On May 2, 2013, the Ontario government unveiled its 2013 Budget
(the "Budget"). Entitled "A
Prosperous and Fair Ontario," the Budget focused on deficit
reduction and initiatives that the Government believes will
stimulate economic growth and assist those in need. Although the
tax measures contained in the Budget are relatively few in number,
proposed changes to the provincial Employer Health Tax (the
"EHT") may have a material impact on
those that carry on business in Ontario.
In highly simplified terms, the EHT is a tax levied on
employers, which is computed on the basis of the total remuneration
paid by an employer to or on behalf of its employees who (i) report
for work at a "permanent establishment" of the employer
in Ontario, or (ii) are not required to report for work at a
"permanent establishment" of the employer in Ontario but
whose remuneration is paid from or through a "permanent
establishment" of the employer in Ontario. Currently, however,
an exemption from EHT is available to private sector employers in
respect of up to the first $400,000 of total Ontario remuneration
paid per year (the "EHT Exemption").
(Associated groups of employers must agree on a basis to share the
EHT Exemption.) According to the Budget documents, the EHT
Exemption is meant to reduce paperwork for small businesses and
lessen their cost of hiring employees.
The Budget proposes to increase the EHT Exemption to $450,000,
beginning January 1, 2014. Thereafter, the EHT Exemption will be
adjusted every five years to account for the effects of inflation
(on the basis of increases in the Ontario Consumer Price Index).
Using projected inflation rates, the Government estimates that the
EHT Exemption will increase to $500,000 in 2019.
Although the increased EHT Exemption is likely to be warmly
received by many employers, the Budget also offered less welcome
news for larger businesses. Beginning January 1, 2014, the Budget
proposes that the EHT Exemption be eliminated entirely for private
sector employers, including associated groups, with annual Ontario
payrolls of over $5 million per year. (Registered charities will
continue to be permitted to claim the EHT Exemption under the
Budget proposals, irrespective of the size of a particular
The Government estimates that, while small businesses will save
up to $975 per year, and approximately 12,000 small employers will
no longer have any EHT liability, as a consequence of the EHT
changes proposed in the Budget, more than 5,000 large employers and
associated groups of employers will be required to remit up to
$7,800 per year in additional EHT as a consequence of the proposed
EHT amendments. These changes reflect a desire of the Government to
shift the EHT burden to larger entities, although the Budget papers
project that, on a cumulative basis, the proposed EHT changes will
actually cost the Government approximately $5 million in each of
the 2014-15 and 2015-16 fiscal years.
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
Part I of this series of articles reviewed some of the basic tax requirements for using trusts to split income, and Part II discussed a number of tax planning opportunities that can be accessible through the use of inter vivos trusts.
Based on a host of recently enacted legislation attacking the use of offshore trusts by
Canadians, eliminating immigration trusts, severely restricting testamentary trust tax
benefits, generally attempting to eliminate inter-provincial testamentary tax planning
opportunities, and so on, it seems safe to say that the federal government views the
use of trusts in Canada dimly these days.
Part I of this series of articles reviewed some of the basic tax requirements for using trusts to split income. In the second instalment of the series we will review some common income splitting opportunities that are accessible through the use of trusts.