Ontario Budget Report 2017

“A balanced budget for a stronger healthier Ontario!”

On April 27, 2017, the Honourable Charles Sousa presented his sixth budget as Minister of Finance.

With a growing economy, the Ontario Liberal government produced its first balanced budget in a decade.

If the economy continues to grow, there is potential for revenues to soon exceed expenditures giving the government the opportunity to reduce taxes or government debt. However, with a provincial election just over a year away, the government is focused on increasing spending that may result in a return to deficits and increasing debts.

The province announced a policy, legislative and administrative review of all taxes with the intention of strengthening the integrity of the tax system.  

The province will work closely with the federal government on its review of tax planning strategies involving private corporations as announced in the 2017 federal budget. 

There may be significant impact on Canadians who leverage these tax planning strategies.  The government will issue a report at a later date regarding this review, at which time we will provide further insights on its implications.

Highlights

  • Deficit of $1.5 billion now forecast for 2016‑17
  • Balanced budget for 2017-18; balanced budget maintained for 2018-19 and 2019-20
  • Increased spending in health care and infrastructure
  • Tax system review announced

The anticipated deficit has decreased from the $4.3 billion deficit that was forecast last year. This was mainly due to increased revenues of $2.6 billion. 

The forecasts assume a 2.0% growth in the real GDP in the Ontario economy over the 2017-20 period, something that the province stated is slightly below private sector forecasts.

The budget contains no new taxes or changes to tax rates.  Measures were introduced to prevent the multiplication of the Employer Health Tax exemption. 

Also, multijurisdictional tax filers will see their Ontario tax increase with changes to the calculation of the provincial surtax and Ontario Tax Reduction.

Personal Tax Measures

Person Income Tax Rates

No personal tax rate changes were announced in the 2017 Ontario budget.   

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

Ontario personal tax rates

Bracket

2017

$0 to $42,201

5.05%

$42,202 to $84,404

9.15%

$84,405 to $150,000

11.16%

$150,001 to $220,000

12.16%

Above $220,001

13.16

For taxable income in excess of $150,000, the 2017 combined federal–Ontario personal income tax rates are outlined below.

Bracket

Ordinary income*

Eligible dividends

Non-eligible dividends

$150,001 to $202,800

47.97%

31.67%

38.80%

$202,801 to $220,000

51.97 %

37.19 %

43.48 %

Above $220,000

53.53 %

39.34 %

45.30 %

* The rate on capital gains is one-half the ordinary income tax rate

Public Transit Tax Credit for Seniors

The budget proposed a new Ontario seniors’ public transit tax credit for individuals aged 65 or older, effective 1 July 2017.

The credit will be a refundable tax credit equal to 15% of eligible public transit costs incurred on or after 1 July 2017.

Details regarding this credit, including eligibility criteria for public transit costs, will be announced in time for implementation of the credit (presumably before 1 July 2017).

Medical Expense Tax Credit and Fertility-Related Expenses

Ontario will parallel changes to the medical expense tax credit that were announced in the 2017-18 federal budget.

Specifically, the federal government announced that the list of expenses eligible for the medical expense tax credit will be clarified to ensure that individuals who incur costs related to the use of reproductive technologies (such as in-vitro fertilization), but do not have a medical infertility condition, are eligible to claim the credit.

Ontario will adopt these changes once they are approved by the federal government.  This measure will apply to 2017 and subsequent taxation years.

Ontario Caregiver Tax Credit (OCTC)

The federal government proposed to simplify its existing system of non-refundable personal income tax credits for caregivers by replacing the infirm dependant, caregiver and family caregiver tax credits with a new consolidated Canada Caregiver Credit, beginning in the 2017 taxation year. 

Existing Ontario rules parallel the federal caregiver and infirm dependant tax credits.  In order to simplify and enhance excess to tax relief for caregivers, the budget process that the Ontario caregiver and infirm dependant credits will be replaced with a new Ontario Caregiver Tax Credit (OCTC)

The new non-refundable OCTC will apply at a rate of 5.05% and will be available in respect of relatives who are infirm dependants, including adult children of the claimant or of the claimant spouse or common-law partner. 

For the 2017 taxation year, the maximum amount of taxable income for which this credit is available is $4,794, and the credit will be phasing out when the dependant’s net income exceeds $16,401. 

Note that dependants would not be required to live with the caregiver claiming the OCTC.  However, similar to the new federal credt, the OCTC will not be available in respect of non-infirm senior parents or grandparents who reside with their adult children or grandchildren.

Multijurisdictional Tax Filers

Currently there are inconsistencies in the calculation of provincial surtax and the Ontario Tax Reduction (OTR) between multijurisdictional tax filers and other filers. 

Multijurisdictional filers include Ontario residents who pay tax to another province and non-residents of Ontario who pay tax to Ontario.  

Under existing rules, the amount of surtax and OTR for multijurisdictional filers does not properly reflect their total income.  Therefore, amendments are proposed to the calculations of each as they apply to multijurisdictional filers.  

Under proposed changes, the surtax would be calculated based on the total amount of Ontario tax on taxable income.  The total amount of tax payable, including surtax would then be prorated based on the percentage of income allocated to Ontario.  As well, the OTR amounts would be prorated based on the percentage of income allocated to the province. 

These changes will be effective for the taxation years ending after December 31, 2016.  

Personal Tax Credits For 2017  

The maximum tax credits amounts and actual Ontario tax credits for 2016 and 2017 are set out below.

Ontario Non-Refundable Tax Credits

 

2016

2017

 

Maximum Amount

Ontario Tax Credit

Maximum Amount

Ontario Tax Credit

 

Basic Personal Amount

$10,011

$506

$10,171

$514

 

Spousal Amount

8,500

429

8,636

436

 

Eligible dependent amount

8,500

429

8,636

436

 

Age amount

4,888

247

4,966

251

 

Infirm dependent amount (2016)

Canada Caregiver Amount (2017)

4,719

238

 

4,794

 

242

 

CPP Contributions

2,544

128

2,564

129

 

EI Contributions

955

48

836

42

 

Pension income amount

1,384

70

1,406

71

 

Disability amount

8,088

408

8,217

415

 

Disability supplement

4,717

238

4,792

242

 

Tuition and education amounts

Variable

Variable

Variable

Variable

 

Adoption expenses (max)

12,213

617

12,409

627

 

Medical expenses

N/A

Variable

N/A

Variable

 

Medical expenses (other dependents)

12,213

Variable

12,409

Variable

 

Caregiver amount

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%

Corporate Tax Measures

Corporate Tax Rates – No changes

Ontario’s 2017 budget has not changed the province’s corporate tax rates.

The combined federal and Ontario corporate income tax rates will be as follows:

Corporate Income Tax Rates — As of January 1, 2017

 

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

Ontario Small Business Deduction:

In 2016, the federal government introduced rules to prevent the multiplication of the small business deduction through certain partnership and corporate structures.

These rules are very complex and include the ability of certain persons to assign their small business limit to eligible corporations where certain conditions are met. 

These complexities were discussed in our 2016 federal budget report.

The Ontario government will parallel certain federal changes. This will impact Ontario business limit by the same amount that the federal business limit is reduced.

Ontario Computer Animation and Special Effects Tax Credit:

As previously announced on January 11, 2017, the Ontario Taxation Act, 2007 will be amended to directly list excluded productions for this tax credit.  

This amendment is being made to maintain Ontario’s longstanding treatment of talk shows as ineligible for the province’s film and television tax credits.

Other Measures

(Not related to income tax)

Employer Health Tax (EHT)

Measures under the Employer Health Tax Act incorporate the association rules from the federal Income Tax Act (ITA) in order to address tax avoidance structures. 

As a result, a group of association entities is required to share the Employer Health Tax (EHT) exemption.

The 2016 federal budget introduced new anti-avoidance measures aimed at preventing multiplication of the small business deduction through certain complex structures.  

The Ontario government has proposed to parallel one of these measures by eliminating the EHT exemption for any employer that is designated member of a partnership, as defined in the ITA. 

This change would be effective on a prescribed date no earlier than January 1, 2018 to provide the opportunity for feedback and consultation.

To further ensure EHT relief is targeted to smaller employers, the government also announced that it will review other methods and structures that some employers may use to avoid paying EHT. 

The public will be given the opportunity to provide feedback on any future changes that may arise as a result of the review.

Tax System Review

In the budget, the government announced that it will conduct a policy, legislative and administrative review of all taxes, including those shared with the federal government. 

The purpose of the review is to identify and eliminate loopholes, further strengthen administration of existing laws and enhance partnerships with other government entities, such as the CRA.  A review of revenues from government business enterprises will also be undertaken.

This budget also highlighted the federal government’s 2017 budget announcement that federal government will be undertaking a review of tax planning strategies involving private corporations that inappropriately reduce personal taxes on high income earners.  

To bolster this announcement, the Ontario government has indicated that it will be devoting additional expert resources to identify and address tax loopholes and sophisticated tax planning schemes, and that it will work closely with the federal government to protect the common tax base and eliminate unfair tax advantages.

15% Nonresident Speculation Tax

As previously announced, Ontario proposes to introduce a 15% nonresident speculation tax (NRST) levied on foreign entities or taxable trustees purchasing a residential property in the Greater Golden Horseshoe region of Southern Ontario.

The NRST will apply to agreements of purchase and sale signed on or after 21 April 2017 and will be applicable on the value of the consideration for the property.  

This tax is in addition to the general tax levied under the Land Transfer Tax Act.

For purposes of the NRST, a foreign entity includes:

  • An individual who is not a Canadian citizen or permanent resident of Canada
  • A corporation not incorporated in Canada
  • A corporation incorporated in Canada but controlled wholly or partly by a foreign national or other foreign corporation, unless the corporation’s shares are listed on a Canadian stock exchange
  • A corporation directly or indirectly controlled by a nonresident individual or other foreign corporation under the de facto control rules in section 256 of the federal Income Tax Act.

A taxable trustee is a trustee that is:

  • A foreign entity holding title in trust for beneficiaries, or
  • A Canadian citizen or permanent resident of Canada, or Canadian corporation holding title in trust for foreign entity beneficiaries.

The NRST will apply to transfers of land containing at least one but not more than six single family residences. It will not apply to multi-residential rental apartment buildings with more than six units, or to agricultural, commercial or industrial lands. Certain entities and individuals will either be exempt from the NRST or will be eligible for rebates.

The Ontario budget also stated that the legislation to implement this new tax will allow for its application to other regions of the province in the future, should market conditions warrant it.

Land Transfer Tax

As previously announced, Ontario intends to combat the practice of “paper flipping,” in order to reduce the avoidance of land transfer tax (LTT) and decrease excessive speculation in the housing market.

Paper flipping refers to the practice of entering into a contractual agreement to purchase a residential unit and then assigning the property to another person prior to the closing date.  It also includes arrangements where one party substitutes another party in a contract to purchase a residential unit.

The government has announced that in order to ensure that the correct amount of LTT is collected, purchasers will be required to declare, at the time when a property transfer is registered and LTT is payable, whether they entered into a purchase agreement by way of assignment or a similar arrangement.  

For example, any consideration for an assignment would then be included as part of the value of the consideration used to calculate the LTT payable. Further details for this measure will be provided in the coming months.

Ontario also stated that it intends to work with the federal government to explore more comprehensive reporting requirements with respect to paper flipping.

Tobacco Tax

In order to bring Ontario’s tobacco tax rates closer to the national average, effective 28 April 2017, the budget proposes to increase the tobacco tax rate from 15.475 cents to 16.475 cents per cigarette and per gram of tobacco products other than cigars.

Tobacco tax rates will increase an additional 2 cents per cigarette and per gram for each of 2018 and 2019.

In addition, the province is proposing a number of amendments to the Tobacco Tax Act to further reduce the prevalence of unregulated tobacco.  

For example, the Tobacco Tax Act will be amended to enhance Ontario’s oversight of raw leaf tobacco with increased penalties and fines for non-compliance, and create new penalty and offence provisions related to the maintenance of books and records.

Fuel Tax

Ontario currently provides certain companies (registered dyers) with the authority to colour fuel. Coloured fuel purchased from registered dyers is tax exempt and can only be used for specified purposes under the Fuel Tax Act.

Ontario has stated its intention to allow biodiesel, a renewable alternative to fossil fuel, to be more widely available as part of the province’s tax-exempt coloured fuel program.  

It is, therefore, proposing to amend the Fuel Tax Act to add a new category of registered dyers who will be permitted to dye biodiesel (not blended or mixed in any way with other types or grades of fuel). These registered dyers would be exempt from the fuel transportation requirements currently imposed on all registered dyers.

Property Tax Measures

Railway Right-of-way Taxation

Property tax rates on railway rights-of-way will be updated to reflect the average annual percentage change in taxes on commercial properties, beginning in 2017.

This measure will result in an increase of approximately $6 per acre for 2017. In addition, the lowest property tax rates on railway rights-of-way will be adjusted to a minimum of $80 per acre in 2017 (up from the current $35 per acre).

Small-Scale Agricultural Processing and Commercial Activities on Farms

A legislative framework will be introduced to provide municipalities with the flexibility to reduce property tax rates for eligible small-scale value-added and commercial activities on farms.

These operations are currently taxed at industrial or commercial rates.

The proposed changes will allow a portion of the assessment attributable to the value-added processing or commercial activity to be taxed at a reduced rate.

Provincial Land Tax

The provincial land tax (PLT) is the property tax paid in unincorporated areas of northern Ontario outside municipal boundaries.

The budget confirms the province’s commitment to moving forward with PLT reform, and indicates that the government will introduce legislative amendments to further support increased equity both in taxation and in how services are paid for.

Hotel tax

The budget proposes to expand the authority provided under the City of Toronto Act, 2006 to allow the city to levy a hotel tax.  Similarly, the Municipal Act, 2001 will be amended to also allow single-tier and lower-tier municipalities to levy a hotel tax.

All municipalities that adopt a hotel tax and have an existing Destination Marketing Fee (DMF) program in place will be required to share their hotel tax revenue with the applicable not-for-profit tourism organization.

The amount to be shared must match the total revenue generated by the existing DMF program. For municipalities that do not have an existing DMF program, at least 50% of their hotel tax revenue will need to be shared with the respective Regional Tourism Organization or a not-for-profit tourism organization.

How Ontario Compares

The following chart compares top personal and corporate tax rates and sales taxes for all provinces and territories, as announced to April 27, 2017.

 

 

2017 Corporate Tax Rates

 

 

Top 2017 Personal Rates

General
%

M&P
%

Small Business
%

2017 Prov. Sales Tax

B.C.

47.70

26.00

26.00

12.50(2)

7.00

Alta.

48.00

27.00

27.00

12.50

-

Sask.

47.75

27.00(1)

25.00(1)

12.50

6.00(7)

Man.

50.40

27.00

27.00

10.50

8.00

Ont.

53.53

26.50

25.00

15.00

8.00(8)

Qué.

53.31

26.80

26.80

18.50(3) 

9.975(9)

N.B.

53.30

29.00 

29.00

13.50(4)

10.00(8)

N.S.

54.00

31.00

31.00

13.50

10.00(8)

P.E.I.

51.37

31.00

31.00

15.00

10.00(8)

N.L.

51.30

30.00

30.00

13.50

10.00(8)

Yukon(5)

48.00

30.00

17.50

13.50(6)

-

N.W.T.

47.05

26.50

26.50

14.50

-

Nunavut

44.50

27.00

27.00

14.50

-

  1. The general business rate will decrease to 26.5% and the M&P tax rate will decrease to 24.5% effective July 1, 2017.
  2. The small business tax rate will decrease to 13% effective April 1, 2017.
  3. Quebec provides a rate reduction from the small business rate eligible manufacturing small and medium-size enterprises (SMEs).  Where certain conditions are met, the maximum reduction available is 4%, for a combined rate 14.5%.  Note that a lesser reduction from the small business rate may be available to certain manufacturing SMEs where some, but not all conditions are met.
  4. The small business tax rate will decrease to 14% effective April 1, 2017.
  5. Rates do not reflect changes in tax rates announced April 27, 2017.
  6. The tax rate for M&P profits eligible for the small business deduction is 12%.
  7. The PST increased from 5% effective March 23, 2017.
  8. As part of the HST (combined rates are 15% in New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland & Labrador and 13% in Ontario).
  9. The QST system is harmonized with the GST, though two separate tax systems remain – the GST and the amended QST.  The combined rate is 14.975%.

(Source: Ontario Government)

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