Tax Measures – Supplementary Information
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Enhanced Support for Teachers
Under current rules, teachers and early childhood educators may claim a 15-per-cent refundable tax credit based on an amount of up to $1,000 in expenditures made in a taxation year for eligible supplies.
Eligible supplies must be purchased for use in a school or in a regulated child care facility for the purpose of teaching or facilitating students’ learning. Eligible supplies include the following durable goods: books; games and puzzles; containers (such as plastic boxes or banker boxes); and educational support software. Eligible supplies also include consumable goods, such as construction paper for activities, flashcards or activity centres.
For the cost of supplies to qualify for the credit, employers are required, at the request of the Minister of National Revenue, to certify that the supplies were purchased for the purpose of teaching or facilitating students’ learning. Individuals making claims are required to retain their receipts for verification purposes. The credit may not be claimed in respect of an amount that has already been claimed under any other provision of the Income Tax Act.
Electronic devices are not in general included in the list of prescribed durable goods for the purposes of the Eligible Educator School Supply Tax Credit, and while the Canada Revenue Agency has taken the position that an online classroom may be considered an extension of the physical school, this position would not generally apply outside the context of the COVID-19 pandemic.
The 2021 Fall Economic Statement proposes to make the tax credit more generous by increasing the rate of the refundable tax credit to 25 per cent. Additionally, this measure would clarify and broaden the rules regarding the locations where teaching supplies are permitted to be used by removing the requirement that teaching supplies must be used in a school or regulated child care facility to be eligible. This measure would also expand the list of eligible durable goods to include certain electronic devices.
The following items would be added to the list of prescribed durable goods:
- calculators (including graphing calculators);
- external data storage devices;
- web cams, microphones and headphones;
- wireless pointer devices;
- electronic educational toys;
- digital timers;
- video streaming devices;
- multimedia projectors;
- printers; and
- laptop, desktop and tablet computers, provided that none of these items are made available to the eligible educator by their employer for use outside of the classroom.
At the request of the Minister of National Revenue, an eligible educator making a claim would be required to provide a certificate from their employer attesting to the eligible supplies, including the additional conditions with respect to laptop, desktop and tablet computers.
This measure would apply to the 2021 and subsequent taxation years.
Small Businesses Air Quality Improvement Tax Credit
To encourage small businesses to invest in better ventilation and air filtration to improve indoor air quality, the Government proposes to introduce a temporary Small Businesses Air Quality Improvement Tax Credit. The refundable tax credit would be available to eligible entities in respect of qualifying expenditures attributable to air quality improvements in qualifying locations incurred between September 1, 2021 and December 31, 2022.
Tax Credit Rate and Limits
The tax credit would be refundable and have a credit rate of 25 per cent that would apply to an eligible entity’s qualifying expenditures. An eligible entity would be limited to a maximum of $10,000 in qualifying expenditures per qualifying location and a maximum of $50,000 across all qualifying locations. The limits on qualifying expenditures would need to be shared among affiliated businesses. Consistent with the general treatment of business tax credits, credit amounts would be included in the taxable income of the business in the taxation year the credit is claimed.
Eligible entities for a taxation year would include unincorporated sole proprietors and Canadian-controlled private corporations with taxable capital employed in Canada of less than $15 million in the taxation year immediately preceding the taxation year in which the qualifying expenditure is incurred. For this purpose, the taxable capital of associated corporations is also counted.
The credit would also be available where qualified expenses are incurred by a partnership. The credit could only be claimed by members of the partnership that are qualifying corporations or individuals (other than trusts), and would be based on their proportionate interest in the partnership. Special rules would apply to calculate a partner’s credit entitlement where a partnership interest is held indirectly through one or more partnerships.
Qualifying expenditures would include expenses directly attributable to the purchase, installation, upgrade, or conversion of mechanical heating, ventilation and air conditioning (HVAC) systems, as well as the purchase of devices designed to filter air using high efficiency particulate air (HEPA) filters, the primary purpose of which is to increase outdoor air intake or to improve air cleaning or air filtration.
Expenses attributable to an HVAC system would only be considered qualifying expenditures if the system is:
- designed to filter air at a rate in excess of a minimum efficiency reporting value (MERV) of 8; or
- designed to filter air at a rate equal to MERV 8 and to achieve an outdoor air supply rate in excess of what is required for the space by relevant building codes. For a system that is upgraded or converted, prior to the improvement the system must have been designed to filter air at a rate equal to MERV 8.
Qualifying expenditures for an eligible entity would exclude an expense:
- made or incurred under the terms of an agreement entered into before September 1, 2021;
- related to recurring or routine repair and maintenance;
- for financing costs in respect of a qualifying expenditure;
- that is paid to a party with which the eligible entity does not deal at arm’s length;
- that is salary or wages paid to an employee of the eligible entity; or
- that can reasonably be expected to be paid or returned to the eligible entity, or to a person or partnership either not dealing at arm’s length with the eligible entity or at the direction of the eligible entity.
An expense that may be considered a qualifying expenditure would be reduced by the amount of any government assistance received by the eligible entity in respect of that expense.
Qualifying locations would include properties used by an eligible entity primarily in the course of its ordinary commercial activities in Canada (including rental activities), excluding self-contained domestic establishments (i.e., a place of residence in which a person generally sleeps or eats).
The tax credit would be available in respect of qualifying expenditures incurred between September 1, 2021 and December 31, 2022.
The taxation year for which an eligible entity would claim the tax credit would depend on when the qualifying expenditure was incurred.
- Qualifying expenditures incurred before January 1, 2022 would be claimed by an eligible entity for its first taxation year that ends on or after January 1, 2022.
- Qualifying expenditures incurred on or after January 1, 2022 would be claimed by an eligible entity for the taxation year in which the expenditure was incurred.
Returning the proceeds from the price on pollution directly to farmers
Under the federal carbon pollution pricing system, the government applies a price on pollution in jurisdictions that do not have their own system.
The Government of Canada does not keep any direct proceeds from pollution pricing. All direct fuel charge proceeds are returned to the province or territory of origin in the following way:
- For those jurisdictions that have voluntarily adopted the federal system, direct proceeds are returned to the governments of those jurisdictions.
- For those provinces that do not meet the federal stringency requirements (referred to as “backstop jurisdictions”)—currently, Ontario, Manitoba, Saskatchewan and Alberta— approximately 90 per cent of direct proceeds are returned to residents of those provinces through Climate Action Incentive payments. The other 10 per cent is used to support small businesses, Indigenous groups, and other organizations.
Recognizing that many farmers use natural gas and propane in their operations, and consistent with the Budget 2021 commitment, the government proposes to return fuel charge proceeds directly to farming businesses in backstop jurisdictions via a refundable tax credit, starting for the 2021-22 fuel charge year.
Eligible Farming Businesses
The return of fuel charge proceeds would be available to corporations, individuals and trusts that are actively engaged in either the management or day-to-day activities of earning income from farming (i.e., the raising of animals and harvesting of plants in a controlled environment) and incur total farming expenses of $25,000 or more, all or a portion of which are attributable to backstop jurisdictions. This would include where they carry on business through a partnership.
The credit amount in respect of an eligible farm business for an applicable fuel charge year would be equal to the eligible farming expenses attributable to backstop jurisdictions in the calendar year when the fuel charge year starts, multiplied by a payment rate, as specified by the Minister of Finance for the fuel charge year. Consistent with the general treatment of business tax credits, credit amounts would be included in the taxable income of the business in the taxation year the credit is claimed.
Where an eligible farming business is carried on through a partnership, the credit would be claimed by a corporation, individual or trust that is a partner in the partnership at the end of the partnership’s fiscal period. The partnership would calculate the total amount of eligible farming expenses and each partner would then calculate their credit entitlement based on their proportionate interest in the partnership. Special rules would apply to calculate a partner’s credit entitlement where a partnership interest is held indirectly through one or more partnerships.
Eligible Farming Expenses
For the purposes of calculating this tax credit, eligible farming expenses are amounts deducted in computing income from farming for tax purposes, excluding any deductions arising from mandatory and optional inventory adjustments and transactions with non-arm’s length parties.
Where taxation years do not align with the calendar year, eligible farming expenses would be allocated to each calendar year based on the number of days in each calendar year over the total days in the taxation year, and subjected to the applicable payment rate for the calendar year.
- For example, if a corporation has a taxation year that starts on July 1, 2021 and ends on June 30, 2022, its eligible farming expenses would be prorated to both the 2021 and 2022 calendar years according to the proportion of days in each year.
To be eligible farming expenses, expenses must also be attributable to one or more backstop jurisdictions. For businesses operating in multiple jurisdictions, eligible farming expenses as described above would be apportioned by jurisdiction according to the following allocation rules.
- For an individual, trust or partnership, eligible farming expenses must be allocated to each province or territory in the same proportions that income is allocated according to Part XXVI of the Income Tax Regulations.
- For a corporation, eligible farming expenses must be allocated to each province or territory in the same proportions that taxable income is allocated according to Part IV of the Income Tax Regulations.
The Minister of Finance has specified payment rates for eligible farming expenses that are incurred in the 2021 and 2022 calendar years, which correspond to returns of fuel charge proceeds from the 2021-22 and 2022-23 fuel charge years respectively. Businesses can claim these refundable tax credits through their tax returns that include the 2021 and 2022 calendar years.
|Amount per $1,000 in eligible farming expenses||$1.47||$1.73|
Underused Housing Tax
In Budget 2021, the Government announced its intention to implement a national, annual 1-per-cent tax on the value of non-resident, non-Canadian owned residential real estate in Canada that is considered to be vacant or underused (the “Underused Housing Tax”). A consultation was held, through the Department of Finance, from August 6 to September 17, 2021, and, where appropriate, feedback received from stakeholders has been taken into consideration as part of the final design of the proposed taxation framework.
As a result, in addition to exemptions described in the consultation paper, it is proposed that an owner’s interest in a residential property would be exempt from the Underused Housing Tax for a calendar year if a residence that is part of the residential property is, in respect of the calendar year, the primary place of residence of: (1) the owner; (2) the owner’s spouse or common-law partner; or (3) an individual that is the child of the owner or of the owner’s spouse or common-law partner, but only if the child is in Canada for the purposes of authorized study and the occupancy relates to that purpose.
Furthermore, the government plans to bring forward an exemption for vacation/recreational properties, which would apply to an owner’s interest in a residential property for a calendar year if the property: (1) is located in an area of Canada that is not an urban area within either a census metropolitan area or a census agglomeration having 30,000 or more residents; and (2) is personally used by the owner (or the owner’s spouse or common-law partner) for at least four weeks in the calendar year.
An owner eligible for either of the above exemptions would claim the exemption in the annual return that they would be required to file with the Canada Revenue Agency in respect of the residential property.
It is proposed that the Underused Housing Tax be effective for the 2022 calendar year.
The initial Underused Housing Tax returns, for the 2022 calendar year, would be required to be filed with the Canada Revenue Agency on or before April 30, 2023 and any tax payable would be required to be remitted on or before that date.
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