employed Canadians and establish an EI Career insurance benefit.
- Increase the Eligible Educator School Supply Tax Credit from 15% to 25% and extend the existing Home Office Expense deduction for an additional two years.
- Provide $10 per day childcare across Canada.
- Change the Canada Caregiver Credit into a refundable, tax-free benefit of $1,250 that will be indexed to inflation.
- In addition to providing grants and loans for home retrofits, and doubling the Home Accessibility Tax Credit from $10,000 to $20,000, the Liberals will introduce a new 15% tax credit to cover the cost of home appliance repairs and a new multigenerational home renovation tax credit of 15% up to $50,000.
- Introduce a corporate surtax of 3% on all bank and insurance company earnings in excess of $1 billion. The same companies would also be required to pay a special fee called a ‘Canada recovery dividend’ over a four-year period beginning in the 2022 to 2023 fiscal year.
- Extend the Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Rent Subsidy (CERS) past October 2021 for businesses in the tourism sector experiencing a minimum 40% revenue loss. The subsidy rate will be up to 75%, commensurate to their revenue loss, in order to help cover fixed costs like wages and rent between September 2021 until May 31, 2022. The Liberals also propose to extend the Canada Recovery Hiring Program, announced in the 2021 Federal Budget, until March 31, 2022.
- Increase the maximum loan amount for the Canada Small Business Financing Program and implement the Canada Digital Adoption Program.
- Review the tax treatment of large corporate owners of residential properties (e.g. Real Estate Investment Trusts).
- Provide small businesses with a tax credit of 25% for eligible ventilation improvement expenses and develop an investment tax credit of up to 30% for clean technologies.
- Eliminate flow through shares for oil, gas and coal projects, double the Mineral Exploration Tax Credit and extend the Canadian Film or Video Production Tax Credit.
- Provide healthcare professionals with a one-time tax incentive to establish a practice.
- Implement a national tax on non-resident, non-Canadian owners of vacant, underused residential housing including foreign-owned vacant land within large urban areas starting on Jan. 1, 2022 as outlined in the 2021 Federal Budget and a recent technical paper.
- Implement a global minimum tax.
- Introduce a national tax on vaping products.
- Implement a tax on luxury cars, boats and planes as outlined in 2021 Federal Budget and recent technical paper.
- Modernize the General Anti-Avoidance Rule.
- Increase the resources of the Canada Revenue Agency (CRA) to combat aggressive tax planning and tax avoidance.
Conservative Party of Canada
The Conservative Party, led by Erin O’Toole, released its platform focusing on Canada’s recovery plan, specifically providing various credits to individuals and businesses with the intention of jumpstarting the economy. The platform also promises a comprehensive review and complete overhaul of the Canadian tax system through the appointment of an expert panel.
- Introduce a 25% non-refundable personal income tax credit on amounts of up to $100,000 that Canadians personally invest in Canadian-controlled private corporations that have net assets of $40 million or less between Jan. 1, 2021 through Dec. 31, 2023.
- Provide a 50% rebate for food and non-alcoholic drinks purchased for dine-in service from Monday to Wednesday for one month and launch the Explore and Support Canada initiative with a 15% tax credit for vacation expenses incurred in Canada of up to $1,000 per person in 2022.
- Convert the Child Care Expense deduction into a refundable tax credit covering up to 75%, which would be paid throughout the year. It also appears this credit would be income tested and not available to those who earn in excess of $120,000, whereas currently this expense can be a deducted against income.
- Change the Adoption Expense Tax Credit to a refundable credit on up to $20,000 of eligible expenses (an increase from $15,000), expand EI maternity benefits to adoptive parents and expand the Canada Child Benefit to expecting parents beginning on week 28 of pregnancy (based on adjusted family net income).
- Introduce an enhanced EI that temporarily provides 75% of salary instead of 55% when a province experiences a 0.5% provincial increase in unemployment and additionally extend EI sickness benefit to 52 weeks from the current 15, EI contribution rates would be increased to support this.
- Double the Canada Workers Benefit, Disability Supplement and in addition to expanding the Northern Zone to include Intermediate Zones, double the Northern Residents Deduction.
- Double the Apprenticeship Job Creation Tax Credit for the next three years.
- Provide a $200 per month non-taxable payment to families hosting senior parents over the age of 70 in their home. The benefit would be income tested similar to Canada Child Benefit.
- Broaden eligibility for the Disability Tax Credit and increase the Medical Expense Tax Credit for attendant care.
- Introduce a new non-taxable benefit for veterans as well as a Labour Mobility Tax Credit of up to $4,000 annually for trade workers with relocation expenses.
- Encourage Canadians to invest in rental housing by deferring capital gains on the sale of a rental where the proceeds are reinvested in rental housing
- Create a low tax regime in Canada for innovation and new product development by introducing a ‘patent box’ regime to reduce the corporate tax rate to 7.5% for large corporations and 4.5% for small businesses on profits generated from research and development that are patented in Canada.
- Introduce the Canada Job Surge Plan to cover up to 50% of the salary of new hires for six months following the end of CEWS in October 2021. The rate paid to employers will be based on the number of months the employee was previously unemployed.
- Require gig economy companies to make contributions equivalent to CPP and EI premiums into a portable Employee Savings Account. The funds will grow tax-free and can be withdrawn by the worker when required.
- Introduce the use of flow-through shares for tech companies. These shares would allow technology firms to pass on eligible expenses to the shareholders to deduct against their income.
- Increase employee ownership of Canadian companies by establishing Employee Ownership Trusts and exempt Canadian-controlled start-ups headquartered with at least two-thirds of their employees in Canada from the current plan to tax stock options.
- Provide employers with a tax credit for 25% of the cost of additional mental health coverage for the first three years.
- Continue to support Bill C-208, although it is unclear whether the current legislation would be amended.
- Provide companies with a 5% refundable tax credit, up to a maximum of $25,000, for any new capital investment made in 2022 and 2023 and introduce a tax credit to accelerate Carbon Capture, Utilization and Storage as well as a tax incentive program for the development of technologies in the salmon industry
- Provide loans to businesses, equivalent to four months of pre-pandemic revenue up to $200,000 on similar terms as the CEBA. Repaying the loan prior to Dec. 31, 2022 will result in a forgiven amount of up to 25%.
- Create a ‘welcome to CRA’ program for new small businesses and allow businesses with less than $60,000 in revenues to use cash accounting
- Implement a digital services tax representing 3% of the gross revenue earned in Canada by foreign entities if they do not otherwise pay Canadian corporate income tax.
- Ban foreign investors from buying homes in Canada for a minimum of two years.
- Implement a month-long GST holiday in December 2021 for all purchases made at retail stores. Retail purchases of motor vehicles (and parts), alcoholic beverages, cannabis products and e-commerce purchases would not be eligible for the GST holiday.
- Introduce a Personal Low Carbon Savings Account that Canadians will pay into each time they purchase hydrocarbon-based fuel, which they can withdraw and apply to green initiatives such as the purchase of a transit pass or a bicycle.
- Reinstate the tariff on imported Personal Protective Equipment at the historical level and freeze the excise duty rate (also known as the escalator tax) on alcohol.
- Streamline and accelerate the Scientific Research and Experimental Development program.
- Impose a duty of care (a legal obligation to a reasonable standard) on CRA, potentially requiring a minimum level of service to taxpayers.
- Revise CRA’s penalties so that first-time errors receive minor fines, with increasing severity for repeat offenders.
New Democratic Party
The NDP party, led by Jagmeet Singh, released its platform focusing on Canada’s people, specifically providing various credits to individuals, and taxing large corporations and those they consider to be the ultra-rich.
- Increase the top marginal federal tax rate by two points to 35% for those individuals earning over $210,000 and impose an annual 1% tax on net wealth owned by ‘Canadian resident economic families’ on Dec. 31 of each year. Families with net wealth below a threshold of $10 million are exempt from the tax, as is wealth acquired through lottery winnings.
- Increase the capital gains inclusion rate to 75% from 50%.
- Introduce universal $10 per day childcare.
- Double the Home Buyer’s Tax Credit to $1,500.
- Create a low-income supplement to ensure an individual on EI will receive a minimum of $2,000 a month and introduce or expand various benefits helping individuals who are collecting EI, or are on sick leave or parental leave.
- Introduce a drug plan with universal coverage that will cover the total cost of expenditures and introduce financial support for mental health care coverage.
- Amend the Guaranteed Income Supplement income test to exclude Canada Emergency Response Benefit and Canada Recovery Benefit payments as they impact GIS and Spousal Allowance payments.
- Modify the Canada Student Financial Assistance Program.
- Increase the federal corporate tax rate from 15% to 18%, while maintaining the small business tax rate at its current level of 9%.
- Continue to provide wage and rent subsidies to small businesses until they are able to fully re-open and introduce a long-term hiring bonus to pay the employer portion of EI and CPP for new or rehired staff.
- Introduce a temporary COVID-19 excess profit tax that levies an additional 15% tax on large corporations that received publicly funded COVID-19 wage subsidies and paid out executive bonuses.
- Require large employers to spend at least 1% of payroll annually on employee training.
- Eliminate corporate meals and entertainment expense deductions for tax purposes for all Canadian corporations except businesses with revenue less than $500,000, self-employed individuals and businesses operating as a sole proprietorship or partnership.
- Eliminate the deduction on employee stock options so that exercised options are included in taxable income as regular salary.
- Restrict deductibility of internet advertising expenses paid by Canadian resident businesses to only the expenses for advertising on Canadian-owned websites and on other Canadian-owned internet-delivered media.
- Eliminate the Accelerated Investment Incentive and certain expense deductions for the oil and gas sector.
- Introduce a 20% foreign buyer’s tax on the sale of homes to individuals who are not Canadian citizens or permanent residents and work with the provinces to create a publicly accessible ‘beneficial ownership registry’ increasing transparency of property ownership and reporting of suspicious transactions.
- Require web giants (e.g. Netflix) to pay Canadian corporate taxes.
- Deny deductions related to transactions with foreign subsidiaries where the transaction lacks economic substance.
- Introduce a tax on luxury goods. It is unclear whether this would be similar to the details proposed by Finance in August.
- Introduce measures to close loopholes such as eliminating bearer shares, compelling companies to prove the economic reason for their offshore transactions and improving transparency on the taxes paid by large corporations.
- Provide more funding to CRA’s enforcement section dealing with international and corporate taxation to target offshore tax havens.
Green Party of Canada
The Green Party of Canada, led by Annamie Paul, tabled its platform with three main targets: a green future, life with dignity and a just society. Many of the proposals are similar to the Liberal and NDP platforms, which may indicate support if a minority government was achieved by one of those parties.
- Apply a 1% tax on net (family) wealth above $20 million.
- Increase the federal corporate tax rate from 15% to 21% but maintain the small business tax rate at no more than 9% and charge a 5% surtax on commercial bank profits from which credit unions and co-ops will be exempt.
- Extend wage and rent subsidies until COVID-19 pandemic-related restrictions are fully removed.
- Apply a corporate tax on transnational e-commerce companies (e.g. Netflix) doing business in Canada by requiring the foreign vendor to register, collect and remit taxes where the product or service is consumed.
- Raise the “empty home” tax for foreign and corporate residential property owners who leave buildings and units vacant.
- Implement a global minimum tax.
- Impose a financial transactions tax of 0.5% in the finance sector.
- Apply a tax on luxury goods, such as planes and luxury cars. Similarly, it is unclear if this would differ from the August proposal made by Finance
- No new enforcement measures are proposed
Led by Yves-François Blanchet, the Bloc Quebecois put forth a platform that focuses on recovering from the pandemic and encouraging Quebec’s growth. While a majority or minority Bloc government is highly unlikely, the party may garner enough seats to provide critical collaboration with a minority government.
The platform proposes a wealth tax and a 3% tax on digital giants such as Facebook. There is focus on continuing efforts to end tax avoidance by large companies.
People’s Party of Canada
The People’s Party of Canada (PPC), led by Maxime Bernier, tabled its platform focusing primarily on cutting spending.
The PPC proposes to eliminate the deficit by the end of a first mandate through fiscal prudence and cutting funding to most programs such as corporate welfare, foreign development aid, multiculturalism, climate change, equalization payments, as well as funding for programs, which they consider to be provincial or municipal responsibilities.
They further propose to phase out all COVID spending programs and reverse new spending programs.
Once the deficit is eliminated, they plan to cut personal income taxes, reduce corporate taxes to 10% and abolish the personal capital gains tax by gradually decreasing the inclusion rate from the current 50% down to 0%.
Many of the tax proposals made in the Liberal platform are extensions or completions of previous announcements. The NDP has made similar proposals to those made in the last federal election. While the NDP and the Liberals have proposed additional taxes and restrictions on deductions, the Conservatives have focused on wooing voters with boutique tax credits and a complete tax reform.
Likely due to the short time between the election call and the date Canadians head to the polls, most proposals leave out key details on how these programs would be administered and don’t consider the cost to business owners and taxpayers of implementing the proposed measures.