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COVID-19 support programs
Subsidies were set up as financial support during the COVID-19 pandemic. See the details in the Canada's COVID-19 Economic Response Plan.
The subsidies are taxable. You have to report the total amount as income in the year in which you received the subsidy.
The government proposed to provide tourism, hospitality and other hard-hit organizations with support under three new programs:
- the Tourism and Hospitality Recovery Program
- the Hardest-Hit Business Recovery Program
- the Local Lockdown Program
Beginning on October 1, 2021, Canadian corporations required to file Form RC4649, Country-by-Country Report, must do so electronically.
For more details on the budget, see Annex 6: Tax Measures - Supplementary Information
Avoidance of tax debts
The Act contains an anti-avoidance rule (the "tax debt avoidance rule"), that is intended to prevent corporations from avoiding their tax liabilities by transferring their assets to non-arm's length persons for insufficient consideration. Some corporations are engaging in complex transactions that attempt to circumvent this rule.
For transfers of property that occur after April 18, 2021, the budget proposes to enhance this rule with measures regarding:
- the deferral of tax debts
- the avoidance of non-arm's length status
- the valuations
A penalty for planners and promoters of tax debt avoidance schemes is introduced. The penalty would be equal to the lesser of:
- 50% of the tax that is attempted to be avoided
- $100,000 plus the promoter's or planner's compensation for the scheme
Base erosion and profit shifting (BEPS)
Budget 2021 proposes to implement the best practices recommended by the Organisation for Economic Co-operation and the Group of 20 in the BEPS Action Plan, on interest deductibility limitations and hybrid mismatch arrangements.
This rule would limit the amount of net interest expense that a corporation may deduct in computing its taxable income to no more than a fixed ratio of "tax EBITDA". Tax EBITDA is that corporation's taxable income before taking into account interest expense, interest income and income tax, and deductions for depreciation and amortization, as determined for tax purposes.
The rule would be phased in, with a fixed ratio of 40% of tax EBITDA for tax years starting on or after January 1, 2023, and before January 1, 2024 (the transition year) and 30% for tax years starting on or after January 1, 2024. The rule would not apply to Canadian-controlled private corporations that, together with any associated corporations, have taxable capital employed in Canada of less than $15 million, and groups of corporations and trusts whose aggregate net interest expense among their Canadian members is $250,000 or less.
This measure would apply to existing as well as new borrowings. Draft legislative proposals are expected to be released for comment in the summer.
Hybrid mismatch arrangements are cross-border tax avoidance structures that exploit differences in the income tax treatment of business entities or financial instruments under the laws of two or more countries to produce mismatches in tax results.
The two main forms of hybrid mismatch addressed by the BEPS Action Plan are deduction/non-inclusion mismatches and double deduction mismatches. There are existing Canadian income tax rules that the government can use to challenge certain hybrid arrangements. The new measures would provide certainty and advantages to adopting a common approach.
Other rules such as those on branch mismatch arrangements, imported mismatch arrangements and reverse hybrids would be introduced to the extent relevant and appropriate in the Canadian context.
Rules will be introduced in two separate legislative packages. The first package will be released for stakeholder comment later in 2021, and those rules will apply as of July 1, 2022. The second package will be released for comment after 2021, and those will apply no earlier than 2023.
Capital cost allowance (CCA)
- CCA for clean energy equipment
- Immediate expensing for Canadian-controlled private corporations (CCPCs)
To support investment in clean technologies:
- CCA classes 43.1 and 43.2 have been expanded for new types of property that become available for use after April 18, 2021 (for example, pumped hydroelectric storage equipment)
- access to classes 43.1 and 43.2 has been restricted for certain emission producing properties that become available for use after 2024 (for example, fossil‑fuelled cogeneration systems)
In addition to the enhanced CCA deductions available under existing rules, such as the full expensing for classes 43.1, 43.2, and 53, temporary immediate expensing for certain property acquired by a CCPC is available. It is limited to $1.5 million per tax year. The half‑year rule will be suspended for such property.
This measure applies to all capital property that is subject to CCA rules, other than property included in classes 1 to 6, 14.1, 17, 47, 49, and 51. The eligible property has to be acquired after April 18, 2021, and become available for use before 2024.
Digital services tax
The budget proposes to implement a new tax on corporations providing digital services. The tax would apply at a rate of 3% on in-scope revenue, that is revenue from certain digital services, such as online marketplaces, social media, and online advertising. It was later announced that the tax would apply as of January 1, 2024, and only if an acceptable multilateral option has not taken effect by December 31, 2023. The tax would be retroactive to January 1, 2022.
The new tax would apply to an entity that meets, or is a member of a business group that meets, both of the following revenue thresholds:
- global revenue from all sources of €750 million or more in the previous calendar year
- in-scope revenue associated with Canadian users of more than $20 million in the current calendar year
The corporation would have to file an annual return following the end of the reporting period, which is proposed to be the calendar year.
Electronic correspondence from the CRA
The default method of correspondence for businesses that use the CRA's My Business Account portal will be changed to electronic only.
Film or video production tax credits
For productions for which eligible expenditures were incurred in tax years ending in 2020 or 2021, due to COVID-19, a 12-month temporary extension is available for:
- the period in which qualifying expenditures can be incurred
- the deadline for submitting the certificate of completion
- the deadline to show the production in Canada under a written agreement
You must submit a waiver to the Canada Revenue Agency (CRA) to extend the assessment limitation period for the relevant years to take into account this 12‑month extension.
For productions for which eligible expenditures were incurred in tax years ending in 2020 or 2021, due to COVID-19, a 12-month temporary extension to the period in which the aggregate expenditure threshold must be met is available.
You must submit a waiver to the CRA to extend the assessment limitation period for the relevant years to take into account this 12‑month extension.
Investment tax credit for carbon capture, utilization, and storage
Starting in 2022, the budget proposes the introduction of an investment tax credit for capital invested in carbon capture, utilization, and storage projects.
Mandatory disclosure rules
Effective in 2022, strengthening of the existing reportable transaction rules will be introduced, along with new requirements:
- to report notifiable transactions. The Minister of National Revenue would have the authority to designate, with the concurrence of the Minister of Finance, a transaction as a notifiable transaction. Reporting requirements (and exception to the rule) similar to the reportable transactions would apply with the inclusion of a prescribed form
- for a specified corporation to report uncertain tax treatments with the T2 return for the tax year, where certain conditions are met, including having at least $50 million in assets at the end of the financial year that coincides with the tax year
New penalties will apply for each failure to report a reportable or a notifiable transaction from persons who enter such transactions and from advisors and promoters of such transactions. The penalties will not apply to transactions that occur before the date of royal assent.
The government will hold a consultation period that will end on September 3, 2021.
Mandatory electronic payments
For payments made after 2021, electronic payments will be required for remittances over $10,000.
Mandatory Internet filing threshold
All corporations with annual gross revenue of more than $1 million have to file their T2 Return electronically, with some exceptions. This threshold will be eliminated for tax years starting after 2021. Most corporations will have to file their return electronically.
Rate reduction for zero emission technology manufacturers
A temporary measure to reduce the corporate tax rates on manufacturers of qualifying zero-emission technology is introduced for tax years starting after 2021. Income that would otherwise be subject to the 15% general corporate rate will be taxed at a 7.5% rate, and income that would otherwise be taxed at the 9% small-business rate will be reduced to 4.5%. The reduced rates will be gradually phased out starting in 2029 and ending after 2031.
At least 10% of the corporation's gross revenue from all active businesses carried on in Canada must be derived from eligible activities. Under proposed changes, the amount of eligible income that is subject to the reduced tax rate will be calculated based on a proportion of the corporation's cost of labour and capital used in the eligible activities to the total cost of labour and capital. The government is welcoming feedback on this allocation method in writing until June 18, 2021.
Signature for the T183CORP
As of June 29, 2021, electronic signatures are accepted for the T183CORP, Information Return for Corporations Filing Electronically.
2021 – Provinces and territories
British Columbia book publishing tax credit – This credit, which was scheduled to end March 31, 2021, is extended five years to March 31, 2026.
Manitoba book publishing tax credit – This credit, which was scheduled to end December 31, 2024, is made permanent.
Manitoba community enterprise development tax credit – This credit, which was scheduled to end December 31, 2021, is extended one year to December 31, 2022.
Manitoba cultural industries printing tax credit – Although the budget originally announced a one-year extension of this credit to December 31, 2022, the credit has been extended three years to December 31, 2024, under Bill 74 (royal assent October 14, 2021).
Manitoba film and video production tax credit – The 10% frequent filming bonus is temporarily paused for two years due to COVID-19. All companies that were eligible for the bonus on March 31, 2020, will have that status remain in effect until March 31, 2022, at which point their frequent filming status resumes. The time period continues as normal for production companies that have continued to produce.
Manitoba interactive digital media tax credit – This credit, which was scheduled to end December 31, 2022, is made permanent. Effective April 7, 2021, the eligible activities for this tax credit include add-on digital media and content that is developed, or provided, mainly for commercial use, and is complementary to the main product being developed, such as:
- downloadable content
- on-going maintenance and updates
- data management and analysis
Although the budget originally announced the 2021 tax year as the effective date, Bill 74 (royal assent October 14, 2021) set this date to April 7, 2021.
Manitoba small business venture capital tax credit – Effective for the 2021 tax year, the credit is enhanced by increasing:
- the maximum eligible investment by an investor from $450,000 to $500,000
- the maximum annual tax credit that can be claimed from $67,500 to $120,000
Newfoundland and Labrador
Newfoundland and Labrador film and video industry tax credit – For eligible projects that start on or after July 1, 2021, the maximum tax credit that may be earned within a 12 month period is increased from $4 million to $5 million.
Newfoundland and Labrador interactive digital media tax credit – This credit, which was scheduled to end December 31, 2019, is extended five years to December 31, 2024. For projects developed primarily for government, the deadline to apply for a tax credit certificate is increased from within 6 months of the end of the tax year to within 18 months of the end of the tax year during which the eligible product is completed.
[Bill 105 – Royal assent 2021-04-19]
[2021-11-05 Regulation 135/2021]
Nova Scotia capital tax on financial institutions – Effective November 1, 2021, Nova Scotia harmonized the administration of the provincial capital tax on financial institutions with the federal capital tax approach.
Ontario Ministry of Government and Consumer Services annual return – As of May 7, 2021, you will no longer be able to download the Ontario Corporations Information Act annual returns forms T2SCH546 and T2SCH548 from Canada.ca. As of May 15, 2021, you can no longer file these annual returns with the Canada Revenue Agency.
For updated information on filing an Ontario corporation annual return, go to Ontario Business Registry.
Ontario regional opportunities investment tax credit – The credit rate is temporarily doubled to 20% from 10%. This applies to property that becomes available for use in the corporation's tax year, and in the period beginning on March 24, 2021 and ending before January 1, 2023.
Lower rate of Prince Edward Island corporation income tax – Effective January 1, 2022, the Prince Edward Island lower rate of corporation income tax will decrease from 2% to 1%.
2020 – Federal
COVID-19 Ministerial Orders on time limits that apply to the following:
- normal reassessment period and reassessments beyond that period
- extension for filing an objection
- scientific research and experimental development
Temporary taxable benefits due to COVID-19 – You may have received federal, provincial, or territorial government assistance in the form of grants. This type of income is taxable and will either be included in income or, if you elect, reduce your expenses. You may also have received a government loan. The loan itself is not taxable; however, any part of the loan that is forgivable is taxable in the year in which the loan is received.
[Draft Legislative Proposals – 2020-04-17]
Retroactive to January 1, 2019, changes to the Canadian journalism labour tax credit have been proposed:
- Qualifying journalism organizations (QJOs) receiving amounts from the Aid to Publishers under the Canada Periodical Fund will be allowed to receive the credit. The amount of the credit will be reduced by the amount received from the Aid to Publishers.
- Only organizations that hold a licence as defined in subsection 2(1) of the Broadcasting Act will be ineligible for the credit. QJOs without such a licence that carry on unlicensed broadcasting undertakings, like podcasts, will be able to qualify.
- The requirement that a qualified Canadian journalism organization (QCJO) be "primarily" engaged in the production of original news content and not be significantly engaged in the production of content to promote goods or services has been removed. The “primarily” threshold will continue to apply to QCJOs that are a corporation or trust seeking to register as qualified donees.
- Eligible newsroom employees will have to spend at least 75% of their time in the production of original written news content.
- An organization will be deemed to have become designated as a QCJO on the date that it applies for designation with the Canada Revenue Agency (CRA), unless otherwise specified by the minister.
- The CRA will be allowed to revoke a QCJO's designation when it no longer meets the eligibility requirements. The CRA will have to consider any advice provided by the Advisory Board before revoking an organization's designation. This Advisory Board was set up to assist the Government in administering the journalism tax measures introduced in Budget 2019.
- The credit will be prorated based on the proportion of an organization's tax year during which it qualifies as a QJO.
- The credit can be allocated to active members of a QJO that is a partnership, based on the relative specified proportions, as defined in subsection 248(1) of the Income Tax Act, of each qualifying member for the relevant fiscal period.
Capital cost allowance – Zero-emission vehicles
[2020-07-08 Economic and Fiscal Snapshot]
An extension of capital cost allowance (CCA) classes 54 and 55 to used vehicles has been announced.
[2020-12-15 Legislative Proposals]
The Government has proposed a temporary enhanced first-year capital CCA rate of 100% for eligible new and used fully electric or hydrogen powered automotive equipment and vehicles that currently do not benefit from the accelerated rate provided by classes 54 and 55. These vehicles and equipment would be included in new class 56. They would have to be acquired after March 1, 2020, and become available for use before 2028.
The enhanced rate would apply only for the tax year in which the equipment or vehicle first becomes available for use. It would be subject to the following phase-out:
- 100% after March 1, 2020 and before 2024
- 75% after 2023 and before 2026
- 55% after 2025 and before 2028
The CCA would be deductible on any remaining balance on a declining-balance basis at a rate of 30%.
Employee stock options
[2020-11-30 Fall Economic statement]
Under proposed legislative changes, Canada's tax treatment of employee stock options granted after June 30, 2021, will apply a $200,000 annual limit on employee stock option grants that can receive preferred tax treatment. The employee stock option benefits would remain uncapped for Canadian-controlled private corporations (CCPCs) and non-CCPCs employers with annual gross revenue of $500 million or less.
If a security is deemed to be a non-qualified security for the 50% stock option deduction (either in the case of designation by the employer or because it exceeded the annual vesting limit), the employer will be able to claim a deduction equal to the benefit received by an employee where the employee cannot claim a paragraph 110(1)(d) deduction from taxable income.
The employer will have to notify the Canada Revenue Agency that the security is a non-qualified security in a prescribed form with its T2 return for the tax year that includes the day on which the agreement is entered into.
[2020-12-16 Legislative Proposals]
The Government has proposed extending by 12 months the timelines for spending the capital that flow-through share issuers raise through these shares. It has also proposed to apply Part XII.6 tax as if certain expenditures were incurred up to one year earlier than the date they were actually incurred and to extend the filing and payment deadline for Part XII.6 tax by one year.
Schedules 125 and 1 and COVID‑19 programs
Use Schedule 125, Income Statement Information, and Schedule 1, Net Income (Loss) for Income Tax Purposes, to report income from the COVID‑19 programs:
- on Schedule 125, include the amount you received for the tax year on line 8242 – Subsidies and grants
- on Schedule 1, clearly identify each of the COVID‑19 subsidy received on line 605 (for example, “CEWS $15,500”) with a corresponding “0” entry on line 295
Tax deferred cooperative share
[2020-11-30 Legislative Proposals]
Under proposed changes, the tax deferral that applies to patronage dividends paid by an eligible agricultural cooperative to its members in the form of eligible shares issued before 2021 will be extended to eligible shares issued before 2026.
2020 – Provinces and territories
The deadline to claim the following British Columbia tax credits has been extended due to COVID-19:
- book publishing tax credit
- film and television tax credit
- interactive digital media tax credit
- mining exploration tax credit
- productions services tax credit
- scientific research and experimental development tax credit
- training tax credit
British Columbia farmers' food donation tax credit – This credit, which was scheduled to end December 31, 2020, has been extended three years to December 31, 2023.
British Columbia film and television tax credit – For tax years starting on or after February 19, 2020, the filing deadline to claim this credit is now 18 months after the end of a tax year, reduced from 36 months.
British Columbia production services tax credit – For tax years starting on or after February 19, 2020, the filing deadline to claim this credit is now 18 months after the end of a tax year, reduced from 36 months. Effective July 1, 2020, corporations intending to claim this credit must notify Creative BC of their intent within 60 days of first incurring an accredited BC labour expenditure for the production. Creative BC must receive this notice before it issues an accreditation certificate.
British Columbia training tax credit – This credit, which was scheduled to end December 31, 2019, has been extended three years to December 31, 2022.
Manitoba cultural industries printing tax credit – This credit, which was scheduled to end December 31, 2020, has been extended one year to December 31, 2021.
Manitoba community enterprise development tax credit – This credit, which was scheduled to end December 31, 2020, has been extended one year to December 31, 2021.
Manitoba film and video production tax credit – A new Manitoba Production Company Bonus of 8% is added to the 30% cost-of-production credit, increasing the total cost-of-production credit to 38%. This applies to productions that start principal photography after May 31, 2020.
Manitoba manufacturing investment tax credit – This credit, which was scheduled to end December 31, 2020, has been made permanent.
Manitoba rental housing construction tax credit – The minister responsible for this credit will be the minister appointed to administer the Manitoba Housing and Renewal Corporation Act. It was previously the minister of Housing and Community Development.
Lower rate of Northwest Territories corporation income tax – Effective January 1, 2021, the Northwest Territories lower rate of corporation income tax decreases from 4% to 2%.
Nova Scotia venture capital tax credit – The maximum annual eligible investment is $500,000.
Nova Scotia corporation income tax rates – Effective April 1, 2020, the lower rate of Nova Scotia corporation income tax decreases from 3% to 2.5% and the higher rate decreases from 16% to 14%.
Nova Scotia digital animation tax credit – This credit, which was scheduled to end June 30, 2020, is extended five-and-a-half years to December 31, 2025.
Nova Scotia digital media tax credit – This credit, which was scheduled to end December 31, 2020, is extended five years to December 31, 2025.
Ontario extended deadlines and other measures due to COVID-19 – Due to delays resulting from COVID-19, Ontario has made legislative amendments and is introducing regulatory amendments to temporarily extend some timelines and amend some requirements for the following refundable cultural media tax credits:
- book publishing tax credit
- film and television tax credit
- interactive digital media tax credit
- production services tax credit
Ontario has extended the reporting period to claim an Ontario research and development tax credit. This parallels the extension of the reporting deadlines for the federal credit.
Ontario production services tax credit – Retroactive to June 4, 2015, eligible service contract expenditures included in determining a corporation's expenditure limit must relate to remuneration paid by the corporation, rather than salary and wages paid to Ontario‑based individuals.
Ontario regional opportunities investment tax credit – A new 10% refundable income tax credit is introduced for capital investments. A Canadian-controlled private corporations that invests in capital property that becomes available for use on or after March 25, 2020, in specified regions of Ontario is eligible for the tax credit.
Lower rate of Prince Edward Island corporation income tax – Effective January 1, 2021, the Prince Edward Island lower rate of corporation income tax decreases from 3% to 2%.
[Bill 2 – Royal assent 2020-12-10]
Lower rate of Saskatchewan corporation income tax – Effective October 1, 2020, the lower rate of Saskatchewan corporation income tax temporarily decreases from 2% to 0%. It will be restored to 1% effective July 1, 2022, and to 2% effective July 1, 2023.
[2020-03-09 Yukon Regulation]
Yukon carbon rebate – CCA class 54 and class 55 assets have been added to the list of eligible assets under the program for non‑mining businesses.
Lower rate of Yukon corporation income tax – Effective January 1, 2021, the lower rate of Yukon corporation income tax decreases from 2% to 0%.
Yukon manufacturing and processing profits tax credit – Effective January 1, 2021, the small business increment decreases from 0.5% to 0%.
Yukon small business investment tax credit – Starting in 2020, not just small, but also medium-sized businesses are allowed to raise money under this program. The credit was renamed the “Yukon business investment tax credit”. The amount of money a business can raise in a year increases.
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