Economic Outlook and Fiscal Plan
In the 2016 Ontario Budget (the “2016 Budget”), the Minister of Finance highlighted Ontario’s stability and how it benefited, in this time of global economic uncertainty, from low oil prices and a low Canadian dollar. It highlighted how certain manufacturing, export, and service sectors became more competitive. Despite sluggish Canadian real GDP growth, the Ontario Government reported that the province attracted more foreign direct investment than any other province or U.S. state for a second consecutive year. Further, in efforts to stimulate business investment, the Ontario Government has reduced its marginal effective tax rate on new business investment1
from 33.2 per cent in 2009 to 16.3 per cent in 2015.
The 2016 Budget identified deteriorating infrastructure and climate change as issues that challenge future economic growth. As part of the global movement, Ontario’s new Cap-and-Trade program aims to reduce carbon emissions and generate $1.9 billion in new revenue in 2017 in an effort to combat climate change. This program is expected to increase gas prices by 4.3 cents/liter and natural gas rates by 3.3 cents/cubic meter. Further, the 2016 Budget commits $137 billion in infrastructure spending over the next 10 years, primarily to support local communities, new highways, and improving health care infrastructure. Additionally, it introduces some notable social measures, such as making tuition more affordable for low-income families, while increasing certain taxes on beer, wine and tobacco consumption.
The Ontario Government is forecasting an annual average real GDP growth rate of 2.2 per cent and the creation of 323,000 new jobs between 2016 and 2019. In addition, the 2016 Budget projects a deficit of $4.3 billion for 2016-17, while reaffirming its return to a balance in 2017-18.
PERSONAL TAX MEASURES
Personal Income Tax Rates
The 2016 Budget does not propose any changes to the personal income tax rates.
As a result of the federal personal rate changes announced in late 2015 by the new federal Liberal Government, effective January 1, 2016, the resulting combined Ontario and federal top marginal rates for taxable income over $220,000 are as follows:
Tuition and Education Tax Credits
Ontario tuition and education tax credits are being eliminated effective fall 2017. Tuition fees for studies after September 4, 2017 will not be eligible for the tuition tax credit. Months of study after August 2017 will not be eligible for the education tax credit.
For students resident in Ontario on December 31, 2017, any unused tuition and education tax credits will be available for carry-forward and can be claimed in the future. Taxpayers who become Ontario resident after 2017 will not be able to claim their unused tuition and education tax credits from another province.
Effective for the 2017-2018 school year, the new Ontario Student Grant will replace the tuition and education tax credits, and other tuition related grants.
Children’s Activity Tax Credit
The Ontario Government will eliminate the Children’s Activity Tax credit effective January 1, 2017, as it largely benefits higher income families.
Healthy Homes Renovation Tax Credit
The Ontario Government will eliminate the Healthy Homes Renovation Tax Credit effective January 1, 2017. Since its inception in 2011, a very low percentage of Ontario seniors have claimed this credit.
Tax on Split Income
Research and Development Tax Credits
The Budget proposes that, effective January 1, 2016, Ontario will parallel the federal taxation of split income with related minors, commonly referred to as the “Kiddie Tax”. Split income will be taxed at Ontario’s top marginal rate, with no surtax applying.
CORPORATE TAX MEASURES
Corporate Income Tax Rates
The 2016 Budget does not propose any changes to corporate income tax rates. The combined Ontario and federal corporate tax rates remain as follows for 2016:
The 2016 Budget proposes reductions to the non-refundable Ontario Research and Development Tax Credit (“ORDTC”), and the refundable Ontario Innovation Tax Credit (“OITC”), effective for taxation years ending on or after June 1, 2016 as follows:
Where the taxation year straddles June 1, 2016, the rate will be pro-rated for both the ORDTC and OITC.
Apprenticeship Training Tax Credit
The 2016 Budget does not propose any changes to the Apprenticeship Training Tax Credit (“ATTC”). However, the Ontario Government is continuing to review the ATTC and other government initiatives in support of apprenticeships.
Ontario Retirement Pension Plan
The Ontario Government will introduce legislation to implement the Ontario Retirement Pension Plan (“ORPP”) in spring 2016. Employer verification and enrolment will begin on January 1, 2017. Employer and employee contributions will begin in 2018.
The maximum combined employee and employer rate will be 3.8% on earnings up to $90,000. The minimum earnings threshold will be $3,500 for eligible employees between the ages of 18 and 70.
The contributions will be phased-in based on employer classification with the employees making a contribution equal to the amount contributed by the employer.
The ORPP phase-in and contribution rates are as follows:
ORPP is mandatory for employers without registered workplace pension plans. Employers that do not offer comparable workplace pension plans, with benefit accruals or contribution levels that do not meet appropriate thresholds, or that do not cover all classes of employees, will have until December 31, 2019 to decide if they want to adjust their plans or enroll employees in the ORPP. Group registered retirement savings plan (“GRRSPs”) and deferred profit sharing plans (“DPSPs”) will not be considered comparable under the ORPP.
The 2016 Budget indicates that the Ontario Government is continuing to focus on underground economy activities in all high-risk sectors. It will work with the Canada Revenue Agency in launching specialized audit teams. It will also propose legislation to enhance enforcement capabilities.
The marginal effective tax rate (METR) takes into account federal and provincial/state corporate income taxes, capital taxes and sales taxes. It excludes the resource and financial sectors and tax provisions related to research and development.
Canadian-Controlled Private Corporation