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2021 Federal Budget: Selected Pensions, Benefits and Executive Compensation Measures

April 22, 2021

On April 19, 2021, the federal government tabled its 2021 budget (2021 Budget), which included a number of provisions related to pensions, benefits and executive compensation, as summarized below.

Here is an overview of the key provisions in Budget 2021, which are discussed in further detail below:

Fixing Contribution Errors in Defined Contribution Pension Plans
Unclaimed Assets Regime
Revised Framework for Negotiated Contribution Pension Plans
Taxes Applicable to Registered Investments
Ensuring the Canada Emergency Wage Subsidy Supports Workers
Employment Insurance Premium Reduction Program
Previously Announced Measures


The 2021 Budget proposes to provide more flexibility to plan administrators of defined contribution registered pension plans (RPPs) to correct for both under-contributions and over-contributions. The proposals would permit certain types of errors to be corrected via additional contributions to an employee’s account under a defined contribution RPP to compensate for an under-contribution error made in any of the preceding five years, subject to a dollar limit. The proposals would also permit plan administrators to correct for pension over-contribution errors in respect of an employee for any of the five years prior to the year in which the excess amount is refunded to the employee or employer, as the case may be, who made the contribution.

The 2021 Budget indicates that the proposed rules would require the plan administrator to file a prescribed form in respect of each affected employee, rather than to amend T4 slips for prior years. Additional contributions to correct for under-contributions would reduce the employee’s registered retirement savings plan (RRSP) contribution room for the taxation year following the year in which the retroactive contribution is made. To the extent this results in negative RRSP room, it would only impact the employee’s contributions in future years. Refunds of over-contributions would generally restore the employee’s RRSP contribution room for the taxation year in which the refund is made.

The 2021 Budget indicates that this measure would apply in respect of additional contributions made, and amounts of over-contributions refunded, in the 2021 and subsequent taxation years.


The 2021 Budget proposes to revise the federal unclaimed assets regime by increasing the information available and use of electronic communication to match Canadians with their unclaimed assets, and by expanding the scope of the regime to include unclaimed balances from terminated federally regulated RPPs and foreign denominated bank accounts by proposing amendments to the Bank of Canada Act, the Bank Act, the Trust and Loans Companies Act, and the Pension Benefits Standards Act, 1985. This proposal was also included in the federal government’s 2019 budget (2019 Budget), as discussed in our March 2019 Blakes Bulletin: 2019 Federal Budget: Key Provisions Affecting Pensions, Benefits and Executive Compensation. For further detailed information on the unclaimed asset regime, please see our August 2017 Blakes Bulletin: Missing Pension Plan Beneficiaries and the Federal Consultation Paper on the Financial Sector Framework.


The 2021 Budget proposes to introduce amendments to the Pension Benefits Standards Act, 1985 to establish a revised framework for multi-employer negotiated contribution RPPs that strengthens plan governance, transparency and sustainability of benefits.


The 2021 Budget proposes that the Part X.2 tax under the Income Tax Act (Canada), which applies to certain categories of registered investments, would now only apply to the extent that the shares (or units) constituting the registered investments are held by investors that are registered plans. This proposal would apply in respect of months after 2020, however, it would also apply to taxpayers whose Part X.2 liability in respect of months before 2021 has not been finally determined by the Canada Revenue Agency as of April 19, 2021. 


The 2021 Budget proposes that, for a qualifying period that begins after June 5, 2021, the subsidy received by publicly listed corporations (and their subsidiaries) will be subject to claw-back to the extent that the aggregate executive compensation of the publicly listed corporation for 2021 exceeds its aggregate executive compensation for 2019. For this purpose, the aggregate executive compensation would be determined based on the compensation disclosed for “named executive officers” under securities laws (or under securities law principles, where such public disclosure was not required). 


In addition to other Employment Insurance (EI) related proposals, the 2021 Budget indicates that the federal government intends to launch consultations with employers, labour organizations and private insurers regarding improvements that may be required to the EI Premium Reduction Program. Under the EI Premium Reduction Program, employers who provide short-term disability plans to their employees can obtain a reduction in EI premiums.


The 2021 Budget notes that the federal government will proceed with its announced plan to provide ongoing funding of C$500-million for the program for high-cost drugs for rare diseases and will also directly engage with willing partners on national universal pharmacare. Pharmacare was also included in the 2019 Budget, as discussed in our March 2019 Blakes Bulletin: 2019 Federal Budget: Key Provisions Affecting Pensions, Benefits and Executive Compensation.


The 2021 Budget confirms the federal government’s intention to proceed with a number of previously announced tax and related measures, as modified to take into account consultations and deliberations since their release. These measures include the following:

For further information on the Draft Regulations, please see our July 2020 Blakes Bulletin: Draft Pension and Deferred Salary Leave Tax Regulations Released.

  1. Stock Options: Income tax measures announced on November 30, 2020 in the Fall Economic Statement (2020 FES) in respect of employee stock options. The 2020 FES proposed to restrict access to preferential treatment of employee stock options granted on, or after, July 1, 2021. In general, the rules proposed by the 2020 FES would apply to limit the favourable tax treatment of employee stock options granted by corporations and mutual fund trusts that are not Canadian-controlled private corporations and have (or are part of a consolidated group whose “ultimate parent entity” has) annual gross revenues that exceed C$500-million. For further information on the income tax measures in respect of employee stock options proposed in the 2020 FES, please see our December 2020 Blakes Bulletin: Fall Economic Statement 2020 – Selected Tax Measures.

  2. Employee Life and Health Trusts: Legislative proposals announced on November 27, 2020 to facilitate the conversion of Health and Welfare Trusts to Employee Life and Health Trusts. In 2018, the federal government announced the phasing out of Health and Welfare Trusts. Subsequently, the Department of Finance indicated in its November 27, 2020 backgrounder (Backgrounder) that if a Health and Welfare Trust does not convert to an Employee Life and Health Trust, or does not wind up, by the end of 2021, the Canada Revenue Agency will apply the existing tax rules that apply to inter vivos trusts (and will not apply the rules for employee benefit plans) to the Health and Welfare Trust.  In addition, the Backgrounder indicates that the transitional rules proposed would permit Health and Welfare Trusts to elect to be deemed Employee Life and Health Trusts until December 31, 2022, if certain conditions are met.

  3. Deferred Salary Leave Plans (DSLPs) and RPPs: Regulatory proposals announced on July 2, 2020 providing relief for DSLPs and RPPs during the COVID-19 pandemic. The proposed draft regulations released on July 2, 2020 (Draft Regulations) addressed the following matters:

    • Adding temporary stop-the-clock rules to the conditions applicable to DSLPs for the period of March 15, 2020, to April 30, 2021.

    • Providing time-limited relief from the restrictions that prohibit an RPP from borrowing money for more than 90 days or as part of a series of loans and repayments.

    • Extending the deadline for decisions to retroactively credit pensionable service under a defined benefit plan or to make catch-up contributions to money purchase accounts in an RPP.

    • Permitting catch-up contributions to money-purchase accounts in an RPP to be made in 2021 to the extent that 2020 required contributions are reduced.

    • For application to 2020, setting aside the 36-month employment condition in the definition “eligible period of reduced pay,” for the purpose of using prescribed compensation to determine benefit or contribution levels in an RPP.

    • Allowing wage rollback periods in 2020 to qualify as an eligible period of reduced pay for prescribed compensation purposes under an RPP.

  4. Annuities, Specified Multi-Employer Pension Plans (SMEPs), and Individual Pension Plans (IPPs): Legislative proposals released on July 30, 2019 to implement income tax measures set out in the 2019 Budget in respect of, amongst other things, permitting additional types of annuities under registered plans, contributions to SMEPs for older members and pensionable service under an IPP.

For further information, please contact any member of our Pension, Benefits & Executive Compensation group.