2021 Federal Budget: Implications for Medical Doctors

On April 19, 2021, the Minister of Finance unveiled the 2021 Federal Budget. This marked the first budget in over two years. The 2021 Federal budget anticipates significant deficits as it continues to offer financial support until the conclusion of the COVID-19 pandemic. Here’s a concise overview of the 2021 Budget and its repercussions for medical doctors: 

• Immediate Expensing: Historically, the capital cost allowance (CCA) system dictated the deductions a business could claim annually for tax purposes concerning the capital cost of its depreciable assets. Before November 21, 2018, the CCA permitted in the initial year a property was in use was typically restricted to half the otherwise available amount (known as the “half-year” rule). However, on November 21, 2018, a temporary enhanced first-year allowance was introduced, termed the Accelerated Investment Incentive, which was up to three times the prior first-year allowance. The 2021 Budget suggests a temporary immediate expensing for certain assets acquired by a Canadian-Controlled Private Corporation (CCPC). This expensing applies to “eligible property” purchased by a CCPC post-Budget Day and used before January 1, 2024, with a cap of $1.5 million per tax year. 
• Tax on Luxury Goods: The 2021 Budget introduces an extra tax on luxury cars, boats, and aircraft. For vehicles and aircraft, this tax is the lesser of 10% of the total value or 20% of the value exceeding $100,000. For boats priced above $250,000, the tax is the lesser of 10% of the total value or 20% of the value over $250,000. Sellers or lessors are responsible for remitting the entire federal tax due, irrespective of the purchase method – outright buy, finance, or lease. 

• Postdoctoral Fellowship Income: For tax purposes, postdoctoral fellows aren’t typically viewed as students. As a result, their fellowship income doesn’t qualify for the scholarship exemption from income tax. Although it’s fully taxable and akin to employment income, this income doesn’t currently qualify as “earned income” for RRSP contribution limit determination. The 2021 Budget plans to categorize postdoctoral fellowship income as “earned income” for RRSP purposes, offering postdoctoral fellows more RRSP room for deductible contributions. This change applies to income received from 2021 onwards and also retroactively for income from 2011 to 2020, provided the taxpayer requests an RRSP room adjustment for those years. 

• Input Tax Credit Information Requirements: Under the GST/HST, businesses can claim input tax credits (ITCs) to reclaim the GST/HST paid for goods and services used in their commercial activities. This ensures the tax on their inputs doesn’t inflate the final product or service price, enhancing Canadian business competitiveness. The 2021 Budget proposes to raise the current ITC information thresholds to $100 (from $30) and $500 (from $150). It also plans to categorize billing agents as intermediaries for ITC information rule purposes.