Amendments to the Income Tax Act and the Income Tax Regulations proposed by Bill C-8

Preface

These explanatory notes describe proposed amendments to the Income Tax Act and regulations contained in Bill C-8, An Act to implement certain provisions of the economic and fiscal update tabled in Parliament on December 14, 2021 and other measures. These explanatory notes describe these proposed amendments, clause by clause, for the assistance of Members of Parliament, taxpayers and their professional advisors.

The Honourable Chrystia Freeland, P.C., M.P.
Deputy Prime Minister and Minister of Finance

These notes are intended for information purposes only and should not be construed as an official interpretation of the provisions they describe.

Table of Contents

Air Quality Improvement Tax Credit

Norther Residents Deduction

School Supplies Tax Credit

Return of Fuel Charge Proceeds to Farmers

Air Quality Improvement Tax Credit

Clause 2

Rules applicable

Income Tax Act (ITA)
87(2)

Subsection 87(2) of the Income Tax Act ("the Act") provides a number of application rules for corporations that have been formed on an amalgamation of one or more predecessor corporations.

New paragraph 87(2)(g.8) allows a new corporation formed on an amalgamation to be treated as the same corporation as its predecessor corporations for the purposes of new section 127.43, which provides a refundable air quality improvement tax credit for qualifying expenditures incurred between September 1, 2021 and December 31, 2022.

This amendment is deemed to have come into force September 1, 2021.

Clause 6

COVID-19 – Air Quality Improvement Tax Credit

ITA
127.43

New section 127.43 sets out the rules that apply for the air quality improvement tax credit. Generally, this refundable tax credit is available at a rate of 25% of qualifying expenditures incurred by an eligible entity. These expenditures must be incurred between September 1, 2021 and December 31, 2022 primarily to improve ventilation systems by increasing outdoor air intake or to improve air cleaning (filtration). Expenditures are subject to a cap of $10,000 per qualifying location and $50,000 in total within affiliated groups.

Definitions

ITA
127.43(1)

Subsection 127.43(1) provides definitions for the purposes of the air quality improvement tax credit in section 127.43.

The definitions are deemed to have come into force September 1, 2021.

"assistance"

The definition "assistance" describes amounts that reduce the total per location expense made by an eligible entity in calculating its total ventilation expense for a taxation year. This definition is based on amounts that would be included in computing income under paragraph 12(1)(x).

"eligible entity"

New definition "eligible entity" describes businesses that are eligible to incur qualifying expenditures and to claim the air quality improvement tax credit for a taxation year.

Eligible entities that can incur qualifying expenditures include individuals (other than trusts), partnerships and corporations that satisfy the definition "qualifying corporation".

Individuals and qualifying corporations can claim the air quality improvement tax credit in respect of their own qualifying expenditures, and the qualifying expenditures of partnerships of which they are a member. 

"qualifying corporation"

New definition "qualifying corporation" describes corporations that are eligible entities for the purposes of the air quality improvement tax credit for a particular taxation year. For a corporation to qualify for a taxation year, it must be a Canadian-controlled private corporation, or a cooperative corporation that would be a Canadian-controlled private corporation in the absence of subsection 136(1). 

In addition, the taxable capital employed in Canada of the corporation and any associated corporation must be $15 million or less. For this purpose, taxable capital employed in Canada has the meaning assigned by section 181.2 or 181.3. For this purpose, taxable capital employed in Canada is determined:

• for the qualifying corporation, as of its immediately preceding taxation year, and
• for an associated corporation, as of its last taxation year that ended before the current taxation year of the qualifying corporation.

"qualifying expenditure"

New definition "qualifying expenditure" of an eligible entity means an outlay or expense made or incurred during the qualifying period (i.e., September 1, 2021 to December 31, 2022) in the course of the eligible entity's ordinary commercial activities, and prescribed in section 9700 of the Income Tax Regulations.

"qualifying location"

Expenditures that qualify for the air quality improvement tax credit must be made in respect of a qualifying location.

Qualifying locations are real or immovable property in Canada, used by the eligible entity primarily in the course of its ordinary commercial activities.

A qualifying location does not include any part of a self-contained domestic establishment, the land subjacent to the self-contained domestic establishment, and any portion of immediately contiguous land that can reasonably be regarded as contributing to the use and enjoyment of the self-contained domestic establishment as a residence. Self-contained domestic establishment is defined in subsection 248(1) to mean a dwelling-house, apartment or other similar place of residence in which a person as a general rule sleeps and eats.

"qualifying period" 

An eligible entity may claim qualifying expenditures incurred during the qualifying period for purposes of the air quality improvement tax credit. The qualifying period is also relevant to the application of the $10,000 per location expenditure cap that is in the definition of "total per location expense", and the $50,000 overall expenditure cap that is in the definition of "total ventilation expense".

The qualifying period for purposes of the air quality improvement tax credit is between September 1, 2021 and December 31, 2022.

"total per location expense"

The definition "total per location expense" provides rules for determining the amount of an eligible entity's qualifying expenditures in respect of a qualifying location in a taxation year. This determination is relevant for purposes of calculating the entity's total ventilation expense and claiming the air quality improvement tax credit in subsections (2) and (3).

Under this definition, total per location expense is computed as the lesser of the amounts determined under paragraphs (a) and (b).

The amount determined under paragraph (a) is equal to the total of all qualifying expenditures of the eligible entity incurred in the taxation year and during the qualifying period (September 1, 2021 to December 31, 2022) in respect of the qualifying location, less any government assistance provided to the eligible entity in respect of those qualifying expenditures.

The air quality improvement tax credit available under subsections (2) and (3) can only be claimed in respect of taxation years that end after 2021. Accordingly, for an eligible entity's first taxation year that ends after 2021, the amount determined under paragraph (a) will include qualifying expenditures that were made from the start of the qualifying period (i.e., September 1, 2021) to the end of that taxation year.  For example, an eligible entity having its first 2022 taxation year ending on November 30 will claim its qualifying expenditures made between September 1, 2021 and November 30, 2022 in calculating the amount under paragraph (a) in the November 30, 2022 taxation year.

Paragraph (b) provides for a $10,000 per location cap in respect of qualifying expenditures incurred over the qualifying period. This per location cap is shared between eligible entities, including partnerships, that are affiliated during the qualifying period. Relevant for this purpose, subsection (6) deems that if two eligible entities are affiliated with the same eligible entity, they are deemed to be affiliated with each other.

"total ventilation expense"

The definition "total ventilation expense" is relevant for purposes of the air quality improvement tax credit claimed under subsections (2) and (3). Under this definition, total ventilation expense is computed as the lesser of the amounts determined under paragraphs (a) and (b).

The amount determined under paragraph (a) for a taxation year is the aggregate of the eligible entity's total per location expense in respect of all of its qualifying locations.

Paragraph (b) provides for a $50,000 cap on total ventilation expense incurred over the qualifying period. This overall cap is shared between eligible entities, including partnerships, that are affiliated during the qualifying period. Relevant for this purpose, subsection (6) deems two eligible entities to be affiliated with each other if they are both affiliated with the same eligible entity.

For purposes of sharing the $50,000 cap, an affiliated group may enter into an agreement to allocate a portion of the cap to its members. This agreement must include each member of the group that claims the air quality improvement tax credit under subsection (2) or that is a partnership with partners that claim the credit under subsection (3) in respect of the partnership. Each of these members must file the agreement with the Minister of National Revenue in prescribed form and manner. In the absence of the group filing a valid agreement, the total ventilation expense for each member of the affiliated group is nil.

Refundable tax credit

ITA
127.43(2)

New subsection 127.43(2) provides the air quality improvement tax credit for eligible entities (other than partnerships). The refundable tax credit is 25% of the eligible entity's total ventilation expense for the taxation year.

The air quality improvement tax credit can only be claimed in taxation years that end after 2021, but qualifying expenditures incurred in prior taxation years are included in the first taxation year that ends after 2021, as accommodated through the definition of total per location expense.

To claim the credit, the eligible entity is required to file a prescribed form containing prescribed information with its return of income for the taxation year.

This subsection is deemed to have come into force September 1, 2021.

Refundable tax credit - partnership

ITA
127.43(3)

The air quality improvement tax credit can be claimed by an eligible entity (other than a partnership) that is a member of a partnership, in respect of the total ventilation expense of the partnership. However, members of a partnership that are not eligible entities are not eligible to claim the air quality improvement tax credit, including in respect of the total ventilation expense of the partnership.

New subsection 127.43(3) provides the refundable air quality improvement tax credit for an eligible entity that is a member of a partnership at the end of the fiscal period of the partnership that ends:

• after 2021; and
• in a taxation year of the eligible entity.

The amount of the credit available under subsection (3) to the eligible entity that is a member of a partnership is equal to 25% of the eligible entity's specified proportion (as defined in subsection 248(1)) of the partnership's total ventilation expense for its fiscal period. Special rules in respect of partnerships are found in subsection (4), including a deeming rule to accommodate members of tiered partnerships.

To claim the credit under subsection (3), the partnership is required to file an information return for the fiscal period in prescribed form containing prescribed information. The eligible entity is also required to file a prescribed form containing prescribed information with its return of income for its taxation year that includes the end of the fiscal period of the partnership.  

This subsection is deemed to have come into force September 1, 2021.

Partnerships

ITA
127.43(4)

The definitions in subsection 127.43(1) frequently refer to the "taxation year" of an eligible entity. Paragraph (a) of new subsection 127.43(4) provides that where the eligible entity is a partnership, the fiscal period of the partnership is deemed to be its taxation year.

Paragraph (b) of subsection (4) provides a deeming rule for the purposes of calculating the air quality improvement tax credit in subsection (3) in respect of eligible entities that are members of tiered partnerships. If an eligible entity is a member of a partnership indirectly, through another partnership, paragraph (b) deems the eligible entity to be a member of the lower-level partnership. The eligible entity's specified proportion in the lower-level partnership is deemed to be its specified proportion of the partnership in which it is a member, multiplied by that partnership's specified proportion in the lower-level partnership. This rule may be applied on an iterative basis through multiple tiers of partnerships. "Specified proportion" is a defined term under subsection 248(1).

This subsection is deemed to have come into force September 1, 2021.

When assistance received

ITA
127.43(5)

Government assistance is generally included in the recipient's income in the taxation year in which it is received. New subsection 127.43(5) provides that the air quality improvement tax credit is also considered assistance received from a government immediately before the end of the taxation year in which it is claimed.

This subsection is deemed to have come into force September 1, 2021.

Affiliated entities

ITA
127.43(6)

Affiliated eligible entities must share the $10,000 per location cap and the $50,000 total ventilation expense cap, pursuant to the definitions "total per location expense" and "total ventilation expense" in subsection (1).

New subsection 127.43(6) provides that if two eligible entities are affiliated with the same eligible entity, they are deemed to be affiliated with each other.

This subsection is deemed to have come into force September 1, 2021.

Clause 9

Part XCVII

Covid-19 – Air Quality Improvement Tax Credit

Income Tax Regulations (ITR)
9700

New section 127.43 of the Act sets out the rules that apply for the air quality improvement tax credit. Generally, this refundable tax credit is available at a rate of 25% of qualifying expenditures incurred by an eligible entity. Qualifying expenditures must be incurred between September 1, 2021 and December 31, 2022, and primarily to improve ventilation systems by increasing outdoor air intake or to improve air cleaning (filtration). Expenditures are subject to a cap of $10,000 per qualifying location, and a total cap of $50,000 between eligible entities that are affiliated.

New subsection 127.43(1) of the Act provides that "qualifying expenditures" must be an outlay or expense made or incurred during the qualifying period (i.e., September 1, 2021 to December 31, 2022) in the course of the eligible entity's ordinary commercial activities.

Additional rules on qualifying expenditures are prescribed in new section 9700 of the Income Tax Regulations (the "Regulations").

Subsection 9700(1) defines "HEPA filter", "HVAC system" and "MERV" for the purposes of subsection 9700(2). Subsection 9700(2) provides that qualifying expenditures must be intended to increase outdoor air intake or to improve air cleaning or air filtration.

Expenses attributable to the installation, upgrade or conversion of an HVAC system would only be considered qualifying expenditures if the system also meets certain criteria.

For installation of a new HVAC system, the system must be:

• designed to filter air at a rate in excess of MERV 8 or equivalent level of filtration, or
• designed to filter air at a rate equal to MERV 8 or equivalent level of filtration, and to achieve an outdoor air supply rate in excess of the rate required for the space under relevant building codes.

The criteria for HVAC systems that are being upgraded or converted depend on the air filtration rating of the system prior to upgrade or conversion.

If an HVAC system was designed to filter air at a rate of MERV 8 or equivalent level of filtration prior to an upgrade or conversion, as a result of the upgrade or conversion the system must be:

• designed to filter air at a rate in excess of MERV 8 or equivalent level of filtration, or
• designed to filter air at a rate equal to MERV 8 or equivalent level of filtration and to achieve an outdoor air supply rate in excess of what is required for the space by relevant building codes.

If an HVAC system was designed to filter air at a rate below MERV 8 or equivalent level of filtration prior to an upgrade or conversion, as a result of the upgrade or conversion the system must be designed to filter air at a rate in excess of MERV 8 or equivalent level of filtration.

If an HVAC system was designed to filter air at a rate in excess of MERV 8 or equivalent level of filtration, an upgrade or conversion to the system intended to increase outdoor air intake or to improve air cleaning or air filtration would generally qualify provided that the system continues to be designed to filter air at a rate in excess of MERV 8 or equivalent level of filtration following the upgrade or conversion.

To qualify, the HVAC system must be placed in service at a qualifying location (see commentary on "qualifying location" in subsection 127.43(1) of the Act).

The cost of purchasing a stand alone air cleaner or air purifier can be a qualifying expenditure. The air cleaner must be placed in service at a qualifying location (see commentary on "qualifying location" in subsection 127.43(1) of the Act) and designed to filter air using a HEPA filter.

Subsection 9700(3) provides that qualifying expenses do not include an outlay or expense:

• made or incurred under the terms of an agreement entered into before the start of the qualifying period (i.e. September 1, 2021);
• that is the cost of annual, recurring or routine repair or maintenance;
• that can reasonably be expected to be paid or returned, directly or indirectly, in any manner whatever, to the eligible entity, a person or partnership not dealing at arm's length with the eligible entity, or another person or partnership at the direction of the eligible entity;
• that is paid to a party with which the eligible entity does not deal at arm's length;
• that is salary or wages paid to an employee of the eligible entity; or
• for financing costs.

New section 9700 is deemed to have come into force September 1, 2021.

Northern Residents Deduction

Clause 3

Residing in prescribed zone

ITA
110.7(1)(a)

Existing section 110.7 provides a special deduction in relation to certain employer-provided travel benefits for trip costs of individuals who reside in a prescribed northern zone or a prescribed intermediate zone under section 7303.1 of the Income Tax Regulations. More specifically this travel component of the Northern Residents Deduction (NRD) is a deduction that applies in computing an individual's taxable income in respect of the travel benefits if the individual resides, throughout a period of at least six consecutive months commencing or ending in a given calendar year (the "particular period"), in a prescribed northern zone or a prescribed intermediate zone.

The deduction in respect of trip costs to the taxpayer is provided in paragraph 110.7(1)(a). The existing deduction is intended to offset the income inclusion in respect of benefits provided by an employer to an employee or the employee's family for trips made for the purpose of obtaining necessary medical services not available locally, as well up to two other trips per year. The amount of this deduction is available only to the extent that any reimbursement or other form of assistance with respect to the travel expenses is included in the taxpayer's income.

Paragraph 110.7(1)(a) of the Act is amended to expand access to the travel component of the NRD as announced in Budget 2021 (at Annex 6 – Tax Measures: Supplementary Information). Subject to certain restrictions, paragraph 110.7(1)(a) and certain related provisions are amended to provide a taxpayer with the option to claim an amount in respect of trips made by the taxpayer and each "eligible family member" of the taxpayer. Eligible family member is defined in new subsection 110.7(6). For the purposes of these notes, "traveler" refers to the taxpayer or an eligible family member.

The amount that a prescribed northern zone residing taxpayer may claim is up to

• the amount of employer-provided travel benefits received and claimed by the taxpayer in respect of those trips, or
• a $1,200 standard amount in respect of each traveler.

50% of this amount is available for residents of the prescribed intermediate zone. This limit is applied as variable A in the new formula A x B in amended paragraph 110.7(1)(a). 

Variable A is the percentage specified in subsection 110.7(2) for the particular area in which the taxpayer resided during the particular period, which is either 100% or 50%, depending on whether the taxpayer resides in the prescribed northern zone or the prescribed intermediate zone.

Variable B is the total trip costs to the taxpayer in respect of trips that begin during the particular period and that are made by the travelers. In this regard, "trip costs" must be determined in accordance with subsections 7304(2) and (3) of the Income Tax Regulations. Please refer to the commentary below on those amended provisions. The determination of the amount in variable B is also subject to amended subsection 110.7(3) and new subsections 110.7(3.1) to (3.3) as described below. 

Several provisions set out in existing paragraph 110.7(1)(a) are being moved to new subsection (3.1).

This amendment applies to the 2021 and subsequent taxation years.

Restriction

ITA
110.7(3)

Subsection 110.7(3) of the Act imposes restrictions upon the amounts that may be recognized as "trip costs" for the purposes of the travel component of the NRD and deducted under paragraph 110.7(1)(a).

Existing subsection (3) provides that only two non-medical trips per year per individual in the household qualify for deduction under paragraph 110.7(1)(a). Any number of trips qualify for deduction under paragraph (1)(a) where the trips are for necessary medical services not available locally.

Subsection 110.7(3) is amended to ensure that the existing two-trip limit for an individual is applied across all taxpayers claiming deductions under paragraph (1)(a) in respect of that individual in a taxation year. For example, where a child has taken five non-medical trips in a year, and one of the child's parents selects any two trips for calculating the NRD deduction, the other parent cannot then claim two additional trips in respect of the child. All deductions in the year claimed by taxpayers under paragraph 110.7(1)(a) are limited to trip costs in respect of those two trips. However, it is not necessary for the same parent to claim both trips; each parent could claim one of the trips. 

Additional restrictions

ITA
110.7(3.1)

New subsection (3.1) contains a number of restrictions that replace similar restrictions included in existing paragraph (1)(a), and that remain relevant in determining amounts that may be deducted by a taxpayer under that paragraph. These restrictions ensure that amounts included in trip costs

• are not otherwise deducted in computing the income for any taxation year of any individual (except by an employer under section 9 if it is included in the employee's income),
• are not included in an amount deducted under the medical expense tax credit provided under subsection 118.2(1) for any taxation year,
• are limited to trips made by the taxpayer or an eligible family member (as defined under subsection 110.7(6)) that begin during the part of the year in which the taxpayer resided in the prescribed northern or prescribed intermediate zone, and
• do not include amounts for which the taxpayer or eligible family member receives a reimbursement or assistance (other than a reimbursement or assistance included the income of the taxpayer or the eligible family member) in respect of the trips.

Additional restriction

ITA
110.7(3.2)

Subject to new subsection (3.3), new subsection (3.2) limits the amount of trip costs determined for variable B in paragraph 110.7(1)(a) to a standard amount for an individual (defined under subsection 110.7(6) to mean $1,200). Subsection (3.2) also ensures that if any taxpayer claims trip costs that are limited by all or part of that standard amount in respect of an individual, the total amount claimed by all taxpayers in determining variable B under subsection 110.7(1)(a) in respect of that traveler must not exceed the standard amount. For example, if one taxpayer claims $500 in respect of the cost of trips made by a traveler, no other taxpayer (typically, the other parent of a child traveler) may claim more than $700.

Deemed standard amount

ITA
110.7(3.3)

New subsection 110.7(3.3) is also relevant in determining trip costs under variable B in paragraph (1)(a). Subsection (3.3) is added to ensure that if any taxpayer claims an employer-provided travel benefit in determining the trip costs under paragraph 7304(2)(a) of the Income Tax Regulations in respect of an individual in a taxation year, the standard amount for the individual is deemed to be nil for the taxation year. If subsection (3.3) applies, the deduction available to the taxpayer under paragraph (1)(a) in respect of the individual will be limited by the employer-provided travel benefits claimed by the taxpayer in respect of trips made by the individual in the year, rather than the standard amount for the individual. The travel component of the NRD is limited by either the employer-provided travel benefits claimed by the taxpayer in respect of a traveler, or the standard amount in respect of the traveler. New subsection 110.7(3.3) ensures that the standard amount cannot also be claimed for a traveler when employer-provided benefits are being claimed in respect of the traveler. 

These amendments apply to the 2021 and subsequent taxation years.

Definitions

ITA
110.7(6)

New subsection 110.7(6) of the Act contains definitions that are relevant for the purposes of section 110.7.

"eligible family member"

New definition eligible family member is added to clarify those persons (other than the taxpayer) with respect to whom a taxpayer may claim a deduction under paragraph (1)(a). References to eligible family member are intended to remain consistent with references to "members of the taxpayer's household" in existing section 110.7.

"employer-provided travel benefits"

New definition employer-provided travel benefits, in respect of a trip made by a taxpayer or their eligible family member, is added to clarify the meaning of this term (which is used in the Act and Regulations for the purposes of this measure). This definition is intended to be consistent with the language contained in existing paragraph 7304(2)(a) of the Income Tax Regulations. It means the value of travel assistance, if any, provided to the taxpayer in respect of the taxpayer's employment in respect of travel expenses for the trip (such as travel expenses incurred by the employer on the taxpayer's behalf), and the amount, if any, received by the taxpayer in respect of the taxpayer's employment in respect of travel expenses for the trip (such as a reimbursement or allowance for travel expenses incurred by the taxpayer).

"standard amount"

New definition standard amount is added to specify that that amount, for an individual for a taxation year, is subject to subsection (3.3), $1,200.

The standard amount is relevant in the calculation of the amount deductible under the travel component of the NRD as provided in paragraph 110.7(1)(a). For these purposes, subsection (3.2) provides that in situations where no employer-provided travel benefits are claimed by any taxpayer in determining the trip costs in respect of an individual, the amount of trip costs in respect of the individual that are claimed under paragraph (1)(a) by all taxpayers may not exceed the standard amount.

The meaning of standard amount may be qualified, in some situations, by the application of new subsection (3.3). If subsection (3.3) applies, the deduction available to a taxpayer under paragraph (1)(a) in respect of an individual will be limited by the employer-provided travel benefits claimed by the taxpayer in respect of trips made by the individual in the year, rather than the standard amount for the individual.

Note also that the effective maximum for the standard amount, in relation to residents of the prescribed intermediate zone, is reduced by one-half through the operation of variable A of the formula in amended paragraph 110.7(1)(a).

"trip cost"

New definition trip cost is added to confirm that this term is to have the meaning assigned by Section 7304 of the Income Tax Regulations. The description of B in paragraph (a) of subsection 110.7(1) of the Act refers to the total trip costs to the taxpayer in respect of trips that begin during the particular period. As such, in order to calculate the amount stipulated by the formula in subsection 110.7(1), regard must be had to the explanation of trip cost that is provided in Regulation 7304.

These new definitions apply to the 2021 and subsequent taxation years.

Clause 7

ITR
7304(2)

Subsection 7304(2) of the Regulations clarifies the meaning of the trip cost to a taxpayer in respect of a trip taken by the taxpayer or a member of their household (now "eligible family member" in new subsection of 110.7(6) of the Act). 

The opening language of subsection 7304(2) of the Regulations is amended, consequential upon the introduction of the definition "trip cost" to subsection 110.7(6) of the Act, as well as consequential upon the reference in the description of B in paragraph (a) of subsection 110.7(1) of the Act to the total trip costs to the taxpayer in respect of trips that begin during the particular period. As such, subsection 7304(2) now provides that the description of trip cost to a taxpayer in respect of a trip made by an individual who, at the time the trip was made, was a member of the taxpayer's household applies to section 110.7 of the Act as well as for the purposes of section 7304 of the Regulations.

Paragraph (2)(a) is amended, consequential on the introduction of the definition of employer-provided travel benefits in subsection 110.7(6) of the Act, to allow a taxpayer to claim all or a portion of the employer-provided travel benefits in respect of a trip. The travel component of the NRD is limited by either the employer-provided travel benefits claimed by the taxpayer in respect of an individual, or the standard amount in respect of the individual. By choosing to claim no amount of employer-provided travel benefits under paragraph (2)(a), the travel component of a taxpayer's NRD will be limited to the standard amount by virtue of subsection (3). See also new subsection 110.7(3.3) of the Act which ensures that the standard amount cannot also be claimed for an individual when employer-provided benefits are being claimed in respect of that individual.

Paragraph (2)(b) is amended to modernize the language of the existing paragraph.

Subparagraph (2)(b)(i) is also amended consequential on the introduction of the definition of employer-provided travel benefits in subsection 110.7(6) of the Act, and is intended to be applied consistently with the language in the existing subparagraph.

Further, subparagraph (2)(b)(ii) is amended to provide that for purposes of determining the trip costs for a trip made by an individual, the travel expenses incurred by the spouse or common-law partner of a taxpayer will be taken into account, together with travel expenses incurred by the taxpayer.

This amendment applies to the 2021 and subsequent taxation years.

Determination of trip cost

ITR
7304(3)

Subsection 7304(3) provides a rule related to trip costs for trips taken by family members, in the context of the travel component of the NRD. Subsection 7304(3) is amended to provide that, for purposes of determining trip costs under subsection 7304(2), if the amount of employer-provided travel benefits claimed by a taxpayer in respect of a trip made by an individual is nil, subsection (2) is to be read without reference to paragraph (2)(a). As a result, in such circumstances, the resulting trip costs determined under subsection (2) in respect of the trip by the individual are the lesser of

• the total travel expenses paid in respect of the trip by the taxpayer, the taxpayer's spouse or common-law partner, and the taxpayer's employer (as reflected in the amount of travel assistance provided to the taxpayer in respect of the trip), and
• the cost of the lowest return airfare to the nearest city designated under subsection (1).

Subsection (3), together with subsection 110.7(3.3) of the Act, combine to ensure that, where appropriate, the standard amount applies in respect of trips, rather than an employer-provided travel benefit.

Restriction - arm's length amounts

ITR
7304(4)

Consequential on amendments to paragraph 110.7(1)(a) of the Act, subsection 7304(4) is amended to ensure that no amount may be claimed by a taxpayer under paragraph 7304(2)(a) with respect to employer-provided travel benefits if the taxpayer was not dealing at arm's length with the employer at the time that those benefits were provided to the taxpayer.

This rule in amended subsection (4) replaces a similar rule in existing paragraph 110.7(1)(a) of the Act.

These amendments apply to the 2021 and subsequent taxation years.

School Supplies Tax Credit

Clause 4

Definitions

ITA
122.9(1)

Section 122.9 of the Act provides a refundable Teacher and Early Childhood Educator School Supplies Tax Credit. Subsection 122.9(1) sets out definitions and rules that apply for the purpose of the School Supplies Tax Credit.

"eligible supplies expense"

The definition of "eligible supplies expense" is relevant for the purposes of the computing the School Supplies Tax Credit in subsection 122.9(2). Under this definition, eligible supplies expense for a taxation year is an amount paid by an eligible educator in the year for teaching supplies that were purchased by the eligible educator for the purpose of teaching or facilitating the students' learning, and that were directly consumed or used in an elementary or secondary school or in a regulated child care facility in the performance of the duties of the eligible educator's employment. The eligible supplies expense does not include any amounts to the extent that the eligible educator is entitled to receive reimbursement, allowance or any other form of assistance in respect of the amount paid.

In recognition of evolving approaches and increasing use of technologies in education, the definition of eligible supplies expense is amended to accommodate remote learning by removing the requirement that teaching supplies be consumed or used in an elementary or secondary school or in a regulated child care facility. The requirement that teaching supplies be directly consumed or used in the performance of the duties of the eligible educator's employment remains in place.

This amendment applies to the 2021 and subsequent taxation years.

Deemed overpayment

ITA
122.9(2)

Subsection 122.9(2) provides a formula to determine the amount that an eligible educator claiming the School Supplies Tax Credit in their return of income for the year is deemed to have paid on account of tax payable under Part I for the year. The amount of this deemed overpayment of tax is calculated by applying the appropriate percentage for the taxation year (meaning the lowest percentage referred to in subsection 117(2), set at 15% since 2016) to the lesser of $1,000 and the total of all amounts each of which is an eligible supplies expense of the eligible educator for the year. The amount of the deemed overpayment is nil if the eligible educator fails to provide the certificate referred to in 122.9(3), as and when requested by the Minister.

Subsection (2) is amended to remove the reference to the appropriate percentage for the taxation year, and increase the rate of the refundable School Supplies Tax Credit to 25%, applicable for the 2021 and subsequent taxation years.

Clause 8

Prescribed durable goods

ITR
9600

Part XCVI of the Regulations prescribes (in section 9600) certain durable goods that qualify as teaching supplies for purposes of the school supplies tax credit under section 122.9 of the Act. In recognition of evolving approaches and increasing use of technologies in education, the list of prescribed durable goods is expanded to include certain technological devices.

This amendment applies to the 2021 and subsequent taxation years.

Return of Fuel Charge Proceeds to Farmers

Clause 5

Definitions

ITA
127.42

Subsection 127.42(1) of the Act contains definitions that are relevant for the purposes of the rules in section 127.42. Section 127.42 will return fuel charge proceeds to farmers carrying on business in involuntary backstop jurisdictions, meaning provinces that have not adopted either the federal system of applying a price on pollution or rules that meet the federal government's stringency requirements.

"designated province"

The definition "designated province" means a province specified by the Minister of Finance for a calendar year. New subsection 127.42(5) authorizes the Minister of Finance to specify designated provinces for a calendar year. It is expected that the designated provinces for a calendar year will be any provinces that are involuntary backstop jurisdictions. 

"eligible farming expenses"

The definition "eligible farming expenses", of a taxpayer for a designated province for a taxation year, means the relevant proportion of the total of all amounts deducted by the taxpayer in computing their income from farming activities allocated to that province. New subsections 127.42(2) and (3) reference eligible farming expenses as a factor employed in determining the amount of the Return of Fuel Charge Proceeds to Farmers tax credit.

Variable A of the formula requires a taxpayer to total the amounts deducted by it in computing income under Part I from farming activities. For this purpose, deductions arising from inventory adjustments under section 28 and from transactions with non-arm's length parties are excluded from the calculation of eligible farming expenses. Due to paragraph (a) of variable A, a taxpayer's eligible farming expenses will be nil unless the taxpayer has total deductions from farming activities of at least $25,000.

The definition "relevant proportion" provides a method for allocating deductions between relevant provinces, which is applied through variable B of the formula in the definition of "eligible farming expenses".

"farming activities"

The definition "farming activities" means a farming business, including or excluding activities prescribed by regulation. This definition is relevant for the calculation of eligible farming expenses.

"payment rate"

The definition "payment rate" means the rate specified by the Minister of Finance for the calendar year for the designated province. New subsections 127.42(2) and (3) reference payment rate as a factor employed in determining the amount of the Return of Fuel Charge Proceeds to Farmers tax credit.

"relevant proportion"

The definition "relevant proportion" provides a method for determining the proportion of a taxpayer's "eligible farming expenses" that relate to a particular designated province. This is relevant where a taxpayer has deductions from farming activities carried on in multiple provinces. Generally, the method used to allocate deductions between provinces is the same method used under the Income Tax Regulations to allocate income or taxable income, as applicable, between provinces. New subsection 127.42(8) provides deeming rules to address situations where a taxpayer does not have net income or taxable income, and therefore may not otherwise be able to use the relevant allocation method. This definition provides separate formulas for each of individuals, corporations and partnerships to use to calculate their relevant proportion.

Taxpayers who are individuals must divide their income for the year from farming activities deemed to have been earned in the year in the designated province by the entirety of their income from farming activities for the year. The determination of these taxpayers' income for the year from farming activities deemed to have been earned in the year in the designated province is to be made in accordance with Part XXVI of the Income Tax Regulations.

Taxpayers that are corporations must divide their taxable income that is deemed to have been earned in the year in the designated province by the entirety of their income from farming activities for the year. The determination of these taxpayers' income for the year from farming activities deemed to have been earned in the year in the designated province is to be made in accordance with Part IV of the Income Tax Regulations.

Taxpayers that are partnerships must divide their income for the fiscal period of the partnership from farming activities that would be deemed to have been earned in the year in the designated province by the entirety of their income from farming activities for the fiscal period of the partnership. The determination of a taxpayers' income for the year from farming activities deemed to have been earned in the year in the designated province is to be made in accordance with Part XXVI of the Income Tax Regulations as if they were an individual.

These new definitions apply to the 2021 and subsequent taxation years.

Deemed payment on account of tax

ITA
127.42(2)

New subsection 127.42(2) provides that if a taxpayer files a prescribed form containing prescribed information with their return of income for a taxation year, they will be considered to have paid an amount on account of their tax payable under Part I of the Act. This will allow the taxpayer to receive a refund or a credit against taxes otherwise owing.

Subsection 127.42(2) provides a method of calculating this amount paid. This calculation must be done for each designated province in which the taxpayer carried out farming activities during the taxation year using the payment rate specified for the calendar year for the designated province. Once this calculation has been made for each designated province, the taxpayer will total all of these amounts together to arrive at the amount it has been deemed to have paid on account of tax for the year.

This amount will be calculated by first multiplying the payment rate for the designated province for the calendar year by the taxpayer's eligible farming expenses for the designated province for the taxation year (pursuant to the first part of the formula, A x B). That product will then be multiplied by the number of days within the taxation year that fall within the calendar year divided by the number of days in the calendar year (pursuant to the second part of the formula, C ÷ D). For taxpayers whose taxation years align with the calendar year the second part of the formula will result in a product of 1. Effectively, these taxpayers will be considered to have paid the amount resulting from first multiplying the payment rate for the designated province for the calendar year by their eligible farming expenses for the designated province for the taxation year.

However, for taxpayers whose taxation years do not align with the calendar year, they will first need to multiply the payment rate for the designated province for the calendar year by their eligible farming expenses for the designated province for the taxation year. Next, they will multiply that amount by the number of days within the taxation year that fall within that calendar year divided by the number of days in the taxation year. This calculation will then be repeated with respect to the number of days within the taxpayer's taxation year that fall within a different calendar year and were not taken into account for the afore-mentioned initial calculation.

For example, if ABC Co. has a June 30th year end, then for the taxation year ending on June 30, 2023, it will follow a two-step process. First, it will multiply the payment rate for the province for 2022 by its eligible farming expenses for its taxation year ending June 30, 2023. Next ABC Co. will take that product and multiply it by:

the number of days in its 2023 taxation year that fall within the 2022 calendar year divided by the number of days in its 2023 taxation year (184 ÷ 365). 

Having done that, ABC Co. will multiply the payment rate for the province for 2023 by its eligible farming expenses for its taxation year ending June 30, 2023. ABC Co. will then take that product and multiply it by:

the number of days in its 2023 taxation year that fall within the 2023 calendar year divided by the number of days in its 2023 taxation year (181 ÷ 365). 

New subsection 127.42(2) does not apply to partnerships. The rules applicable to taxpayers who are members of partnerships are provided for in subsection 127.42(3).

New subsection 127.42(2) applies to the 2021 and subsequent taxation years.

Deemed payment on account of tax - partnership

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127.42(3)

New subsection 127.42(3) applies to taxpayers who are members of partnerships. It provides that a taxpayer will be considered to have paid an amount on account of its tax payable under Part I of the Act for each calendar year a portion of which falls within the partnership's fiscal period, if:

• the taxpayer is a member of a partnership at the end of a fiscal period of the partnership that ends in a taxation year of the taxpayer;
• the partnership files a prescribed form containing prescribed information for that fiscal period; and
• the taxpayer files a prescribed form containing prescribed information with its return of income for the taxation year.

Subsection 127.42(3) provides a method of calculating this amount paid. This calculation must be done for each designated province in which the partnership carried out farming activities during the taxation year using the payment rate specified for the calendar year for the designated province. Once this calculation has been made for each designated province, and the taxpayer has calculated its share in accordance with the rules described herein, the taxpayer will total all of these amounts together to arrive at the amount it has been deemed to have paid on account of tax for the year.

Under this subsection, taxpayers first need to multiply the payment rate for the designated province for the calendar year by the partnership's eligible farming expenses for the designated province for the fiscal period of the partnership (pursuant to the first part of the formula, A x B).

Next, they will multiply that amount by the number of days within the fiscal period of the partnership that fall within the calendar year divided by the number of days in the fiscal period (pursuant to the second part of the formula, C ÷ D). The calculations for this part of the formula will be done in a manner similar to the method that is outlined above for similar calculations under subsection 127.42(2).

Finally, the product arrived at once the steps above have been taken must be multiplied by the taxpayer's specified proportion for the fiscal period (pursuant to variable E in the formula). "Specified proportion" is defined in subsection 248(1) of the Act. Special rules in respect of partnerships are found in subsection (4), including a deeming rule to accommodate members of tiered partnerships.

New subsection 127.42(3) applies to the 2021 and subsequent taxation years.

Partnerships 

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127.42(4)

Subsections 127.42(2) and (3) each provide for deemed payments to be made to taxpayers, but they each also provide that these payments will be deemed to be made to only to taxpayers that are not partnerships.

However, subsection 127.42(3) does apply to a taxpayer that is a member of a partnership (at the end of a fiscal period of the partnership that ends in a taxation year of the taxpayer). As such, subsection 127.42(4) provides interpretation rules which apply when a taxpayer holds an interest in a partnership which, in turn, is a member of another partnership (as well as when a taxpayer holds an interest in a partnership that forms part of a series of tiered partnerships).

In this regard, subsection 127.42(4) stipulates that, for the purposes of section 127.42, a taxpayer includes a partnership, and the fiscal period of a partnership is deemed to be its taxation year.

Paragraph 127.42(4)(c) provides deeming rules for members of tiered partnerships, applicable for the purposes of subsection 127.42. If a taxpayer is a member of a partnership indirectly, through another partnership, subparagraph 127.42(4)(c)(i) deems the taxpayer to be a member of the lower-level partnership. The taxpayer's specified proportion in the lower-level partnership is deemed by subparagraph 127.42(4)(c)(ii) to be its specified proportion of the partnership in which it is a member, multiplied by that partnership's specified proportion in the lower-level partnership. This rule may be applied on an iterative basis through multiple tiers of partnerships. "Specified proportion" is a defined term under subsection 248(1) of the Act.

New subsection 127.42(4) applies to the 2021 and subsequent taxation years.

Authority to specify amounts

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127.42(5)

Subsection 127.42(5) provides the Minister of Finance with the authority to specify the payment rate for a designated province for a calendar year, as well as the designated provinces for that calendar year.

New subsection 127.42(5) applies to the 2021 and subsequent taxation years.

Where no specification made

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127.42(6)

Subsection 127.42(6) provides that if the Minister of Finance does not specify the payment rate for a designated province for a calendar year under subsection 127.42(5), the rate for that calendar year for that province is deemed to be nil. Therefore, if the Minister does not specify the payment rate for a designated province for a calendar year, taxpayers will not qualify for the Return of Fuel Charge Proceeds to Farmers tax credit in respect of eligible farming expenses incurred in that province in that year.

New subsection 127.42(6) applies to the 2021 and subsequent taxation years.

When assistance received

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127.42(7)

New subsection 127.42(7) provides that the amount of tax that a taxpayer is deemed to have paid under any of subsections 127.42(2) or (3) for a taxation year is considered to be assistance received by the taxpayer from a government immediately before the end of the year.

New subsection 127.42(7) applies to the 2021 and subsequent taxation years.

Relevant proportion – special rule

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127.42(8)

New subsection 127.42(8) provides a supporting rule that applies for purposes of the definition "relevant proportion". For the purpose of calculating the relevant proportion of eligible farming expenses of a taxpayer for a designated province in a taxation year, if the income of an individual or partnership, or the taxable income of a corporation, is nil, the individual, partnership or corporation is deemed to have $1,000,000 of income or taxable income, as applicable, from farming activities. This will allow those entities without net income or taxable income to apply the allocation method provided for in the definition of "relevant proportion".

New subsection 127.42(8) applies to the 2021 and subsequent taxation years.