New taxes are coming to Canada.
In its first full budget in two years, the federal Liberals introduced taxes on luxury vehicle sales, vaping devices, and corporations that provide digital services to Canadians. Loopholes on cross-border taxation and tax evasion are also being closed.
The new taxes will contribute more than $10 billion to the government's revenue base and will be a crucial element of Ottawa’s plans to introduce billions of dollars in new spending on childcare, Indigenous infrastructure, and green initiatives.
The Liberal government proposes to increase the tobacco excise duty by $4 per carton of 200 cigarettes, which is expected to provide $2.1 billion in new revenue over the next five fiscal years. It also announced plans to introduce a new taxation framework for vaping products, but not those that contain cannabis.
Federal officials also plan to formalize the digital tax where large companies with gross revenue of $1.13 billion or more will be charged a 3% fee on revenue derived in Canada. The government expects the new tax to raise $3.4 billion over the next five years.
The Liberal government also introduced a new luxury tax on the sale of cars and personal aircraft with a price tag above $100,000 and boats for personal use that cost more than $250,000. The new levy is expected to bring in an additional $604 million in new revenue.
Foreign homeowners who leave their Canadian residential property vacant will also be charged a new national 1% tax to be applied annually on the value of unused homes. The new tax will also require foreign homeowners to file a statement declaring the current use of the property.
Ottawa is also planning to close some corporate tax loopholes, including those that allow large businesses to pay fewer taxes in Canada if they excessively deduct more interest on borrowing charges and cross-border tax schemes.
The Liberal government proposes to reduce the amount of interest they can deduct to no more than 40% of their earnings in the first year it is implemented (2023), and 30% afterward. That will help raise federal revenue by $5.3 billion over the next five years.
Meanwhile, cross-border tax loopholes that benefit multi-national businesses that exploit differences in Canadian and foreign taxes will be closed to help level the playing field for Canadian small and medium-sized businesses. The loopholes will be implemented in stages beginning on July 1, 2022, and are expected to add $775 million over four years to the government's coffers.
An additional $810 million over five years is expected to come through new measures the government plans to introduce to help strengthen the Canada Revenue Agency and its ability to crack down on tax avoidance and evasion. ?
