2021 Federal Budget Highlights for Real Estate & Construction Industry

On April 19, 2021, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, delivered the 2021 Federal Budget: A Recovery Plan for Jobs, Growth, and Resilience – the first Federal Budget since 2019.

There were a significant number of tax measures included in the 2021 Budget, with four items particularly relevant for businesses in Canada’s real estate and construction industry.

1. Immediate Deduction

Budget 2021 proposes to provide immediate deductions in respect of certain “eligible property” acquired by a Canadian-Controlled Private Corporation (CCPC). This immediate deduction will be available for eligible property acquired on or after April 19, 2021 and that becomes available for use before January 1, 2024, up to a maximum amount of $1.5 million per taxation year.

Businesses should plan their acquisitions to optimize the overall benefit of this tax measure.

2. Interest Deductibility Limitations

Budget 2021 proposes to introduce rules that will limit the amount of net interest expense that an entity may deduct in computing its taxable income. Highly leveraged real estate and construction businesses, including home builders, may be adversely affected by the proposed rules.

In addition to corporations, the proposed rules will also apply to trusts, partnerships and Canadian branches of non-resident taxpayers.

The measures will be phased in, coming into effect on January 1, 2023 and will apply with respect to existing as well as new borrowings.

While there are some exemptions from the new rules that are available, the proposed exemption thresholds are quite low.

Draft legislative proposals are expected to be released for comment in the summer, so stay tuned.

3. The GST New Housing Rebate 

Budget 2021 proposes to update the GST new housing rebate to be available where two or more individuals buy a new home together, as long as any one of those individuals is acquiring the new home as their primary residence.

This applies whether it will be an owner-built home, purchased from a builder, co-operative housing, or homes constructed on leased land.

This measure will allow more homeowners to access the rebate even in circumstances where they require financial assistance to make the purchase.

4. Tax on Unproductive Use of Canadian Housing by Foreign Non-resident Owners

Budget 2021 proposes to introduce a new national one percent tax on the value of non-resident, non-Canadian owned residential real estate considered to be vacant or underused.

This tax will be levied annually beginning in 2022.

Beginning in 2023, all owners of residential property in Canada, other than Canadian citizens or permanent residents of Canada, will be required to file an annual declaration for the prior calendar year with the CRA in respect of each Canadian residential property they own.

The requirement to file this declaration will apply irrespective of whether the owner is subject to tax in respect of the property for the year. The owner may also be eligible to claim in their declaration an exemption from the tax in respect of a property for the year.

In the coming months, the Government will release a backgrounder to provide stakeholders with an opportunity to comment on further parameters of the proposed tax.

We reasonably expect the legislation to mirror similar taxes that have been introduced by certain provinces.