On November 30, 2020, the federal government presented its Fall Economic Statement (“FES”). The FES contains numerous noteworthy tax measures, including both pandemic-related financial support as well as longer-term tax changes.
The following summarizes the notable income tax measures announced in the FES:
- Employee Stock Options – Further to an announcement in Budget 2019 (and legislative proposals released in June 2019), the FES contains revised draft legislation regarding the employee stock option deduction. Generally, the proposed amendments deny the stock option deduction in s.110(1)(d) of the Income Tax Act (Canada) (the “Act”) in respect of “non-qualified securities”. Under the draft legislation, in general:
- Canadian-controlled private companies (CCPCs) and those with less than $500M in annual gross revenues will be exempt from the new rules;
- there remains a $200,000 annual exemption threshold (based on the value of the underlying shares as of the option grant date) for qualifying securities with the same vesting year;
- options without a specific exercise date are deemed to vest on a pro rata basis over five years; and
- the new rules will apply to stock options granted after June 2021 (unless granted in accordance with the “option exchange” rules in s.7(1.4) of the Act).
- COVID-19 Relief Programs – The FES proposes to:
- extend the Canada Emergency Wage Subsidy (CEWS) and Canada Emergency Rent Subsidy (CERS) to March 13, 2021;
- increase the maximum CEWS rate to 75%;
- expand the Canada Emergency Business Account (CEBA) program to provide an additional $20,000 loan to qualifying businesses and non-profits (one-half of which would be forgivable if the loan is repaid by December 31, 2022); and
- introduce a “Highly Affected Sectors Credit Availability Program” for businesses within certain industries such as tourism and hospitality, hotels, and art and entertainment.
- Canadian “Speculation Tax” – The FES announces the federal government’s intention to introduce a national tax targeting domestic housing owned by “non-resident, non-Canadians”. No further substantive details were provided in the FES.
- Consultation on “Modernizing Anti-Avoidance Rules” – The FES further announces the federal government’s intention to initiate a consultation on “modernizing” Canada’s anti-avoidance rules, and the General Anti-Avoidance Rule (GAAR) in particular. Such a consultation process will ostensibly be launched over the coming months.
- Additional Offshore Audit Funding – The FES notes that the federal government will invest an additional $606 million over five years in initiatives and programs targeting “international tax evasion and aggressive tax avoidance”.
- Simplified Home Office Expense Deduction – The FES states that the Canada Revenue Agency (“CRA”) will announce an administrative policy permitting employees working from home in 2020 due to COVID-19 to claim expenses of up to $400 without the need to track detailed expenses (and without the employer needing to provide a certification). The CRA is expected to announce further details in the coming weeks.
The following summarizes the notable sales (e.g., GST/HST) tax measures announced in the FES:
- Tax Relief for Face Masks and Face Shields – The FES proposes to “temporarily” zero-rate supplies of certain medical and non-medical face masks and face shields after December 6, 2020, meaning they will no longer be subject to GST or HST after that date. The measure is proposed to only be in effect until face masks are no longer broadly recommended by public health officials for the COVID-19 pandemic.
- Expanded GST/HST Registration for E-Commerce – The FES proposes to require non- resident sellers of certain digital products and services and certain platform operators to register and collect GST/HST on sales made to Canadians who are not registered for GST/HST (subject to a $30,000 threshold). The draft legislation provides for a simplified registration and remittance process without a right to input tax credits or rebates. The changes are to come into force on July 1, 2021, though Finance has invited comments on the proposed changes by February 1, 2021.
- Fulfillment Warehouses – The FES proposes to require certain distribution platform operators to register for and collect GST/HST in respect of sales of goods located in Canadian fulfillment warehouses sold by non-registered vendors. Non-resident vendors who make direct sales (i.e. not through a distribution platform operator) will be required to register and collect GST/HST. Finally, the FES also proposes to introduce an information reporting regime whereby Canadian fulfillment businesses will be required to notify the CRA that they are carrying on a fulfillment business, and maintain prescribed information regarding their non-resident clients and the goods they store on behalf of such clients.
- Platform-Based Short-Term Accommodation – The FES proposes to effectively require GST/HST to be paid on all supplies of short-term accommodation in Canada where the supply is facilitated through a digital platform. Under the proposal, certain platform operators (e.g., Airbnb) who facilitate the supply of short-term accommodation on behalf of third parties who are not registered for GST/HST will be deemed to supply the accommodation. Accordingly, the operator will be required to register and collect the GST/HST applicable to the supply. The FES also proposes to impose additional record-keeping requirements on these platform operators.