DFK Presents: Spring 2021 E-Newsletter

Budget 2021 Business Emergency Support Measures

By Terry Soloman, CPA,CA, TEP, Partner Tax Services  MRSB Group

The first federal budget since 2019 was delivered by the Honorable Chrystia Freeland, Deputy Prime Minister and Minister of Finance on April 19, 2021. The budget included a significant number of proposed program initiatives.  This article will highlight some of the emergency business support measures.

Canada Emergency Wage Subsidy (CEWS) Program

By now, many in the business sector are aware of the CEWS program. Budget 2021 proposes several changes in order to phase out this program including:

  • A gradual reduction in the maximum weekly benefit per employee in Period 18 (commencing July 4) through Period 20 (ending September 25) based on revenue decline. This reduction impacts both the base subsidy and the top up subsidy formulas.
  • A minimum revenue reduction of 10% commencing in Period 18 in order for an employer to qualify.
  • Employers must demonstrate a revenue reduction under one of two approaches. For example, for Period 18, under the general approach July 2021 revenue is compared to July 2019 or June 2021 revenue is compared to June 2019. Alternatively, July or June 2021 can be compared to the average of January and February of 2020. Once the approach is chosen, the employer must continue to use the same approach. 
  • The Budget also allows for a possible extension by regulation of the CEWS program by adding Period 21 (September 26 – October 23) and Period 22 (October 24 – November 20).

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The Impact of Biden Tax Proposals on Canadian Residents

By Monica Martinez, CPA, CA, CPA (Illinois), GGFL

Joe Biden has been inaugurated as President of the United States. Now that the new administration is finally in place and the chaos of the campaign and election results are (mostly) a thing of the past, we can start to focus on what tax policy changes President Biden will look to enact.

Like Canada, the US is facing massive revenue shortfalls brought on by pandemic relief and recent tax cuts. It is safe to say that changes to tax rates will likely be high on the agenda. The proposed tax changes will impact US citizens living in Canada and high-net-worth Canadians with assets or business interests south of the border. With Democrats having gained control of the Senate, these changes are now more likely to come to fruition.

Anticipated Tax Changes

The Biden campaign platform contained numerous tax proposals, most notably:

  • Reduce the estate tax exemption from the current US$11.7M to perhaps US$3.5M, and increase the top estate tax rate to 45%.
  • Reduce the maximum lifetime gift-tax exemption to US$1M.
  • Increase the top personal income tax rate from the current 37% to 39.6% for taxpayers with income over US$400,000.
  • Increase the top long-term capital gains and qualified dividends tax rate from the current 20% to 39.6% for taxpayers with income of US$1M or more.
  • Increase the corporate income tax rate from the current 21% to 28%.
  • Increase the tax rate on global intangible low-taxed income (GILTI) from 10.5% to 21%.

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Estate Freezes and Preferred Shares – New rules for ROMRS

By Phoebe Elliot, CPA, CA – Kingston Ross Pasnak LLP

Many business owners undertake transactions commonly referred to as “estate freezes”, converting the existing value in their corporations to fixed-value redeemable preferred shares, and allowing new common shares to be issued to other owners, such as spouses, children or other family members, or trusts for such persons.  To the business owner, this simply converts their shares from one form to another.  Recent changes to accounting requirements for these freeze shares – or ROMRS – which will apply for fiscal years ended December 31, 2021, may require a substantial change to the corporate financial statements.

Why is this important?

Soon, many freeze shares that were originally reported on an entity’s financial statements as equity at a nominal amount must be reported as a liability at their redemption value.  This will result in significant increases to the liabilities reported on the balance sheet.  This could have serious implications for lenders who will have to determine if the entity is meeting its loan covenants, and for other external financial statement users.
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