2017 Ontario Budget Review
On March 28, 2018 Mr. Charles Sousa, the Ontario Minister of Finance tabled the Liberal Government’s last budget before the June 2018 election.
Personal Income Tax (“PIT”) Measures
Elimination of the Surtax System
Ontario’s PIT system includes surtaxes that apply at various levels of income tax. For the 2018 taxation year, the Ontario government will eliminate the surtax system and replace it with two new tax brackets and rates. The following table is reproduced from the Ontario Liberal’s budget documents and shows the change from the surtax system to the new tax brackets and rates.
To maintain the top tax rate that applies to donations in excess of $200, the budget proposes to increase the tax rate to 17.5% effective for the 2018 taxation year. This is still lower than the two top proposed tax rates of 19% and 20.53%. This limits the benefits of the donation for individuals with income greater than $150,000.
Corporate Income Tax Measures
Research and Development
The Ontario Research and Development Tax Credit
The budget proposes to increase the Ontario Research and development Tax Credit from its current non-refundable amount of 3.5% to 5.5%. The new rate will apply to expenses incurred after March 28, 2018 and only on expenses in excess of $1,000,000 in a tax year, prorated for short years.
The enhanced rate will not be available to businesses where their eligible expenses in the current year are less than 90% of the expenses in the prior year.
The enhanced rate will be prorated for years that straddle March 28, 2018.
The Ontario Innovation Tax Credit
The budget proposes to increase the refundable Ontario Innovation Tax Credit as follows:
Employer Health Tax
The budget proposes that effective January 1, 2019 the EHT exemption will only be available to corporate employers that qualify for the small business limit.
If implemented, only individuals, not-for-profits, Canadian Controlled Private Corporations (“CCPCs) that qualify for the small business limit, private trusts and partnerships would qualify for the exemption.
Ontario also proposed to incorporate federal anti‐avoidance rules related to the multiplication of the SBD into the Employer Health Tax Act. This will only impact CCPCs.
Paralleling Federal Measures
Small Business Limit
The budget proposes to parallel the federal measures to phase out the small business limit for CCPCs that earn between $50,000 and $150,000 of passive income. This would apply for tax years beginning after 2018.
The budget proposes to parallel the federal proposals to increase the personal tax rate to the highest personal rate when the income earned by the taxpayer is classified as Split Income, beginning with the 2018 tax years. The province proposes to apply the highest rate of 20.53% on Split Income.
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