Federal Government Imposes New Luxury and Digital Services Taxes and Increases Duties on Tobacco and Vaping Products
On April 19, 2021, Deputy Prime Minister and Finance Minister Chrystia Freeland tabled in the House of Commons the Liberal Government’s first federal budget in more than two years, A Recovery Plan for Jobs, Growth, and Resilience (“Budget 2021”).
Budget 2021 proposes a few tax measures relevant to Retail and Consumer Markets businesses. One taxation measure is a proposed luxury tax on all new personal use passenger vehicles and aircraft priced over $100,000 and new personal use boats priced over $250,000 sold in or imported into Canada beginning January 1, 2022, whether leased, purchased, or financed. To combat the rise of Canadians’ use of vaping products, Budget 2021 proposes to impose excise duties in 2022 on vaping liquids that are produced in Canada or imported for use in a vaping device in Canada, whether or not the liquids contain nicotine. Effective April 19, 2021, Budget 2021 proposes to increase the excise duties on tobacco and other tobacco products. Lastly, Budget 2021 proposes a new interim digital services tax (“DST”) at a rate of three percent on revenues from certain digital services earned by large corporations from their online engagement with Canadians. The DST applies as of January 1, 2022, and is intended to be an interim measure that would be replaced by a multilateral measure, developed by the OECD under the project on Base Erosion and Profit Sharing.
For a discussion of these tax measures as well as others in Budget 2021, please see McCarthy Tétrault's Budget 2021 Commentary.
In addition to these taxation measures, Budget 2021 includes proposals related to interchange rates and employment related changes.
Budget 2021 includes a proposal to consult with key stakeholders with respect to interchange fees to work towards three objectives: (i) lowering the average overall cost of interchange fees for merchants, (ii) ensuring that small businesses benefit from pricing that is similar to large businesses, and (iii) protecting existing rewards points of consumers. Following these consultations, next steps will be outlined as part of the Fall Economic Statement, including legislative amendments to the Payment Card Networks Act, S.C. 2010, c. 12, s. 1834 that would provide authority to regulate interchange fees, if necessary.
With respect to the Canada Emergency Wage Subsidy (“CEWS”), Budget 2021 proposes to extend CEWS until September 25, 2021; to gradually decrease the rate of the subsidy; and, beginning July 4, 2021, to limit eligibility for the CEWS to only employers with a revenue drop of more than 10%.
Budget 2021 also introduces a new program, the Canada Recovery Hiring Program, which provides eligible employers with a declining subsidy on the incremental remuneration paid to eligible employees between June 6, 2021, and November 20, 2021. An employer will be unable to claim both this subsidy and the CEWS in respect of the same qualifying period. For more information, please see our Employment Advisor blog post on this topic and our Budget 2021 Commentary.