2016 Ontario Budget | FBC, Canada's Farm & Small Business Tax Specialist

2016 Ontario Budget

2016 Ontario Budget

“Jobs For Today & Tomorrow!”

On February 25, 2016, the Honourable Charles Sousa presented his 5th budget as Minister of Finance.

Continuing on its path to balance the budget in 2017-18, the government’s plan for economic growth and job creation focuses on 4 tenets:

  1. Creating a more innovative and dynamic business climate
  2. Building modern infrastructure
  3. Supporting skills training
  4. Providing income security in retirement

Highlights

  • Deficit of $5.7 billion now forecast for 2015‑16
  • Deficit of $4.3 billion forecast for 2016‑17
  • Continued plan to balance budget by 2017-18
  • Contributions to the Ontario Retirement Pension Plan deferred to 2018

The anticipated deficit for 2015-16 has decreased from the $8.5 billion deficit that was forecast last year.

The budget does not include any Ontario tax rate changes for individuals or businesses.

Changes to tax credits include rate reductions for the Ontario Research and Development Tax Credit and the Ontario Innovation Tax Credit and the elimination of some personal tax credits.

As expected, the budget provided updates on the implementation of the new Ontario Registered Pension Plan (ORPP) and Ontario’s plans for a cap and trade program to reduce greenhouse gas emissions.

Personal Tax Measures

Person Income Tax Rates:

No personal tax rate changes were announced in the 2016 Ontario budget.   

The combined Ontario and federal top marginal tax rates for income over $220,000 will be as follows for 2016.

Ontario Personal Combined Top Marginal Rates for 2016

Interest and regular income

Capital gains

Eligible dividends

Non-eligible dividends

53.53%

26.76%

39.34%

45.30%

Personal Tax Credits for 2016  

The maximum tax credits amounts and actual Ontario tax credits for 2015 and 2016 are set out below.

Ontario Non-Refundable Tax Credits

 

2015

2016

Maximum Amount

Ontario Tax Credit

Maximum Amount

Ontario Tax Credit

Basic Personal Amount

$9,863

$498

$10,011

$506

Spousal Amount

8,375

423

8,500

429

Eligible dependent amount

8,375

423

8,500

429

Age amount

4,815

243

4,888

247

Infirm dependent amount

4,649

235

4,719

238

CPP Contributions

2,480

125

2,544

128

EI Contributions

931

47

955

48

Pension income amount

1,364

69

1,384

70

Disability amount

7,968

402

8,088

408

Disability supplement

4,647

235

4,717

238

Tuition and education amounts

Variable

Variable

Variable

Variable

Adoption expenses (max)

12,033

608

12,213

617

Medical expenses

N/A

Variable

N/A

Variable

Medical expenses (other dependents)

12,033

Variable

12,213

Variable

Caregiver amount

4,648

235

4,719

238

Interest on student loans

Variable

Variable

Variable

Variable

Donations & Gifts
-first $200
- over $200


200
75% of income


10.10
Variable


200
75% of income


10.10
Variable

In general, credits are multiplied by 5.05% to arrive at the deduction from Ontario Tax. In the case of donations and gifts over $200, the credit is 11.16%

Tuition and Education Tax Credits

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 proposed to discontinue the Ontario tuition and education tax credits during 2017.  

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.  

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.

Currently, the Ontario government provides financial support for post-secondary education through a combination of grants and loans, as well as through personal tax credits. 

Further details of the new Ontario Student Grant Program will be released at a later date.

Children’s Activity Tax Credit

The Ontario government proposes to end the CATC as of January 1, 2017.

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.  

Healthy Homes Renovation Tax Credit

As a consequence of having significantly lower take-up than expected, the government proposed to end the Healthy Homes Renovation Tax Credit (HHRTC) as of January 1, 2017.

The provinces HHRTC was introduced in 2011 in order to help seniors live independently in their homes by increasing the affordability of home renovations that improve safety and accessibility.

Ineligible Dividend Tax Credit and Gross-up

As a consequence of federal changes, Ontario’s ineligible dividend tax credit rate will decrease from 4.5% to 4.29% of the taxable dividend.  

Accordingly, the Ontario rate on ineligible dividend income for a top rate individual (i.e. taxable income in excess of $220,000) will increase from 18.91% to 19%.  

In its 2015 budget, the federal government announced a 2% reduction to the federal small business corporate tax rate to be phased in over 4 years, beginning in 2016.  

Accompanying this federal 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).

With the federal tax increases, the overall combined federal and Ontario rate for a top-rate individual on these dividends will increase from 40.13% to 45.3%.

Ontario’s ineligible dividend tax credit rate will be reviewed for 2017 and subsequent years.

Tax on Split Income

Today’s budget proposed to make changes to how the Ontario tax rate is applied to certain types of income that is paid to related minor children.  

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 13.16% to 20.53%, beginning January 1, 2016.  

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 Tax System

In today’s budget, the Ontario government committed to examining ways to simplify the personal 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.

Corporate Tax Measures

Ontario’s 2016 budget has not changed the province’s corporate tax rates.

As a result of the reduction in the federal small business income tax rate announced in the 2015 federal budget, the combined federal and Ontario corporate income tax rates will be as follows:

Corporate Income Tax Rates — As of January 1, 2016

 

Ontario

Combined Federal and Ontario

General

11.5%

26.5%

M&P

10%

25%

Small business*

4.5%

15.0%

*On first $500,000 of active business income

Corporate Federal and Ontario Corporate Income Tax Rates – 2015-2019

 

2015

2016

2017

2018

2019

General

26.5%

26.5%

26.5%

26.5%

26.5%

M&P

25.0%

25.0%

25.0%

25.0%

25.0%

Small Business*

15.5%

15.0%

14.5%

14.0%

13.5%

*On first $500,000 of active business income

Apprenticeship Training Tax Credit

The general rate for the Apprenticeship Training Tax Credit rate was reduced to 25% (from 35%) in the 2015 budget.

The rate for small businesses with salaries or wages under $400,000 per year was reduced to 30% (from 45%).

The annual maximum per apprentice was reduced to $5,000 (from $10,000). The eligibility period was reduced to the first 36 months of an apprenticeship program from the first 48 months.

These changes are effective for eligible expenditures related to apprentices who commenced an apprenticeship program after April 23, 2015.

Ontario is currently reviewing the Apprenticeship Training Tax Credit, as announced in the province’s 2015 budget.   

Further details will be announced in the later part of 2016.

Ontario Research and Development Tax Credits

The government will reduce the rates for the Ontario Research and Development Tax Credit (ORDTC) and the Ontario Innovation Tax Credit (OITC).

The ORDTC rate will decrease to 3.5% (from 4.5%) and the OITC rate will decrease to 8% (from 10%), effective for eligible R&D expenditures incurred in taxation years ending on or after June 1, 2016.

The rate reductions will be prorated for taxation years straddling June 1, 2016.

The government says it will reinvest the savings from the tax credit changes into new targeted investments across key sectors of Ontario’s economy.

Administration

Underground Economy

Ontario is prepared to move forward with its plan to launch specialized audit teams to focus on sectors that are at a high risk of underground economic activity, in partnership with the CRA.

The budget stated that these teams will consist of specialized auditors who will use advanced analytics and innovative enforcement tools.

Other Measures

(Not related to income tax)

Ontario Retirement Pension Plan (ORPP)

As discussed in previous budget papers, 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 2020.

During 2015, and earlier in 2016, the government released information on comparability tests to assess existing workplace pension plans and phase-in approach for employers, as well as to outline the structure of the ORPP benefits, member participation and survivor benefits.  

ORPP Phase In and Contribution schedule

Type of Employer

Jan. 1, 2018

Jan. 1, 2019

Jan. 1, 2020

Jan. 1, 2021

Large employers without registered workplace pension plans

0.8%

1.6%

1.9%

1.9%

Medium employers without registered workplace pension plans

0.8%

1.6%

1.9%

1.9%

Small employers without registered workplace pension plans

0%

0.8%

1.6%

1.9%

Employers with registered pension plans that either do not meet the comparability test or do not cover all classes of employees

0%

0%

1.9%

1.9%

On February 16, 2016, the federal and Ontario governments jointly announced that they have 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.  

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 enhancements.  

If an agreement is not achieved, the Ontario government will move forward with the ORPP as scheduled.

The ORPP Administration Corporation will launch an employer verification and enrolment process in 2017, with employer and employee contributions collection beginning in 2018.

As noted above, the budget included an updated timeline for the phase-in of employer contribution rates. Employee contribution rates will match the rates for employers.

The contribution rate applies to pensionable earnings up to a maximum amount of $90,000.

Cap-and-Trade Program

Ontario introduced legislation on February 24, 2016 to implement its cap and trade program to reduce greenhouse gas emissions.

The budget included details of the program, which will take effect on January 1, 2017.

Ontario’s cap and trade program would place a cap on greenhouse gas emissions, create tradable emissions allowances for a given period and require covered emitters to hold allowances equal to their emissions in that period.

The program would allow those who reduce their emissions to sell their excess allowances in the carbon market.

Tobacco Tax

Ontario’s tobacco tax will increase to 15.475 cents per cigarette and per gram of tobacco products other than cigars (from 13.975 cents), effective 12:01 a.m. the day after February 25, 2016.

Further, the tobacco tax rates will increase based on inflation over the next 5 years, beginning in 2017.

Alcohol Tax

The LCBO will increase the ad valorem mark-up for wine products by 2 percentage points in April 2017, 2 percentage points effective June 2016, 2 percentage points in April 2018 and one percentage point in April 2019.

Ontario will establish a definition of authorized grocery stores and provide for the collection of tax in those stores.

The basic tax on non-Ontario wine purchased at winery retail stores will increase by one percentage point in each of June 2016, April 2017, April 2018 and April 2019.

The minimum retail price for table wine will increase to $7.95, including deposit, for a 750 ml bottle, phased in over 3 years.

Minimum retail prices for cider, fortified wine and low-alcohol wine will also be phased in over 3 years.

The government also proposed to introduce legislation in the future to establish higher basic wine tax rates for sales at winery retail outlets that operate inside grocery stores and replace the current mark-up and commission structure at on-site distillery retail stores with a tax on purchases of spirits.

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, 2016.

 

 

2016 Corporate Tax Rates

 

 

Top 2016 Personal Rates

General
%

M&P
%

Small Business
%

2016 Prov. Sales Tax

B.C.

47.70

26.00

26.00

13.50

7.00

Alta.

48.00

27.00

27.00

13.50

-

Sask.

48.00

27.00

25.00

12.50

5.00

Man.

50.40

27.00

27.00

10.50

8.00

Ont.

53.53

26.50

25.00

15.00

8.00(4)

Qué.

53.31

26.90

26.90

18.50(2)

9.975(5)

N.B.

53.30

27.00(1)

27.00(1)

14.50

8.00(4)6)

N.S.

54.00

31.00

31.00

13.50

10.00(4)

P.E.I.

51.37

31.00

31.00

15.00

9.00(4)

N.L.

48.30

29.00

20.00

13.50

8.00(4)

Yukon

48.00

30.00

17.50

13.50(3)

-

N.W.T.

47.05

26.50

26.50

14.50

-

Nunavut

44.50

27.00

27.00

14.50

-

  1. The general corporate tax rate will increase to 14%, resulting in a combined federal/provincial rate of 29%, effective April 1, 2016.
  2. Quebec provides a rate reduction for manufacturing SMEs.  Where certain conditions are met, the maximum reduction available is 4%, for a combined rate of 14.5%.  Note that a lessor 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 and 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, 2016. 

(Source: Ontario Government)

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