On December 14, 2021, the Minister of Finance released the Economic and Fiscal Update 2021. Our tax experts have read through the document and extracted the important information that may affect you or your business. You can find the federal government release here.
Farming Carbon Credit
Corporations, individuals, and trusts (whether directly or via a partnership) that incur farming expenses of $25,000 or more related to operations in Saskatchewan, Alberta, Manitoba and/or Ontario are eligible for a refundable credit based on eligible farming expenses incurred (defined as deductions against farming income other than inventory adjustments and non-arm’s length transactions). 2021’s expenses generate a credit of $1.47 per $1,000 of eligible farming expenses, and 2022’s expenses generate a credit of $1.73 per $1,000 of eligible farming expenses.
Enhancing the Home Office Expense Deduction
The simplified home office expenses deduction has been extended into 2021 and 2022, and has been increased to $500 annually.
Small Businesses Air Quality Improvement Tax Credit
Individual proprietors and small CCPCs can qualify for a credit of 25% on up to $10,000 of expenditures at any one location and $50,000 in total (shared amongst affiliated businesses). Qualifying expenditures 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.
The tax credit would be available in respect of qualifying expenditures incurred between September 1, 2021 and December 31, 2022.
Educator School Supply Tax Credit
The existing credit is 15% of eligible supplies incurred (up to $1,000 in expenses). The economic update proposes enhancing the credit to 25%, and also expanding what is eligible, to include expenses, such as:
- 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.
The previously announced luxury tax on cars, aircraft, and boats is expected to have legislation drafted in early 2022 proving guidance as to how the tax will be calculated and enforced, as well as when it is applicable.
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