The Federal Government tabled its first budget in two years in April 2021, containing more than $100 billion in spending and supporting a wide range of Canadians and their businesses. Certain announcements contained in the Budget will directly impact dealerships.
Highlights of the impacts on dealers include:
Emergency business support programs extended
The Canada Emergency Wage Subsidy, the Canada Emergency Rent Subsidy and the Lockdown Support have all been extended through June 2021 to September 25, 2021, with the potential to be extended to November 20, 2021, if necessary.
The subsidy rates decline over this period as the government works towards a full phase-out, but the extension is a welcome relief for many dealers who have relied on this support during the pandemic.
A new support program, the Canada Recovery Hiring Program, was introduced and intended to support businesses as they hire more workers.
Immediate expensing of depreciable property
To encourage investment in the economy, the Budget introduced immediate expensing of certain depreciable property, purchased beginning April 19, 2021, and ending January 1, 2024. There is a $1.5 million dollar limit that must be shared by associated companies. The $1.5 million limit applies annually, prorated for years shorter than 365 days. Many assets will qualify; however, buildings and goodwill will be excluded from this enhanced write-off.
For dealers, the positive impact of the enhanced write-off is twofold. First, capital purchases will qualify for immediate expensing, saving tax at combined federal and provincial rates of up to 31 percent. Second, the enhanced write-off may incentivize business clients to purchase more from dealerships.
Interest deductibility limits
While the details have yet to be confirmed, the proposed rules around interest deductibility will be something to watch. The new rules would limit the amount of interest that can be deducted to 30 percent of “tax EBITDA,” which is the company’s taxable income before accounting for interest expense, interest income, income tax, and amortization.
Exemptions from this rule would be available for:
- Canadian-controlled private corporations that, along with any associated corporations, have taxable capital of less than $15 million; and
- Groups of corporations and trusts whose net interest expense is less than $250,000
While an individual dealership may qualify for an exemption, it is anticipated most dealership groups will not be eligible.
Draft legislative proposals are expected to be released for comment in the summer of 2021. These rules are currently proposed to come into effect for years starting on or after January 1, 2023. MNP will ensure concerns regarding the impact of these new rules on our dealer clients will be heard during the consultation process.
For a more detailed analysis of the announcements included in Budget 2021, please view our 2021 Federal Budget Summary.
Contact Sean Kosior sean.kosior@mnp.ca or 306.790.7939 to find out more about how these changes impact you and your business.
