This year's federal budget – the first since the onset of the pandemic –needs to focus on a 'Canada-first' economic recovery and position the business sector and Canadians for success in a post-pandemic world, says KPMG in Canada.
"This federal budget should set out an ambitious economic recovery plan that builds on recent indications that the economy is beginning to rebound and employment levels are improving," says Lucy Iacovelli, Canadian Managing Partner for Tax and Legal, KPMG in Canada. "A majority of Canadians support further fiscal stimulus in the budget but want investments to be focused on growing the economy and strengthening business resilience and competitiveness, particularly for small- and medium-sized businesses in Canada. There is also a continuing need for targeted relief for certain industries and people who remain deeply affected by the pandemic."
Ms. Iacovelli adds, "Many Canadian companies require tax and financial incentives to help build their digital capabilities and adopt greener, more innovative solutions for a post-COVID future. In pursuing a made-in-Canada approach, we also hope to see an inclusive budget that works to achieve an equal future for all Canadians."
Possible tax and relief measures the federal government could announce in the upcoming budget include:
COVID-19 Relief Programs
- Further Extend or Adapt Support Programs:
Canada Emergency Wage Subsidy, Canada Emergency Business Account, Employment Insurance (EI) and targeted personal income supports for Canadians in need.
- Prevent companies currently receiving 75 per cent of payroll from government relief from increasing dividend payments or conducting share buy-backs to enrich shareholders or pay executive bonuses (Source: House of Commons Standing Committee on Finance Report).
- Industry-Specific Support: Provide additional financial support to cultural, tourism and hospitality sectors.
Corporate Tax Measures
- International Digital Tax: As of January 1, 2022, tax multinational tech corporations on revenue generated in Canada if consensus on a multilateral approach is not achieved among OECD members by this date.
- Interest Deductions: Limit the amount of interest that certain corporations can deduct. The potential change could limit interest deductions for corporations with net interest expenses of more than $250,000 to 30 per cent of earnings before interest, depreciation, taxes, and amortization (EBITDA). However, if part of a corporate group, a corporation may be eligible to deduct interest over the 30 per cent threshold based on certain conditions.
- International Tax: Introduce measures to address hybrid debt mismatch arrangements.
- Anti-Avoidance Rules: Launch consultations on changes to anti-avoidance rules to address "sophisticated and aggressive tax planning" (Source: Federal Economic Statement 2020).
Support for Small and Medium-Size Enterprises (SMEs)
- Tax Incentives to Attract Investment: Introduce measures to attract capital for new businesses and SME expansion.
- Business Succession: Grant the seller the same tax benefits when a small business or farm is sold from a parent to a child in the form of corporate shares as if it were sold to an unrelated person.
- Other potential small business measures could include financially supporting the shift to digital and a review of the tax rules defining passive and active business income.
Personal Tax and Incentives
- Disability Tax Credit (DTC): Make the Disability Tax Credit more accessible for individuals. Simplify the tax system for people with physical disabilities.
- Canada Child Benefit: Increase this benefit for children under the age of one. The budget may also include investments to increase affordability and access to new early learning and childcare services, possibly through tax credits.
- Luxury Tax: Introduce a sales tax on purchases of luxury goods over $100,000, such as personal automobiles, boats and aircraft.
- Real Estate: Introduce a new, annual 1 per cent tax on vacant "unproductive" domestic housing owned by non-Canadians who do not live in Canada.
- Sustainability: Adopt tax-based financial incentives for Canadians to invest in accredited climate-conscious products, such as green bonds.
- Charitable Donations: Eliminate the capital gains tax on donations of shares in private corporations or real property to charities and provide further incentives for charitable giving.
- National Innovation Agenda: Fund new, mission-driven investments that leverage public-private partnerships, focused on outcomes (such as carbon neutrality by 2040).
- Reform Scientific Research and Experimental Development (SR&ED): Increase the base rate to 25 per cent, eliminate or raise the upper limit for the taxable capital phase-out range from the current rate of $50 million, and reduce claims documentation.
- Enhance R&D Incentive Programs such as the Accelerated Capital Cost Allowance program and the Innovation Assistance Program.
- National Intellectual Property Strategy: Help Canadian companies manage intellectual property rights and protections.
- Corporate Innovation: Incentivize multinational corporations to conduct R&D and patent filings within Canada, particularly in fields where Canada has a strategic or competitive disadvantage.
- Green Business Incentives: Cut corporate taxes in half for businesses that develop technologies or manufacture products that have zero emissions.
- Electric Vehicles: Broaden incentives for purchasing zero-emission vehicles to include larger, heavy duty vehicles such as electric pickup trucks and SUVs (in addition to light-duty vehicles) by increasing the MSRP base cut off.
- Green Tech Companies: Potential measures to support and raise market capital using financial tools, such as flow-through shares.
- Large Employer Emergency Financing Facility (LEEFF): Require companies receiving the LEEFF to prove their business plans are in line with the Paris Agreement targets.
- Qualified Environmental Trusts (QET): Allow businesses to use QETs for future remediation of oil and gas wells.
- Skills Training: Expand and reorient employment supports and provide training for green jobs.
In addition, the federal government may also consider the following to support Canada's economic recovery:
- Health Care: Further investments to strengthen health care, mental health supports and vaccine production/pandemic research.
- Infrastructure and Manufacturing: Invest in infrastructure that supports industrial and climate strategies and business incubation activities and support the expansion of domestic manufacturing capacity.
- Inclusive Growth: Initiatives and support for Women, Black Canadians, Indigenous Peoples, People of Colour, the LGBTQ2 community, People with Disabilities and other marginalized groups.
- Trade: Introduce mitigation measures for market access concessions granted under the Canada-U.S.-Mexico Agreement (CUSMA).
KPMG's professionals are available to provide insight and commentary on the impact of the 2021 federal budget on businesses and Canadians. A listing of our spokespersons is below.
||Dino Infanti, Partner, National Leader, Enterprise Tax
Deborah MacPherson, Partner, Regions West, Tax, Business Unit Leader
Joseph Micallef, Partner, Tax - National Tax Leader, Financial Services
Joy Nott, Partner, Trade and Customs
Carmela Pallotto, Partner, Tax, Corporate Tax – Financial Institutions
Shane Onufrechuk, Partner, Tax
|COVID Relief Measures
||Barry Travers, National Tax Leader - Public Sector Tax
- Small- and Mid-Sized Businesses
|Mary Jo Fedy, National Enterprise Leader
Sunil Mistry, Audit Partner, KPMG Enterprise
- Personal Tax
- Digital Tax (GST/HST)
- Green Incentives/Carbon & Fuel Taxes/Hydrogen Strategy
- Corporate Tax
Aaron Gillespie, Partner, Enterprise Tax
Walter Sisti, Partner, National Leader - Indirect Tax Services
Torran Jolly, Partner, Tax
Jennifer Muirhead, Partner, Tax
Curtis Lester, Partner, Calgary Tax and Business Unit Leader
Climate Change and Decarbonization
Environmental, Social and Governance
Bill Murphy, National Leader, Climate Change & Sustainability
Roopa Davé, Partner, Sustainability Services
|Digital Workforce and Innovation Economy
||Armughan Ahmad, President and Canadian Managing Partner, Digital
|Budget and Quebec Business
||Pascal Martel, Partner in charge, Tax, Quebec Region
|Industrial & Infrastructure Investments
||Ross Homeniuk, Partner, Advisory, National Leader, Infrastructure Asset & Operations Management
For further details on these and other budget predictions, read KPMG's latest edition of TaxNewsFlash-Canada.