The Tax Element of Canada’s Federal Budget 2021

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Canada’s Federal Budget 2021, tabled by Finance Minister Chrystia Freeland on April 19, had two key aspects – spending and revenue. The former is a much-debated topic, owing to Canada’s high deficits and skyrocketing government debt. But the latter also holds enough significance.

Is the government planning to collect more taxes from corporates to fill its coffers? Let’s find out.

Tax on Corporates

Businesses can heave a sigh of relief. No major changes were made to tax rates on businesses in the budget document. Instead, a temporary relief was proposed to entities that qualify for zero-emission technology. Such businesses will be levied the 7.5 per cent general corporate tax rate and 4.5 per cent small business tax rate on income derived from zero-emission technology manufacturing.

General corporate tax rate and small business tax rate will remain 15 per cent and nine per cent respectively for other entities.


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Incentives for Carbon Capture

Budget 2021 has provisions related to investment tax credit in view of the government’s ambitious target of achieving net-zero emissions by 2050. The incentive will come into force in 2022, and it will offer capital investment in projects aimed at reducing emissions.

The plan’s contours and details are yet to be finalized, following consultation with all stakeholders. The tax credit is also likely to inspire private investment in new green technology initiatives, besides generating employment in the sector.

Tax on Individuals

Canadians have been doubly rewarded here. The government will be spending large sums to continue the wage subsidy (CEWS) and other schemes introduced in wake of COVID-19 economic downturn. At the same time, it has proposed no upward changes to rates and slabs for levies on individuals.

The maximum levy will be 33 per cent for income over C$ 216,511, while the minimum levy is 15 per cent for income up to C$ 49,020.

Rebates for Individuals

Separately, the federal budget proposed to hike Canada Workers Benefit - the refundable credit to support low-income individuals and households - to 27 per cent for every dollar of working income over C$ 3,000. Changes have also been made to the disability tax credit to have more people benefiting from the scheme.

In totality, the federal budget of 2021 gives more than it takes, for both corporates as well as individuals.



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