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.

Summary

  • Simplify the personal income tax system by eliminating the surtax and replacing it with new rates and brackets
  • Enhancing support of Charitable Giving
  • Changing the Ontario Innovation Tax Credit and the Ontario Research and Development Tax Credits
  • Changing the exemption from Employer Health Tax
  • Parallel certain 2018 Federal Budget Income Tax Measures

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.

Charitable Giving

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:

  • Where the ratio of R & D expenditures to gross revenue is 10% or less the rate will remain at 8%
  • Where the ratio is between 10% and 20% the rate will increase to 12% on a straight line basis as the expenditures increase from 10% to 20%,
  • 20% and above, the rate is proposed to remain at 12%.

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.

Income Sprinkling

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.


Taylor Leibow LLP accepts no responsibility for the content of the above commentary or for the use thereof. Furthermore, neither Taylor Leibow LLP nor any person involved in the preparation of this commentary accepts any contractual, tortuous or other form of liability for its contents or for any consequences arising from its use.