Jobs for Today and Tomorrow

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Nigel Sherman
6 years ago
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1 HIGHLIGHTS Deficit of $5.7 billion now forecast for Deficit of $4.3 billion projected for Balanced budget on target for Contributions to the ORPP deferred to 2018 Jobs for Today and Tomorrow On February 25, 2016, the Honourable Charles Sousa presented his fifth budget as Minister of Finance. Continuing on its path to balance the budget in , the Ontario government s plan for economic growth and job creation focuses on four tenets creating a more innovative and dynamic business climate, building modern infrastructure, supporting skills training, and providing income security in retirement. The deficit anticipated for is $5.7 billion, which has decreased from the $8.5 billion deficit that was forecast last year. The deficit will continue to decrease, with a forecast of $4.3 billion for and a balanced budget for As expected, the government has introduced a cap-and-trade program to reduce greenhouse gas emissions, effective January 1, Revenues from this program are expected to be $478 million in and up to $1.9 billion annually starting in Tobacco taxes and taxes on wine will also increase with today s budget. The government plans to continue with substantial infrastructure investments with a commitment of $160 billion over 12 years. Ontario will invest in health care, with additional resources being allocated to base funding of hospitals, home and community health care, cancer care, mental health and addiction programs, and hospice services. The government has also confirmed its commitment to the Ontario Retirement Pension Plan. Contributions to this plan will be delayed until 2018, allowing more time for the business community to prepare for the plan launch and for the upcoming national discussion on enhancing the CPP. This budget significantly changes assistance for post-secondary education, with the introduction of the Ontario Student Grant, starting in the school year. As part of its plan to make post-secondary education in Ontario more accessible and affordable, the government will eliminate the nonrefundable personal tax credit for tuition fees and the related education tax credit. The government promises to examine ways to simplify the provincial personal tax system, while today s budget proposes to eliminate certain personal tax credits. Although no changes to business income tax rates were announced, the government will reduce Ontario s research and development tax credits. The following is a summary of the more important items of interest to our clients.

2 ONTARIO BUDGET REPORT 2 Ontario Budget Projections (in billions $) Original Forecast 2015/2016 Revised Forecast 2015/2016 Projected 2016/2017 Revenue Program Expense (120.5) (120.9) (122.1) Interest on Debt (11.4) (11.2) (11.8) Reserve (1.0) (.2) (1.0) Deficit (8.5) (5.7) (4.3) PERSONAL TAX MEASURES Tuition and Education Tax Credits Currently, the Ontario government provides financial support for post-secondary education through a combination of grants and loans, as well as through personal income tax credits. In order to support its initiative to invest in people s talents and skills by making post-secondary education more affordable for students in Ontario, today s budget proposes changes to the current system of support for students educational costs. In this regard, the province proposes to discontinue the Ontario tuition and education tax credits during The additional revenue from eliminating these credits will be reinvested to support the new Ontario Student Grant, which will replace all of the funding currently being provided under the Ontario Student Assistance Program. Ontario students will be able to claim the Tuition Tax Credit for eligible tuition paid in respect of studies up to and including September 4, 2017, and would be able to claim the Education Tax Credit for months of study before September The eligible portion of 2017 tax credits would be transferable to a qualifying family member. Tax filers who are resident in Ontario on December 31, 2017, and have unused tuition and education tax credits available for carryforward, would be able to claim them in future years. Tax filers who move to Ontario after December 31, 2017, would no longer be able to claim their accumulated tuition and education tax credits in Ontario. Further details of the new Ontario Student Grant program will be released at a later date. Children s Activity Tax Credit Ontario introduced the non-refundable Children s Activity Tax Credit (CATC) in 2010 to help parents with the cost of enrolling their children in various extracurricular activities, including sports, arts and cultural programs. The province had intended that this credit benefit lower-income earning families who need help paying for their children s activities. Instead, the Ontario government estimates that the benefit of the credit is largely going to higher-income families, with over 50 of the families expected to benefit from the credit for 2015 having incomes above $100,000. As a result, the Ontario government proposes to end the CATC as of January 1, 2017.

3 ONTARIO BUDGET REPORT 3 Healthy Homes Renovation Tax Credit The province s Healthy Homes Renovation Tax Credit (HHRTC) was introduced in 2011 in order to help seniors to live independently in their homes by increasing the affordability of home renovations that improve safety and accessibility. As a consequence of having significantly lower take-up than expected, the government proposes to end the HHRTC as of January 1, Paralleling Federal Personal Income Tax Measures Today s budget proposes the following changes to parallel recent federal personal income tax changes. Ineligible Dividend Tax Credit and Gross-Up In its 2015 budget, the federal government announced a 2 reduction to the federal small business corporate tax rate to be phased in over four years, beginning in Accompanying this change were corresponding adjustments to the federal gross-up factor and dividend tax credit rate applicable to dividends distributed from corporate income taxed at the small business tax rate (i.e. ineligible dividends). As a consequence of these federal changes, Ontario s ineligible dividend tax credit rate will decrease from 4.5 to 4.29 of the taxable dividend. Accordingly, the Ontario tax rate on ineligible dividend income for a top rate individual (i.e. taxable income in excess of $220,000) will increase from to 19. With the federal tax increases, the overall combined federal and Ontario rate for a top-rate individual on these dividends will increase from to Ontario s ineligible dividend tax credit rate will be reviewed for 2017 and subsequent years. Tax on Split Income Today s budget proposes to make changes to how the Ontario tax rate is applied to tax certain types of income that is paid to a related minor child. Similar to the federal tax on split income (or kiddie tax ), minor children are taxed at top personal rates on certain types of income received from specified related sources. The proposed change will effectively increase the top Ontario marginal rate applicable on split income from to 20.53, beginning January 1, This increase is merely to ensure that the top marginal rate being applied on split income reflects the top marginal Ontario tax rate, including surtax, and is not designed to generate a net increase in tax revenue. Currently, this income is taxed at an Ontario tax rate of 13.16, plus surtax, but only where there is sufficient income such that surtax applies. Simplifying the Personal Income Tax System In today s budget, the Ontario government has committed to examining ways to simplify the personal income tax system in order to ensure that Ontarians can better understand their effective tax rates. To this end, the government will look at how Ontario s personal income taxes are calculated, including the Ontario surtax and Ontario Rate Reduction.

4 ONTARIO BUDGET REPORT 4 BUSINESS TAX MEASURES Research and Development Tax Credits Currently, the Ontario government provides certain provincial corporate tax credits to support research and development (R&D) activities. These credits include: - Ontario Research and Development Tax Credit (ORDTC): A 4.5 non-refundable tax credit on eligible R&D expenditures - Ontario Innovation Tax Credit (OITC): A 10 refundable tax credit for small to mediumsized companies on eligible R&D expenditures - Ontario Business Research Institute Tax Credit (OBRITC): A 20 refundable tax credit on eligible R&D expenditures incurred under contract with eligible research institutes As part of its commitment to manage costs by reviewing existing programs, the Ontario government proposes to reduce the level of support being provided through the ORDTC and the OITC. Specifically, today s budget proposes to decrease the ORDTC rate from 4.5 to 3.5 and decrease the OITC rate from 10 to 8, effective for eligible R&D expenditures incurred in taxation years ending on or after June 1, These rate reductions will be prorated for taxation years that straddle June 1, OTHER MEASURES Tobacco Tax Effective February 26, 2016, the tax on tobacco will increase from cents to cents per cigarette and per gram of tobacco products other than cigars. The Ontario government also announced plans to increase tobacco tax rates based on inflation over each of the next five years, beginning in Alcohol Charges The Liquor Control Board of Ontario will increase the ad valorem mark-up for wine products by 2, effective June This wine mark-up will be further increased by another 2 in each of April 2017 and April 2018, and by 1 in April In addition, the basic tax on non-ontario wine products purchased at retail winery stores will increase by 1 on each of June 2016, April 2017, April 2018, and April The Ontario government also plans to establish a definition of authorized grocery store and provide for the collection of tax in those stores. As well, the minimum retail price for table wine will increase to $7.95 per 750mL bottle (including the deposit on the bottle). This price increase will be phased in over 3 years. Minimum retail prices for cider, fortified wine and low-alcohol wine will also be phased in within 3 years. In the future, the government plans to introduce legislation to establish higher basic wine tax rates for sales at winery retail outlets that operate in grocery stores, and also to replace the current mark-up and commission structure on purchases at on-site distillery retail stores with a purchase tax.

5 ONTARIO BUDGET REPORT 5 Retirement Savings As discussed in our Tax Alert The Ontario Retirement Pension Plan What is it all about?, the Ontario government introduced legislation in December 2014 to create the framework to establish the Ontario Retirement Pension Plan (ORPP). Today s budget confirmed that all eligible Ontario workers will be covered by the ORPP, or a comparable pension plan, by During 2015, and earlier in 2016, the government released information on comparability tests to assess existing workplace pension plans and the phase-in approach for employers, as well as to outline the structure of ORPP benefits, member participation and survivor benefits. On February 16, 2016, the federal and Ontario governments jointly announced that they had reached an agreement to work together at improving pensions for Canadians. This included delaying enrolment in the ORPP to 2017, from early 2016, in order to provide more time for a national discussion on enhancing the Canada Pension Plan (CPP). It was further announced that the start of contributions to the ORPP would be postponed to 2018, from 2017 as originally stated. During the months leading up to the Federal-Provincial-Territorial Finance Ministers meeting in June 2016, the two governments will work with other jurisdictions to explore a range of potential CPP enhancements. If an agreement on a CPP enhancement is not achieved, the Ontario government will move forward with the ORPP as scheduled.

6 ONTARIO BUDGET REPORT 6 HOW ONTARIO COMPARES The following chart compares top personal and corporate tax rates and sales taxes for all provinces and territories, as announced to February 25, Top 2016 Personal Rates General 2016 Corporate Rates M&P Small Business 2016 Provincial Sales Tax B.C Alta Sask Man Ont (4) Qué (2) (5) N.B (1) (1) (4)(6) N.S (4) P.E.I (4) N.L (4) Yukon (3) - N.W.T Nunavut (1) The general corporate income tax rate will increase to 14, resulting in a combined federal/provincial rate of 29, effective April 1, (2) Québec provides a rate reduction for manufacturing SMEs. Where certain conditions are met, the maximum reduction available is 4, for a combined rate of Note that a lesser reduction may be available to certain manufacturing SMEs where not all conditions are met. (3) The tax rate for M&P profits eligible for the small business deduction is 12. (4) As part of the HST (combined rates are 15 in Nova Scotia, 14 in Prince Edward Island and 13 in Ontario, New Brunswick (see note 6) and Newfoundland & Labrador). (5) The QST system is harmonized with the GST, though two separate tax systems remain the GST and the amended QST. (6) The provincial portion of the HST will increase to 10, resulting in a combined HST rate of 15, effective July 1, The information in this publication is current as of February 25, This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

Ontario Budget Commentary

Ontario Budget Commentary February 25, 2016 Introduction On February 25, 2016 Finance Minister Charles Sousa tabled his fourth Budget. The deficit for the 2015-16 fiscal year is projected to be $5.7 billion,