Canada: Ontario Budget - 2015 Tax Highlights

INTRODUCTION

Today (April 23, 2015), Ontario Finance Minister Charles Sousa tabled the province's budget for 2015 ("Budget 2015"). This year's budget proposes generally modest tax changes including the reduction or elimination of certain business tax credits, and the introduction of measures to parallel the recent federal provisions related to the taxation of testamentary trusts and estates. Also proposed are targeted time-limited measures to facilitate the consolidation of the electricity distributing sector, measures to create a more equitable property taxation regime for Northern residents, and changes to the manner in which information is shared and obtained under the Municipal Property Assessment Corporation's ("MPAC") property tax assessment system.

Ontario's deficit for 2015 is estimated to be $10.9 billion, a $0.4 billion improvement compared with the 2014 Budget forecast. The government is projecting budget deficits of $8.5 billion for the 2016 year, $4.8 billion for the 2017 year, and a return to a balanced budget in 2018.

Details of the significant tax measures proposed in Budget 2015 are outlined below.

Please contact us for additional information on any of these measures.

PENSION PLAN MEASURES

Ontario Retirement Pension Plan

The Ontario Retirement Pension Plan ("ORPP") was first announced in the 2014 budget. The ORPP is intended to build on the key features of the Canada Pension Plan and to provide a predictable, lifelong stream of retirement income of up to 15% of pre-retirement earnings (up to $90,000 in 2014 dollars).

Budget 2015 proposes to introduce legislation that would create a third-party entity established to administer the ORPP. It is also proposed that the payment of variable benefits from defined contribution pension plans be introduced to increase portability and withdrawal options. Lastly, it is proposed that the deadline for consolidating "split pensions" be extended from July 1, 2016 to July 1, 2017.

BUSINESS TAX MEASURES

Apprenticeship Training Tax Credit

• The Apprenticeship Training Tax Credit ("ATTC") is available to businesses that employ and train apprentices. Its purpose is to encourage enrollment in, and completion of, apprenticeship programs for trades in the construction, industrial, motive power and service industries.
• Upon recent review, it has been determined that this program has not increased the completion rate of apprenticeships and has resulted in modest growth in apprenticeship registrations. As a result, for eligible expenditures related to apprentices who commenced an apprenticeship program after April 23, 2015, Budget 2015 proposes to amend the scope of the refundable credit by:
  • reducing the credit from 35% of salaries and wages paid during the first 48 months of an apprenticeship program to 25% of salaries and wages paid during the first 36 months of an apprenticeship program;
  • reducing the rate of the credit for small businesses (those with salaries and wages less than $400,000) from 45% to 30%; and
  • reducing the maximum annual benefit of the credit from $10,000 to $5,000 per apprentice.

Ontario Interactive Digital Media Tax Credit

• Budget 2015 proposes to amend the Ontario Interactive Digital Media Tax Credit ("OIDMTC") such that it will apply only to entertainment products and educational products for children under the age of 12.
• The OIDMTC will also be refocused to exclude certain digital products such as news and public affairs, real estate databases, and search engines.
• In an effort to reduce certification processing time, measures will be introduced that replace the requirement that 90% or more of a product be developed in Ontario, with a requirement that 80% or more of the total labour costs be attributable to qualifying wages and qualifying remuneration, as well as a requirement that 25% of total labour costs be attributable to wages of the qualifying corporation.
• These changes are intended to apply to expenditures incurred after April 23, 2015.

Film and Television Tax Credits

• Ontario has continued to attract increased foreign investment in the film and television sector largely in part due to the lower value of the Canadian dollar. The government has concluded that there is a reduced need for government support of foreign productions.
• Budget 2015 proposes to reduce the refundable Ontario Production Services Tax Credit ("OPSTC") from 25% to 21.5% for qualifying production expenditures incurred after April 23, 2015. The credit will also be modified to encourage the employment of Ontarians, requiring that labour expenditures must represent 25% or more of total expenditures for a qualifying corporation. In addition, it will be clarified that, for expenditures incurred after June 30, 2009, only expenditures incurred after the final script stage to the end of the post-production stage will be eligible for the credit.
• Budget 2015 proposes to reduce the refundable Ontario Computer Animation and Special Effects Tax Credit ("OCASE") from 20% to 18% for expenditures incurred after April 23, 2015. For productions that commence after April 23, 2015, applicants must receive the Ontario Film and Television Tax Credit or the OPSTC in order to claim the OCASE. Budget 2015 proposes to introduce an Ontario regulation, retroactive to January 1, 2009, to ensure that a government's equity investment in a production will not be treated as government assistance for purposes of determining the Ontario Film and Television Tax Credit.
• Budget 2015 proposes to eliminate the Ontario Sound Recording Tax Credit. Transitional measures are proposed for expenditures incurred after April 23, 2015 and before May 1, 2016 for which an Ontario Music Fund grant was not received.

OTHER MEASURES

Registration and Licensing for Road Building Vehicles

• The government is proposing registration and licensing requirements for certain road building vehicles and is seeking input from stakeholders.

Taxation of Trusts and Estates

• Budget 2015 proposes to adopt the federal government's new rules for the taxation of testamentary trusts and estates which will commence in 2016.
• The Ontario tax credit that is applicable to donations in excess of $200 will be increased to 17.41% for trusts that pay tax at the highest rate. This rate is consistent with the maximum donation credit applicable to individuals who pay the Ontario surtax.

Tax Avoidance

• The Province is committed to reducing aggressive corporate tax avoidance, both domestically and internationally, as well as tackling unreported income and lost tax revenues through the underground economy.
• The government will focus on two particular areas of industry: the residential roofing sector and the auto-body repair sector.
• Budget 2015 proposes to make the use, manufacture or distribution of electronic sales suppression technologies illegal. The government will also actively consider options to prevent sales suppression at point-of-sale terminals. The Province will consider ways to share information within the government, as well as with other governments and government entities, to facilitate tax compliance. The Province has indicated that it is committed to respecting the privacy of it citizens and will ensure that it consults stakeholders as appropriate.

Ontario Resource Tax Credit and the Additional Tax on Crown Royalties

• Effective April 23, 2015, Budget 2015 proposes to eliminate and replace the Ontario Resource Tax Credit and the Additional Tax on Crown Royalties with a deduction for actual royalties and mining taxes paid. This measure is consistent with federal measures, and those of other provinces.

Supporting Consolidation of the Electricity Distribution Sector

• Budget 2015 proposes to introduce measures that will ease the tax burden to the private sector associated with a sale of assets by Municipal Electricity Utilities. This measure will apply for sales taking place between January 1, 2016 and December 31, 2018.
• At the same time, Budget 2015 proposes to introduce measures to prevent certain tax avoidance transactions that this sector could undertake using partnerships. This proposed measure parallels existing measures applicable to other sectors.

Property Tax Measures

• Together with MPAC, municipalities and stakeholders, the Province is working to improve the property tax assessment system prior to the next province-wide reassessment which will take place in 2016. The objectives of this initiative are to improve transparency, predictability, and accuracy.
• Currently, there are differences in the property tax rates paid by certain Northern residents. Budget 2015 proposes to introduce measures to reduce these inequities. These measures are proposed to be fully implemented by 2016.

The information in our Tax Letter is current to April 23, 2015. The information contained here is of a general nature and is not intended to address the particular circumstances of an individual or entity. We endeavor to provide accurate and timely information; however, there is no guarantee that such information is accurate in the future. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this publication.

APPENDIX A

Budget 2015 proposes no new changes to the Ontario personal and corporate income tax rates.

*on first $500,000 of active business income. 2016-2019 rates factor in the proposed reduction per the 2015 federal budget.

**applicable for Canadian-controlled private corporations only.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.