2021 Federal Election Results: What it means for you

Rick Irwin |

The very popular 1990s sitcom “Seinfeld” was famously called a “show about nothing.” Many are calling the recent unnecessary and hugely unpopular federal election the same; one that saw virtually no change to the balance of power and a huge cost and distraction in the midst of an ongoing pandemic. Now that the dust has settled, we can take a look at some of the potential tax changes we can expect:  

    1.  A New Tax on House-Flipping. This has been expected ever since the government began requiring that taxpayers declare the sale of a Principal Residence on their tax return a few years ago. This tax would deny the primary residence exemption on the sale of a primary residence if held for less than 12 months (with some exceptions such as military relocations.) Going forward, if a homeowner flips a home within 12 months of purchase, any profit would be treated as a capital gain (currently at a 50% income inclusion rate.)1 

   2. A New Minimum Tax for High-Income Earners. The Liberal government plans to implement a minimum federal tax rate of 15% for those with income over $222,661 starting in 2022. The intent is to reduce the potential tax savings of higher-income earners who may be currently benefitting from deductions not captured by Alternative Minimum Tax (notably, large charitable contributions.)

  3. Continuation of the simplified form of the home office expense deduction. The flat-rate deduction will increase to $500 from $400 and the T2200 (Declaration of Conditions of Employment) form is not required, and no receipts are necessary. It may still be to your benefit to make the detailed claim, however.3  

  4. A number of new, boutique tax credits to further complicate the already cumbersome tax code.
Among the more notable of these are:

  • New Career Extension Tax Credit. This initiative would help reduce taxes payable on seniors who continue in the workforce beyond age 65. The tax credit (15% federal) works out to about $1650 on employment income between $16,000 and $35,650 and is reduced by 5% for every dollar of income beyond $35,650.
  • Increase to the First Time Home Buyers Tax Credit. This will be doubled from $5000 to $10,000, to help with the cost of acquiring a first home.
  • New Multi-generational Home Renovation Tax Credit. This new program would provide a 15% tax credit for up to $50,000 spent on home renovations to accommodate an in-law suite. Homeowners wanting to add a secondary living space to their home for a family member could receive up to $7500 towards that expense.6  
  • Enhanced Home Accessibility Tax Credit. This existing non-refundable tax credit is proposed to double to $20,000.
  • Home Repair Tax Credit. In the realm of abstract, this is a proposed new 15% tax credit that would cover up to $500 in-home appliance repairs. While a rather odd area to focus on, if this helps keep old washing machines out of landfills I suppose it is a good thing.
  • No tax deduction for changing to a battery-powered lawnmower (yet) 

  5. Canada Disability Tax Benefit. This new initiative would provide a direct monthly payment to low-income disabled people between the ages of 18-64. It is expected that this be income-tested and reduced proportionately to other income, such as the Guaranteed Income Supplement. 9 

  6. A New Registered Home Savings Account (RHSA). To help with the soaring cost of homeownership, the government plans the introduction of a New Registered Home Savings Account (RHSA). This program would be available for first-time buyers under the age of 40 starting in July 2022. Contributions made to this account would be tax-deductible and will reduce one’s RRSP contribution room, the same as contributions currently made to an RSP for purposes of withdrawals under the current First Time Home Buyers Plan. Unlike the First Time Home Buyers Plan, the funds do not have to repaid so the withdrawal is permanently tax-free and would enable more future contributions to be deductible rather than non-deductible repayments. Funds can be transferred into the account from an RRSP. Contributions cannot be withdrawn for a full year and at least 50% of the money withdrawn must be invested in the home for at least 4 years. This is interesting and does offer some unique planning opportunities.10 

  7. Capital Gains Exemption. Last but not least, the NDP has made it clear that they would like to see the capital gains exemption (a tax reduction on vacation properties or non-registered investments and potentially the sale of a small business) increase from the current inclusion rate of 50% to 75%.  The Liberals did not campaign on this, but they will need NDP support for their next budget and it is widely expected that the NDP will use this as a bargaining chip. Unfortunately for investors, it’s not certain this will take place or when the proverbial shoe will drop, making pre-planning difficult.11 

Not all of these may come to pass of course but this is a brief summary of many of the proposed new initiatives and changes.  Please let us know if you have any questions or any of the above or would like to discuss how they may impact you.  

 

SOURCES:

1. Curb Speculation and House Flipping | Liberal Party of Canada
2. Making Sure Everyone Pays Their Fair Share | Liberal Party of Canada 
3. Extending and Expanding the Home Expense Deduction | Liberal Party of Canada 
4. 
Matching Workers with Jobs | Liberal Party of Canada 
5. 
Reducing Closing Costs for First-Time Buyers | Liberal Party of Canada 
6. 
Help Bring Different Generations Under One Roof | Liberal Party of Canada 
7. 
Helping Seniors and People with Disabilities Live at Home | Liberal Party of Canada 
8. 
A Right to Repair Your Home Appliances | Liberal Party of Canada 
9. 
Introduce a Disability Benefit | Liberal Party of Canada 
10. 
A New Tax-free First Home Savings Account | Liberal Party of Canada 
11. 
Ready for Better - NDP 2021 commitments.pdf (Page 114)