Fall Economic Statement: Implications for Business Owners and Individuals

The 2020 Federal Fall Economic Statement provided updates on a number of COVID-19 Support Programs and other taxation items including stock options and 2020 home office deductions.

Business Tax Measures

Government COVID-19 Support Program Updates

Canada Emergency Wage Subsidy (CEWS) – The government will increase the maximum subsidy rate back to 75% for Periods 11-13 (December 20, 2020, to March 13, 2021). This 75% subsidy amount is composed of a Base Subsidy rate of 40% and a Top Up rate of 35% if a company has a 70% or greater revenue decline in the comparison period. There is a minor increase in the amount that furloughed employees can receive, from $573 to $595 per week.

Canada Emergency Rent Subsidy (CERS)Both the CERS and Lockdown Support have been extended to March 13th. The maximum CERS subsidy rate will remain at 65% with an additional 25% available for lockdown support. To bring this program in closer alignment with the CEWS, the same revenue calculation must be used for both program applications.

Canada Emergency Business Account (CEBA) – Applications for the previously announced CEBA Top Up Loan of $20,000, $10,000 of which may be forgivable, will be available in December 2020. Applicants now have until March 31, 2021, to apply for CEBA.

Support for “Highly Affected Sectors”

A specific credit availability program for the tourism, hospitality, travel and arts and culture industries will be created.

Employees Stock Option Plans

Effective for stock options granted after June 2021, there will be a $200,000 annual vesting limit (based on the value of an option’s underlying shares at the time the options are granted) on options that can qualify for the 50% employee stock option deduction.

The $200,000 limit applies to employees on a calendar year basis, for each separate employer (options issued by multiple non-arm’s length employers would share one $200,000 limit). If the fair market value of shares to be acquired pursuant to the options vesting in a particular year by an employee exceeds $200,000, the stock option deduction would not apply to taxable benefits realized on the portion of options exceeding the $200,000 threshold. An employee donating publicly listed shares acquired under a stock option that exceeds the $200,000 limit would not be eligible for the related stock option deduction, but would be entitled to claim the charitable donation tax credit.

An employer deduction for the amount of stock option benefits that exceed the new annual $200,000 vesting limit will also be implemented. Employers that comply with certain notification requirements can deduct the portion of an employee’s stock option employment benefit in a particular year that does not qualify for the stock option deduction. The employer could also elect to have this tax treatment apply for stock options below the $200,000 threshold.

These new rules apply to an employer that, at the time the options are granted to an employee is:

  • a corporation or mutual fund trust, other than a Canadian-Controlled Private Corporation (CCPC); and,
  • a member of a group with consolidated gross revenues greater than $500 million.

Therefore, these stock option plan related tax changes appear to be targeted towards larger corporations.

Non-Resident Businesses

Many non-resident businesses and platform operators that supply digital products or services to consumers in Canada will be required to register and collect GST/HST effective July 1, 2021.

Individual Tax Measures

Home office expenses – In recognition of the significant amount of people working from home for the first time, the Canada Revenue Agency (CRA) will permit simplified home office expense deductions. Employees working from home will be allowed to deduct up to $400 (calculated using an unspecified rate per day at home) with no requirement to track or report detailed expenses. A T2200 will generally not be requested. Further details from the CRA are expected shortly. It is unclear if this $400 deduction represents a maximum allowable amount irrespective of a particular employee potentially being eligible for a higher deduction as opposed to a simplified deduction for those employees who do not wish to submit detailed home office expenses on their personal tax return.

Canada Child benefit (CCB) recipients will receive four additional payments in January, April, July and October of 2021. Payments will increase by $300 per child under six for families with net income equal to or less than $120,000 or $150 per child under six for families with net income greater than $120,000.

Additional Measures

The CRA will spend an additional $606 million over five years to target international tax evasion and aggressive tax avoidance. They are also launching consultations to modernize Canada’s anti-avoidance rules.

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