2021 Federal Budget: Luxury Tax, Childcare, and Business Support Winds Down

Key takeaways

• The 2021 budget introduced a luxury tax on high-value cars, aircraft, and boats (effective 2022)
• A new $10/day childcare plan was launched, with agreements reached with most provinces and territories
• COVID-19 benefit programs (CERB, CEWS, CRHP) were targeted for wind-down
• CRA enforcement spending increased significantly, with a focus on offshore assets and real estate
• No change to the capital gains inclusion rate (despite pre-budget speculation)

The 2021 federal budget was the first budget in two years after COVID-19 caused the government to forgo a 2020 budget. It focused primarily on the transition out of pandemic-era emergency support and the beginning of longer-term spending commitments, particularly in childcare.

Childcare plan

The government committed $27.2 billion over five years to reduce childcare fees to $10 per day on average across Canada. Federal-provincial agreements were signed through 2021–2022, with fee reductions phased in over several years. The tax treatment of childcare subsidies received under these programs depends on the structure — employer-sponsored subsidies may be a taxable employment benefit; government subsidies to daycare centres are not income to parents.

COVID benefit wind-down

The Canada Emergency Response Benefit had ended in 2020, replaced by enhanced EI and the Canada Recovery Benefit (CRB). The 2021 budget announced a gradual reduction in the CRB benefit rate and eligibility period as the economy reopened. The Canada Emergency Wage Subsidy and Canada Recovery Hiring Program continued with phased reductions through the end of 2021. Recipients of these benefits owed income tax on amounts received — a large number of Canadians faced unexpected tax bills in 2021.

CRA enforcement

The budget allocated $304 million over five years to crack down on tax evasion, including hiring additional auditors focused on offshore assets, real estate, and the underground economy. The CRA also received funding to audit high-net-worth individuals and to improve information exchange with foreign tax authorities. Taxpayers with undisclosed foreign assets should have considered the VDP before the new resources were deployed.