2021 federal election tax round-up: changes may be coming
News & Views
On Monday, September 20, 2021, the Liberal Party of Canada secured a second consecutive minority government. As part of their campaign, a variety of tax measures were promised and may be placed into law as soon as the end of this year. Some of these tax measures, if implemented, may have a direct impact on financial advisors and their clients. Here’s a brief synopsis of some of the more interesting measures to keep an eye on.
*New* — Registered home savings account (RHSP)
The introduction of an RHSP will allow individuals under the age of 40 to save up to $40,000 toward their first home and withdraw it tax-free. Contributions to the RHSP count towards an individual’s RRSP contribution limit and will be deducted from their income. Funds can also be transferred from an individual’s RRSP. All funds in the RHSP can be withdrawn tax-free to purchase a first home and don’t have to be repaid. At least 50% of the funds withdrawn from the RHSP will have to be invested for at least four years and no funds can be withdrawn within a year of being contributed. The RHSP will be effective July 2022.
*New* — Multigenerational Home Renovation Tax Credit
The introduction of a Mutigenerational Home Renovation Tax Credit assists families with adding an additional unit to their home for an immediate or extended family member. Families can claim a 15% tax credit for up to $50,000 of renovation expenses, which can result in up to $7,500 of tax savings.
Increase to First-Time Homebuyers Tax Credit
The 15% non-refundable First-Time Homebuyers Tax Credit is in place to help first-time homebuyers with the cost of purchasing a home (i.e., legal fees, land transfer tax, etc.). The Liberals are promising to increase the First-Time Homebuyers Credit from $5,000 to $10,000. So, a first-time home buyer will be able to claim a 15% tax credit, resulting in $1,500 of tax savings ($10,000 x 15%).
Potential addition to the minimum tax regime
Canada already has an alternative minimum tax (AMT) regime in place, aimed at individuals who claim preferential tax deductions or credits in any given year. What the AMT does is remove various preferential items an individual may receive, which otherwise lowers their taxable income. In short, the AMT is designed to make sure high-income earners don’t pay little or no tax but at least pay a minimum amount of tax. This new proposed minimum tax appears to limit the benefits of all credits (except for the foreign tax credit) and would be calculated as 15% of taxable income for individuals in the top marginal tax bracket (i.e., with taxable income in excess of $216,511 for 2021). When this minimum tax is greater than the net federal tax, it replaces the net federal tax — and for Quebec residents, is used to calculate the refundable Quebec abatement. The new minimum tax could have a greater impact and be more punitive than the existing AMT system for individuals caught by these rules.
Extend and expand the home office expenses deduction
Due to the COVID-19 pandemic, many people were forced to work from home throughout the majority of 2020. As many people have continued to work from home, the Liberals have said they’ll extend the home office expenses deduction for an additional two years, through to the 2022 tax year, and increase the deductible amount to $500 (from $400) for those workers using the simplified method to calculate the deduction. Read more about the home office expense deduction in our “Working from home? Don’t miss out on valuable tax savings” article.
Move forward with various items proposed in the 2021 Federal Budget
As part of the Liberal campaign promises, they intend to proceed with some of the items outlined in the 2021 federal budget, such as:
- new tax on luxury goods
- increasing Old Age Security (OAS) for Canadians 75 and over
- enhancing the Canada workers benefit (CWB).
Our team wrote about these items in “Budget 2021 — The other shoe hasn't dropped ... yet.”
One other observation — capital gains inclusion rate
One item of interest that wasn’t part of the Liberal Party campaign is an increase to the capital gains inclusion rate. However, it was part of the New Democratic Party platform and who knows what may happen if they form a coalition?
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Keep in mind, these potential changes are simply campaign promises and are ever evolving. We’ll continue to monitor these updates as more information becomes available.
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