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ONTARIO BUDGET

COMMENTARY

APRIL 27, 2017

This analysis is of a general nature and is based on the Ontario Budget and other documents included with the Ontario Budget package and is presented only for the general information of our clients and staff. The proposals when enacted may vary substantially from the summary described herein. The reader is advised to refer to the amending legislation upon enactment. Specific professional advice should be obtained before taking action based upon the information provided in this commentary.


APRIL 27, 2017 ONTARIO BUDGET COMMENTARY
INDEX


1.0 INTRODUCTION

2.0 PERSONAL TAXATION

2.1 Personal Income Tax Rates
2.2 Ontario Seniors' Public Transit Tax Credit
2.3 Ontario Caregiver Tax Credit
2.4 Medical Tax Credit for Fertility-Related Expenses
2.5 Multijurisdictional Tax Filers
2.6 Postsecondary Education

3.0 BUSINESSES TAXATION

3.1 Corporate Income Tax Rates
3.2 Employer Health Tax Avoidance
3.3 Paralleling Federal Measures

4.0 OTHER MEASURES

4.1 Hotel Tax
4.2 Tobacco Tax
4.3 Enhancements to the Canada Pension Plan
4.4 Property Tax Measures
4.5 Income Tax Avoidance/Strengthening Ontario's Tax System


1.0   INTRODUCTIONtop.gif (291 bytes)Top

    Finance Minister Charles Sousa tabled the Ontario Budget on April 27, 2017.

    The deficit for the 2016-17 fiscal year is projected to be $1.5 billion, with a balanced budget projected for 2017-18, 2018-19 and 2019-20.

    The Budget does not propose any changes to Ontario's personal or corporate income tax rates.

    The Budget plan is as follows (billions of dollars):

    BUDGETARY REVENUES
    Actual
    2014-2015
    Actual
    2015-2016
    Interim Plan
    2016-2017
    Budget Plan
    2017-2018
    Personal income tax $ 29.3 $ 31.1 $ 32.9 $ 35.0
    Retail sales tax 21.7 23.5 24.7 26.0
    Corporations tax 9.6 11.4 13.3 13.8
    Employer health tax 5.4 5.7 5.9 6.1
    Education property tax 5.6 5.8 5.9 6.1
    Ontario Health Premiums 3.4 3.5 3.7 3.8
    Gasoline and fuel tax 3.2 3.2 3.3 3.4
    Other taxes 4.1 7.6 5.4 6.0
    82.3 91.8 95.1 100.1
    Payments from the Federal Government 21.7 22.9 24.4 25.7
    Other non-tax revenues 9.0 8.8 8.4 11.0
    Income from government enterprises 5.6 4.9 5.3 4.9
    Total Budgetary Revenues 118.6 128.4 133.2 141.70
    BUDGETARY EXPENDITURES
    Health and long-term care 50.0 51.0 52.2 53.8
    Education, training colleges and universities 32.3 32.8 33.1 34.4
    Community and social services 10.6 11.3 11.7 12.4
    Community safety and security 2.5 2.7 2.7 2.8
    Children and Youth Services 4.1 4.3 4.4 4.4
    Other Ministries Program spending 18.7 18.8 19.3 21.7
    Total Budgetary Expenditures 118.2 120.9 123.4 129.5
    OPERATING SURPLUS .4 7.5 9.8 12.2
    PUBLIC DEBT INTEREST (10.7) (11.0) (11.3) (11.6)

    ANNUAL BUDGETARY OPERATING
    SURPLUS (DEFICIT) BEFORE RESERVE

    (10.3) (3.5) (1.5) (.6)
    RESERVE - - - (.6)
    ANNUAL BUDGETARY DEFICIT $(10.3) $(3.5) $(1.5) $(-)
    TOTAL ONTARIO PUBLIC DEBT $284.6 $294.6 $301.9 $311.9
    GROSS DOMESTIC PRODUCT (GDP) $722.0 $763.3 $798.2 $832.7
    Net Ont. Public Debt as a % of Ont. GDP 39.4% 38.6% 37.8% 37.5%
    Net debt per capita (Dollars) $20,806 $21,350 $21,592 $22,075
    Population of Ontario (in thousands) 13.7 13.8 14.0 14.1

2.0   PERSONAL TAXATION top.gif (291 bytes)Top

    2.1   Personal Income Tax Rates top.gif (291 bytes)Top

      This Budget does not propose any changes to personal income tax rates; the top marginal rates are as follows

      Type of Income20172016

      Salary and other income53.53% 53.53%
      Capital gains26.76% 26.76%
      Eligible dividends39.34% 39.34%
      Non-eligible dividends45.30% 45.30%

    2.2   Ontario Seniors' Public Transit Tax Credit top.gif (291 bytes)Top

      A new refundable Ontario Seniors' Public Transit Tax Credit is being introduced effective for July 1, 2017. The credit will be 15 per cent of eligible expenditures, which have yet to be defined.

    2.3   Ontario Caregiver Tax Credit top.gif (291 bytes)Top

      In parallel with the federal government's proposed changes in the most recent federal budget, there will be a new Ontario Caregiver Tax Credit which replaces the provincial caregiver and infirm dependant tax credits with the following features:

      • Non-refundable tax credits at a rate of 5.05 per cent to a maximum of $4,794, which is phased out for dependent's income over $16,401;
      • Eligible relatives are infirm dependents, including adult children and spouses;
      • There will be an increase in the amounts for dependents not living with the caregiver;
      • Not available for non-infirm senior parents or grandparents living with children or grandchildren.

    2.4   Medical Tax Credit for Fertility-Related Expenses top.gif (291 bytes)Top

      Mirroring the most recent federal budget changes yet to be approved, Ontario proposes to extend the application of the medical expense tax credit for fertility-related expenses to those who require medical intervention to conceive a child, even when the treatment is not on account of medical infertility.

    2.5   Multijurisdictional Tax Filers top.gif (291 bytes)Top

      Effective January 1, 2017 there will be new technical rules to deal with the provincial surtax and the Ontario Tax Reduction for taxpayers who pay income taxes to another province and non-residents who pay income taxes to Ontario. These changes are designed to ensure consistency between multijurisdictional filers and other filers.

    2.6   Postsecondary Education top.gif (291 bytes)Top

      As previously announced, the new Ontario Student Assistance Program (OSAP) will start this fall and replace many existing programs with a single up-front grant, increased weekly aid limits and be annually indexed to inflation. There will also be reduced expectation of contributions from parents and spouses of the student. Savings from Registered Education Savings Plans will not reduce OSAP assistance.

      Students will not have to start repaying the provincial portion of their OSAP loan until they earn a salary of $35,000 per annum, rather than $25,000.


3.0   BUSINESSES TAXATION top.gif (291 bytes)Top

    3.1   Corporate Income Tax Ratestop.gif (291 bytes)Top

      The Budget proposes no changes to corporate income tax rates, which are as follows for 2017:

      IncomeOntarioFederalCombined

      Small Business income4.5%10.5%15.0%
      CCPC investment income11.5% 38.67%50.17%
      Manufacturing and Processing income *10.0% 15.0%25.0%
      General income11.5% 15.0%26.5%
      * For corporations that do not qualify for Small Business Income rate.

    3.2   Employer Health Tax Avoidancetop.gif (291 bytes)Top

      Ontario will undertake a review to ensure that structures are not used to multiply the Employer Health Tax (EHT) relief that is intended for employers with an Ontario payroll of less than $450,000 per annum. As part of the process, the EHT exemption is eliminated for employers that are "designated members" of a partnership, as defined in the Income Tax Act. To provide an opportunity for feedback and consultation, the change will be effective no earlier than January 1,2018.

    3.3   Paralleling Federal Measures top.gif (291 bytes)Top

      Ontario will work closely with the federal government to review tax planning strategies involving private corporations. These strategies under review are to include:

      • Income splitting;
      • Transformation of investment income into business income or capital gains;
      • Other perceived loopholes and sophisticated tax planning.

4.0 OTHER MEASUREStop.gif (291 bytes)Top

    4.1   Hotel Tax top.gif (291 bytes)Top

      Ontario will grant municipalities the authority to levy a tax on transient accommodation by amending the City of Toronto Act, 2006 and the Municipal Act, 2001.

    4.2   Tobacco Taxtop.gif (291 bytes)Top

      Effective 12:01 a.m. April 28, 2017, the tobacco tax is being increased from 15.475 cents to 16.475 cents per cigarette and gram of tobacco products other than cigars.

    4.3   Enhancements to the Canada Pension Plan top.gif (291 bytes)Top

      Legislation to implement the enhancement to the Canada Pension Plan (CPP) came into effect in March 2017. To allow businesses to adapt, increases to CPP contributions will be phased in over seven years, beginning January 1, 2019.

    4.4   Property Tax Measures top.gif (291 bytes)Top

      Pursuant to reviews of legislation on small-scale agri-food business on farms, railway rights-of-way and the Provincial Land Tax, the Budget proposes certain changes to these measures.

    4.5   Income Tax Avoidance/Strengthening Ontario's Tax System top.gif (291 bytes)Top

      The Budget indicates that the government is continuing to work with the Canada Revenue Agency to address the underground economy, and legislative and administrative reviews to promote greater effectiveness and efficiency of the tax system.




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