TAX ALERT |
On March 28, 2018, Ontario Minister of Finance, Charles Sousa, tabled the province’s 2018-2019 budget.
The budget includes changes to Ontario’s personal income tax rates and brackets, and elimination of the surtax regime. The corporate income tax rates will remain unchanged, but the budget provides tax measures to increase tax credits for the Ontario Innovation Tax Credit (OITC) and Ontario Research and Development Tax credit for qualifying corporations.
This tax alert discusses the highlights of tax measures introduced in the budget.
Personal tax measures
Ontario proposes to remove the two current surtax rates and replace them with two additional tax brackets (to seven brackets from the present five). The stated goal is to make the personal tax system more fair and transparent. As a result of these changes, it is estimated that an additional $275 million of taxes will be raised. The government estimates that, on average, approximately 1.8 million individuals will pay $200 more and about 680,000 individuals will pay $130 less. The government proposes to change personal tax withholdings starting on July 1, 2018. The elimination of the surtaxes will also enhance the tax credit for charitable gifts.
Personal tax rates
Current Ontario personal income tax rates and brackets
|Ontario rates* (including impact of surtax)||Brackets|
|5.05%||$0 to $42,960|
|9.15% – 14.27%||$42,960 to $85,923|
|17.41%||$85,923 to $150,000|
|18.97%||$150,000 to $220,000|
|*Tax rates shown represent the impact of surtax on Ontario statutory personal income tax (5.05%, 9.15%, 11.16%, 12.16% and 13.16%, respectively).|
Proposed Ontario personal income tax rates and brackets
|Ontario rates (no surtax)||Brackets|
|5.05%||$0 to $42,960|
|9.15%||$42,960 to $71,500|
|11.00%||$71,500 to $82,000|
|13.50%||$82,000 to $92,000|
|17.50%||$92,000 to $150,000|
|19.00%||$150,000 to $220,000|
The proposed changes to the personal income tax rates and brackets as summarized above would not affect the current top marginal income tax rates in Ontario. The table below summarizes the top marginal personal income tax rates in Ontario as of January 1, 2018:
Personal tax rates – Combined Federal and Ontario top marginal rates
|Interest and regular income||53.53%|
Business tax measures
No changes are proposed to the corporate tax rates.
Corporate tax rates
|ON||Federal and ON combined|
|Small business tax rate||3.50%||13.50%||12.50%|
|Manufacturing and processing tax rate||10.00%||25.00%||25.00%|
|General corporate tax rate||11.50%||26.50%||26.50%
Paralleling Federal Budget tax measures
Ontario has announced that it will parallel the federal changes, which are aimed at extending the tax on split income (“TOSI”) to adult family members who are not active in the business, with certain exceptions, beginning with the 2018 taxation year. Therefore, the top Ontario rate of 20.53 per cent will apply to split income received by an adult family member.
The Small Business Limit
Ontario has announced that it will parallel the federal changes to phase out the limit on small Canadian Controlled Private Corporations that earn between $50,000 and $150,000 of passive investment income in the taxation year.
Other Business tax measures
Ontario Innovation Tax Credit (OITC)
For companies whose ratio of research & development (R&D) expenditures to gross revenues is 10 per cent or less, the company will remain eligible for the OITC rate of 8 per cent. However, companies whose ratio of R&D expenditures to gross revenues is between 10 per cent and 20 per cent, the OITC rate will increase from 8 per cent to 12 per cent on a straight line basis as the ratio increases from 10 per cent to 20 per cent. For R&D expenditures to gross revenues in excess of 20 per cent, the OITC rate will be 12 per cent.
For the purposes of this calculation, both the gross revenues and R&D expenditures must be attributable to Ontario operations. Gross revenues and R&D expenditures attributable to Ontario operations of associated corporations would be aggregated.
The rate enhancement will be prorated for taxation years straddling March 28, 2018.
Ontario Interactive Digital Media Tax Credit (OIDMTC)
Ontario will extend the eligibility of this credit to film and television websites purchased or licenced by a broadcaster and embedded in the broadcaster’s website. The amendment would apply to websites that host content related to film, television or internet productions that have not received either a certificate of eligibility or letter of ineligibility before November 1, 2017.
Easing Land Transfer Tax reporting requirements for certain dispositions
The reporting of certain types of unregistered dispositions of a beneficial interest in land through certain types of partnerships and trusts will be extended to 30 days after the end of the calendar quarter in which the disposition occurs from the current 30 days after the date of disposition. This change is intended to help reduce the administrative burden on some businesses by creating reporting and payment schedules that better meet their needs.
In addition, Finance plans to post guidance on its website regarding the minimum information and documents that an authorized representative of a partnership or trust should provide when submitting a consolidated quarterly filing. Finance continues to review issues raised in previous consultations.
Employer Health Tax Exemption to Small Employers (EHT)
In an effort to better target this exemption to small employers, the exemption will not be available after January 1, 2019 to employers who are not entitled to the Small Business Deduction (SBD) under the federal Income Tax Act. In addition to companies entitled to the SBD, the exemption will remain available to employers who are individuals, not-for-profit organizations, private trusts and partnerships and Canadian Controlled Private Corporations.
Measures related to Cannabis
Ontario intends to enter into an agreement with the federal government under which Ontario would receive 75 per cent of the federal excise duty collected on cannabis intended for sale in the province.
Stan Zinman, Partner
Sunny Jaggi, Manager