2013 Ontario Budget Summary

Transcription

1 Ontario Tax Region 2013 Ontario Budget Summary CAMBRIDGE Bill Mitchell A Path to Prosperity or Fiscal Reckoning? MARKHAM Don Carson Glenn Willis MISSISSAUGA Allen Church Paul Howlett THUNDER BAY Steve Blazino Ontario Budget Backgrounder On May 2, 2013, Ontario s Minister of Finance, Charles Sousa, presented his debut budget entitled A Prosperous & Fair Ontario ; however, with deficits being projected for several more years and the net provincial debt rapidly approaching $300 billion it remains to be seen as to how sustainable the province s stated prosperity will be as its population ages and places added cost pressures on key social services. This Budget acknowledges that, although the province of Ontario enjoys strong economic fundamentals including a competitive corporate tax system and skilled workforce, its economy is still recovering after the global recession. In addition, expectations for global economic growth have weakened with many European economies in recession and growth in emerging-market economies slowed. Ontario still relies heavily on the U.S. economy as a major export market. The government states that the single most important thing it can do to secure Ontario s prosperity is to eliminate the deficit; however, it is taking a balanced approach to reduce the impact to Ontario s sensitive economic recovery. Economic Factors Ontario s 2012/13 fiscal deficit is projected to be $9.8 billion and represents a $5.4 billion reduction to amount that was projected in the 2012 Budget. As outlined in the table below, the deficit for the current fiscal year projected to be $11.7 billion. Over the next 4 years, the Budget proposes virtual freezes to overall program spending and anticipates significant revenue growth without raising taxes for ordinary Ontarians.

2 Ontario Tax Region (cont d) TORONTO Frank Kacsandi John Durland Kal Ruprai Kevyn Nightingale Mark Pearlman Michael Shumate WATERLOO David Webb Linda Quinn Scott Rasenberg The Budget is premised on the government s ability to dramatically reduce program spending growth while also ensuring the integrity of provincial revenues to fund public services and infrastructure, which include the following measures: Continuing to restrain compensation costs and achieve collective agreements that control public-sector compensation costs; Reaching agreements with all four of the jointly-sponsored pension plans consolidated in the Province s financial statements to protect taxpayers from higher contributions; Slowing the growth rate of health care spending (currently 42 percent of Provincial program spending) to an annual average of 2 percent; Collaborating with the federal government to enhance compliance activities to address corporate tax avoidance and the underground economy; and Income-testing of the Ontario Drug Benefit program, effective August 2014, that will require high-income seniors to pay a larger share of their prescription drug costs. The Ontario government proposes to balance the province s finances by In its latest Economic Forecast, TD Economics projects real GDP growth in the Canadian economy of 1.4, while the Budget papers project the Ontario economy to grow at 1.5 per cent in 2013, 2.3 per cent in 2014 and 2.4 per cent in 2015.

3 Non-tax highlights of the Budget include the following: Auto Insurance The government is proposing a cost and rate-reduction strategy that would reduce average auto insurance rates by 15 per cent Education Committed to fully implementing full-day kindergarten by 2014; Keeping a cap on class sizes in the early grades; and Making additional investments in student financial aid for postsecondary education. Youth Jobs Strategy Establishing a Youth Jobs Strategy with an investment of $295 million over the next two years to create jobs and mentorship opportunities. Healthcare Investing $20 million annually to help small and rural hospitals improve patient care and transform their organizations; Continuing efforts to control drug expenditures through measures such as reducing the price the government pays for top generic drugs; Higher-income seniors to pay a larger share of their prescription drug costs starting August 2014; Investing $15 million over three years, starting in , to accelerate the conversion of the remaining red-and-white Ontario Health Insurance Plan (OHIP) cards to the more secure photo cards; Continuing to hold growth in hospitals overall base operating funding to zero per cent in ; Providing three million more hours of personal support-worker care for 90,000 more seniors; Providing long-term care homes with a two per cent annual increase in funding for direct resident care; and Continuing to provide the Healthy Homes Renovation Tax Credit to assist with the cost of home modifications to improve accessibility, functionality and mobility for seniors living at home.

4 Public Sector Pensions The four jointly sponsored pension plans ( JSPPs ) consolidated in the Province s financial statements have signed agreements with the government that freeze contribution rates until the deficit is eliminated in ; The government commits to ensuring that single-employer pension plans ( SEPPs ) move to equal cost-sharing for ongoing contributions within five years; and Intends to develop a framework that would permit the transfer of assets from SEPPs to JSPP and allow SEPPs to be converted to JSPPs. Helping Social Assistance Recipients into Employment Enabling Ontario Works and Ontario Disability Support Program recipients to keep the first $200 of employment earnings each month before their social assistance benefits are reduced; Develop simpler, more effective and flexible employment-related benefit structure to help social assistance recipients find jobs; Treating income from self-employment the same as employment earnings for Ontario Works recipients; and More high school students in families receiving social assistance are able to keep their earnings from part-time jobs. Families Proceeding with scheduled increases in the maximum annual Ontario Child Benefit to $1,210 per eligible child in July 2013 and to $1,310 in July Aboriginal People Providing an additional $5 million annually to improve student achievement for Aboriginal students; Introducing a new transitional fund to support the housing needs of First Nation communities and expanding eligibility to all low-income people in First Nation communities; and Providing annual funding of $4 million to continue to support 40 frontline officer positions in First Nation police services across Ontario.

5 HOV Lanes Increase revenue by allowing non carpooling drivers to use the HOV lanes in the Greater Toronto Hamilton Area (GTHA) by paying a toll. Tax Measures The following is a summary of the tax highlights from the 2013 Ontario Budget. A. Business Corporate Income Tax (CIT) Rates Remain Frozen Ontario s general CIT rate was previously legislated to decrease to 11.00% on July 1, 2012 and to 10.00% on July 1, 2013; however, in 2012 the government amended the Taxpayer Protection Act, 1999 and froze the general CIT rate at 11.50% until the Budget is balanced, planned to occur in the fiscal year. Presently, no changes are proposed to the tax rates applicable to corporate income that qualifies for the small business or M&P rates. The below table summarizes Ontario s corporate tax rates.

6 The combined federal and Ontario corporate tax rates will be as follows: Employer Health Tax (EHT) Currently, all private-sector employers, regardless of size, are exempt from paying the EHT on up to $400,000 of their payroll each year. Payroll above this threshold is taxed at a rate of 1.95%. The Budget proposes to increase the annual exemption beginning January 1, 2014, from $400,000 to $450,000. This exemption would be adjusted for inflation every five years using the Ontario Consumer Price Index. At projected inflation rates, the exemption would be expected to rise to $500,000 by In addition, beginning January 1, 2014, the exemption would be eliminated for privatesector employers (including groups of associated employers but excluding registered charities) with annual Ontario payrolls over $5 million. Unlike other jurisdictions, no phase-out range is proposed resulting in a $7,800 additional EHT cost for large employers. The government states that the net result of these changes should largely be revenue neutral as the cost of additional EHT relief provided to smaller employers would be largely offset by additional EHT payments by larger employers. Apprenticeship Training Tax Credit The Apprentice Training Tax Credit ( ATTC ) was introduced in 2004 and provides businesses with a 35 to 45 per cent refundable tax credit on the salaries and wages paid to eligible apprentices in designated construction, industrial, motive power and service trades. Effective for expenditures incurred after March 31, 2014, the following apprenticeship trades will not be eligible for the ATTC: Information Technology Contact Centre Technical Support Agent Information Technology Contact Centre Inside Sales Agent Information Technology Contact Centre Customer Care Agent This measure is projected to save the Ontario government $45 million in

7 Renewable Fuels and Elimination of Biodiesel Exemption In 2002, biodiesel was made exempt from the 14.3 cent per litre fuel tax. The federal government s renewable-content requirements in respect of diesel fuel came into effect on July 1, 2011, and as a result, Ontario s fuel tax exemption for biodiesel no longer serves its purpose. The repeal of the fuel tax exemption for biodiesel will be effective April 1, Mining Tax System Review The Mining Tax Act levies a 10 per cent tax (5 per cent for remote mines) on profits earned from the extraction of minerals (other than diamonds) in Ontario. The mining tax system was designed to encourage investment at a time when corporate income tax rates were high. The 2012 Ontario Budget announced that the government would conduct a review to determine whether Ontario receives fair compensation for its non-renewable resources. The government will be working with stakeholders over the next few months to determine whether Ontario is receiving a fair return on its resources. FEDERAL TAX MEASURES Accelerated Capital Cost Allowance for Manufacturing and Processing Machinery and Equipment Ontario will parallel the 2013 Federal Budget proposal to extend the accelerated CCA for manufacturing and processing machinery and equipment acquired in 2014 and 2015, subject to federal implementation. Other Federal Tax Measures Ontario will adopt the measures proposed by the 2013 Federal Budget, including the following proposals related to: - Increasing the lifetime capital gains exemption on qualified small business shares and qualified farm or fishing property from $750,000 to $800,000 in 2014 and indexed thereafter; - Restricted farm losses; - The deduction for safety deposit boxes; - Corporate and trust loss trading; - Mining expenses; - Accelerated CCA for clean energy generation equipment; and - Character conversion transactions and leveraged life insurance arrangements.

8 B. Personal Personal Tax Rates No changes to personal tax rates or brackets are currently proposed. With this in mind, higher income Ontarians will continue to be subject to some of the highest top marginal tax rates for ordinary income and capital gains in Canada. The combined federal and Ontario rates are shown in the following tables: Dividend Tax Credit (DTC) for Non-Eligible Dividends Under the terms of the Canada-Ontario Tax Collection Agreement, Ontario taxpayers are required to calculate their respective provincial tax liability based on federally defined taxable income. Consequently, subject to federal implementation, Ontario will automatically adopt the changes proposed in the 2013 Federal Budget to the taxation of non-eligible dividends. Currently, Ontario bases its provincial DTC on the amount of the federal gross-up applicable to non-eligible dividends. The 2013 Federal Budget proposes to reduce the gross-up for non-eligible dividends received in 2014 and subsequently from 25% to 18%. Absent any changes being made by Ontario to the way it calculates its provincial DTC or to right size its DTC amount, by doing nothing, the proposed federal changes will automatically result in a lower provincial DTC for non-eligible dividends in 2014 and thereby create higher provincial taxes on non-eligible dividends. For what appears to be revenue raising reasons and not of fairness, Ontario appears to be content to let its provincial DTC for non-eligible dividends fall in 2014 instead of maintaining it at its current level. The government projects over $65 million of new tax revenue from this policy decision. The effect of such inaction is outlined in the tables on the following page:

9 Ontario Trillium Benefit The Ontario Trillium Benefit is currently paid in monthly instalments throughout the year. The government proposes to modify it such that, beginning in 2014, each recipient would have the choice to receive his/her benefit in a single payment at the end of the benefit year. Entitlements of $360 or less in a year will be paid in a single payment in July C. ENFORCEMENT Closing Tax Loopholes Reducing corporate tax avoidance is a priority of the Ontario government. The Ontario and federal governments have negotiated a new agreement for enhanced compliance activities focused on aggressive international tax planning. In addition, the government will be proposing legislation to introduce new disclosure rules for aggressive tax avoidance transactions similar to the rules introduced by the federal government as part of Bill C-48 in November This new measure would require taxpayers to report aggressive tax avoidance transactions that attempt to avoid Ontario tax.

10 ABOUT MNP Founded in 1945, MNP has grown from a single office in Manitoba to over 75 full and part-time locations across Canada. MNP is now the seventh largest chartered accountancy and advisory firm in Canada. Our roots in our communities are a big part of how we do business. Because we live and work in the same communities as our clients, we understand the markets they deal with. When they talk, we listen. And we provide clear, straightforward business advice to help get you where you want to go. MNP has a proven track record providing traditional accounting and assurance services to our public sector clients. With our experiences, we have gained valuable insight into the Canadian public sector, and the specific requirements of our clients. A key strength of MNP is our approach to addressing your needs. We believe in teamwork and applying the appropriate resources to each engagement. This means when you have a need for a service, we will meet with you to understand your specific requirements and assemble the best team for the situation. Underground Economy Ontario and the federal government recently negotiated an agreement to enhance compliance activities that will improve the integrity of the tax system and generate incremental tax revenues from individuals and corporations who are not complying. Enhancing Audit The Ontario government will expand the use of its automated risk assessment system to identify tax accounts that pose the highest risk of tax loss. Collection Enhancements Centralize collection of outstanding tax and non-tax accounts within the Ministry of Finance and use a range of collection tools to realize revenue from the outstanding debt currently owed to the Province. Clearance Certificates Businesses are required to obtain a clearance certificate from the Minister of Finance under the Retail Sales Tax Act ( RSTA ) for sales to which the Bulk Sales Act applies. The 2011 Ontario Budget amended the RSTA to allow the minister to withhold the clearance certificate until tax debts under other tax acts or statutes were paid or secured. These amendments were made effective until June 30, The government is proposing to repeal the sunset date. Tobacco Tax The government is considering a number of compliance initiatives including amendments to the Tobacco Tax Act to reduce the sale of untaxed tobacco in Ontario, including increased fines for those convicted of offences related to illegal tobacco; forfeiture of items seized as evidence of a contravention of the Tobacco Tax Act; and strengthening other provisions to improve the effectiveness of the statute in meeting the government s commitments. Effective January 1, 2014, tobacco growers, dealers, processors, importers, exporters and certain transporters will be required to register and report with the Ministry of Finance. Also effective January 1, 2014, in general, only cigarettes and fine-cut tobacco marked with a single integrated stamp will be allowed for retail sale. DISCLAIMER This communication contains a general overview of the subject matter and is current as of the date of publication. The information should not be regarded as a substitute for professional advice. MNP LLP accepts no responsibility for any loss or damage caused by your reliance on information contained in this publication.