Economic Outlook and Fiscal Plan
In the Ontario Budget tabled on April 27, 2017 (the “2017 Budget”), the Minister of Finance highlighted Ontario’s healthy position and a plan to achieve a balanced budget, the first one since the 2008-09 global recession. The 2017 Budget reported that the province’s economy has grown faster than Canada’s and that of all G7 countries, and identified export, business investments, and infrastructure as key drivers of Ontario’s economic growth. The Minister expects Ontario’s exports and business investments to increase by 2.3% and 3.1%, respectively, over 2017 to 2020. Further, the 2017 Budget commits $190 billion for infrastructure over the 13-year period beginning in 2014-15, which is expected to generate 124,000 jobs each year, and support local communities, new highways, and an improved health care infrastructure.
Consistent with its positive forecasts, the Ontario Government announced significant investments in health care, including a youth pharmacare program and new funds for hospitals, a planned reduction in hydro rates, new funding for child care spaces and free tuition for lower income students. The Minister forecasts an Ontario Government deficit of $1.5 billion for 2016-17, followed by three years of balanced books, which assumes that the current booming economy will continue to bring higher than previously expected revenues to the Province. In addition, the 2017 Budget forecasts an annual average real GDP growth rate of 2.0% and the creation of 300,000 new jobs between 2017 and 2020.
Personal Tax Measures
Personal Income Tax Rates
The 2017 Budget does not propose any changes to the personal income tax rates.
The combined Ontario and federal top marginal rates for taxable income over $220,000 remain as follows for 2017:
Seniors’ Public Transit Tax Credit
The Ontario Government will enact a new Ontario Seniors’ Public Transit Tax Credit that will come into effect on July 1, 2017. This tax credit will be available to all Ontarians aged 65 or older and will provide a refundable benefit of 15% of eligible public transit costs.
Medical Expense Tax Credit
The 2017 Budget proposes to parallel the Federal Government’s changes with respect to providing tax relief to Ontario residents for fertility treatment costs incurred by individuals who require medical intervention to conceive a child and that are otherwise not directly covered by the Province of Ontario. The Ontario Government will adopt these changes once they have been approved by the Federal Government.
Ontario Caregiver Tax Credit (“OCTC”)
The 2017 Budget proposes to introduce a new 5.05% non-refundable OCTC for caregivers with infirm dependants (including adult children of the claimant or of the claimant’s spouse or common law partner). The dependents are not required to live with the caregiver claiming the new credit. The maximum amount of taxable income for which this credit is available in 2017 is $4,794. The OCTC will start to phase out when the dependant’s net income is over $16,401. The OCTC will replace the Ontario caregiver and infirm dependent tax credits.
Multijurisdictional Tax Filers
The 2017 Budget proposes to change the way provincial surtax and the Ontario Tax Reduction (“OTR”) are calculated for Ontario residents who pay tax to another province and non-residents of Ontario who pay tax to Ontario (referred to as multijurisdictional tax filers). The changes will result in the provincial surtax and the OTR being prorated based on the percentage of income allocated to Ontario. These changes will be effective for taxation years ending after December 31, 2016.
Corporate Tax Measures
Corporate Income Tax Rates
The 2017 Budget does not propose any changes to corporate income tax rates. The combined Ontario and federal corporate tax rates remain as follows for 2017:
Ontario Small Business Deduction
The 2017 Budget proposes to reduce the corporate Ontario small business deduction to parallel changes made to the federal small business deduction. This would result in a reduction of the provincial small business limit for corporations equal to the reduction of the federal small business limit. The provincial small business limit reduction would generally be applicable if a corporation assigns any portion of its business limit to another corporation under certain circumstances.
Ontario Computer Animation and Special Effects Tax Credit
Legislative changes will be made to reflect Ontario’s longstanding administrative position that talk shows are not eligible for this credit.
Non-Resident Speculation Tax
In an effort to cool down Ontario’s hot housing market the 2017 Budget reiterates the Ontario Government’s announcement of its Fair Housing Plan on April 20, 2017 which includes a 15% non-resident speculation tax (“NRST”). The NRST applies in addition to the general land transfer tax in Ontario. The NRST will be payable by foreign nationals, foreign corporations and taxable trustees who acquire residential properties, and will apply on the value of the consideration for the transfer of residential properties located in the Greater Golden Horseshoe (“GGH”) (which includes the geographic areas of Brant, Dufferin, Durham, Haldimand, Halton, Hamilton, Kawartha Lakes, Niagara, Northumberland, Peel, Peterborough, Simcoe, Toronto, Waterloo, Wellington and York). A residential property means land containing at least one and not more than six single family residences (e.g., detached and semi-detached houses, townhomes and condominium units). Certain foreign nationals will be exempt from the NRST.
The NRST will also be applicable in circumstances where Canadian citizens or permanent residents of Canada purchase residential properties in the GGH with foreign nationals, foreign corporations and taxable trustees. In these circumstances, Canadian citizens or permanent residents of Canada will be jointly and severally liable for any NRST payable. The Ontario Government also indicated that it would apply the NRST to unregistered dispositions of beneficial interests in residential property and enforce anti-avoidance provisions to prevent, among other things, the use of multiple conveyances to avoid the NRST. A rebate of the NRST will be available in certain circumstances.
Upon the enactment of relevant legislation, the NRST will retroactively come into force on April 21, 2017 and all transfers registered on or after this date must contain a statement expressly acknowledging that consideration has been given to the application of the NRST. Relief from the completion of statements is provided for the transition period from April 21 to May 5, 2017. Binding agreements of purchase and sale signed on or before April 20, 2017 are not subject to the NRST.
Other Fair Housing Measures
Other proposed tax-related measures were announced under the Fair Housing Plan. Notably, the Ontario Government intends to combat real estate sector speculation by granting the City of Toronto the authority to impose an additional property tax on vacant homes and by requiring disclosures relating to the acquisition of property by assignment of agreements or other similar arrangements. Such disclosure requirements will be integrated into the Ontario Land Transfer Tax system. As well, the Ontario Government intends to promote property taxation fairness by introducing measures to ensure that new multi-residential apartment developments will be taxed the same as other residential property.
Review of Ontario Tax System
The Ontario Government proposes to conduct a policy, legislative and administrative review of all taxes, including those shared with the Federal Government. The purposes of this review are to identify and eliminate tax loopholes, strengthen administration of existing tax laws and enhance partnerships with other government entities, such as the Canada Revenue Agency. A review of revenues from government business enterprises will also be undertaken with a view to promoting fairness and efficiency, and to protect the integrity of the tax system.
Income Tax Avoidance
The Ontario Government intends to work closely with the Federal Government to identify and address tax loopholes and sophisticated tax planning schemes, in particular, with respect to the review of tax planning strategies involving private corporations that inappropriately reduce personal taxes of high-income earners. This parallels the announcement made in the 2017 Federal Budget and the Ontario Government will dedicate additional expert resources to this initiative.
Employer Health Tax (“EHT”) Avoidance
The Employer Health Tax Act
(Ontario) incorporates the association rules under the Federal Income Tax Act
to address tax avoidance concerns regarding artificial multiplication of exemption by larger enterprises meant for smaller businesses and employers. Under these rules, a group of associated entities is treated as a single enterprise and required to share the EHT exemption.
The 2017 Budget proposes to introduce a new rule to eliminate the EHT exemption for any employer that is a designated member of a partnership, as defined under the Federal Income Tax Act. This new rule will parallel a measure introduced in the 2016 Federal Budget to prevent the multiplication of small business deductions. This change will come into effect on a prescribed date no earlier than January 1, 2018. A further review of other methods and structures to avoid paying EHT will be undertaken to ensure that relief is properly provided to smaller employers.
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