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From business subsidies to housing tax exemptions: Four takeaways from the fiscal update


Foreigners with a child living in otherwise empty housing or who rent out real estate outside of large Canadian cities may now be exempt from the Liberals’ new underused housing tax

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OTTAWA – The Liberals released their latest fiscal update on Tuesday which included a series of new measures that may affect you or your business’ tax bill at the end of the year. Here are a few highlights of the government’s latest proposals.

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A more generous teacher’s school supply tax credit

Teachers who purchase school supplies will soon be able to claim an even higher tax deduction than usual, beginning in the 2021 and extending indefinitely.

As of now, the Eligible Educator School Supply Tax Credit allows teachers who purchase items for the classroom — books, construction paper or containers — with their employer’s approval to receive a 15 per cent tax credit on up to $1,000 of eligible supplies per year.

The government is now proposing to boost both the value of the tax credit to 25 per cent of $1,000 in eligible purchases (meaning the maximum tax credit value will be $250 per year) as well as the number of items that can be included in a claim.

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The new list now includes a host of electronic devices, such as webcams, printers and external hard drives, in order to respond to the increasing use of virtual classrooms. The items also will also no longer be required to be used in a physical classroom, school or daycare to be eligible as long as the teacher has approval by their employer.

The tax credit enhancement is expected to cost the government $5 million annually as of new year.

Up to $50K for small businesses to improve air quality

In response to the mainly airborne spread COVID-19 virus, the Liberals are proposing a new tax credit to help reimburse small businesses for investments in better ventilation and air filtration systems made until Dec. 31, 2022.

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The credit can be applied against the “purchase, installation, upgrade, or conversion of mechanical heating, ventilation and air conditioning (HVAC) systems” and air filtration devices using high efficiency particulate air (HEPA) filters. Any new system must have at least a minimum efficiency reporting value (MERV) of eight to qualify.

Small businesses can claim 25 per cent of their expenditures for a maximum of $10,000 per location and $50,000 across all qualifying locations (such as multiple stores or offices). To be eligible, a business must be Canadian controlled with taxable capital of less than $15 million.

Claims can be made for any expenses made between Sept. 1, 2021, and Dec. 31, 2022. The new tax credit will cost the government $241 million by 2023-2024.

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New exceptions to the underused housing tax

If you’re a foreigner with a child living in otherwise empty housing you own in another city or rent out real estate outside of large Canadian cities, you may now be exempt from the Liberals’ new underused housing tax.

The one per cent per year vacant home tax is set to kick in as of Jan. 1, 2022.

The tax, which the Liberals put in place to combat the growing housing crisis across the country, applies on the value of all “vacant” or “underused” residential real estate owned by non-Canadians.

The Liberals are now proposing to broaden the exemptions to the tax. For example, a residential building will be exempt for a calendar year as long as the owner, their spouse or partner or one of their children who is a student lives in one of the units during that period.

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The government is also proposing to create a new exemption for vacation or recreation properties, so long as they are not located in a city with a population of 30,000 people and the foreign owners reside in it for at least four weeks in a year.

The new exemptions will cost the government roughly $25 million annually in foregone taxes.

The Fall Economic Statement also confirms that the tax will kick in as of Jan. 1, 2022.

More and simpler home office expense deductions

Millions of Canadians spent a significant chunk of 2021 still working from home due to COVID-19, which means they will likely also be eligible for home office expense deductions come the 2021 tax season.

Thus, the government is proposing to extend the simplified rules for applying for the deduction in 2021 and 2022 (which went from pages of paperwork to simply filling out three questions confirming you were working from home because of COVID-19).

Furthermore, it is also extending the temporary no-proof-nor-paperwork-required method for taxpayers who want to use the simplest application process possible, from a maximum of $400 to $500 for the next two tax seasons (at a rate of $2 per day worked at home in the tax year).

The eligibility criteria remain the same, that is that you spent more than half of your working hours labouring at home during a period of at least four consecutive weeks in 2020 because of the COVID-19 pandemic.

The government expects the enhanced deductions to cost $385 million over the next two years.

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