Canada: Ontario Budget 2016 Tax Highlights

Last Updated: February 29 2016
Article by Crowe Soberman LLP

Today, Ontario's Finance Minister, the Honourable Charles Sousa, tabled the province's budget for 2016 ("Budget 2016"). This year's budget proposes modest tax changes, which include the elimination of specific personal income tax credits, the introduction of personal income tax measures to parallel existing federal measures, the reduction of certain research and development tax credits and increases to the tax on tobacco and wine. The budget also promises to consider ways to simplify the calculation of personal income taxes, and to re-evaluate the Apprenticeship Training Tax Credit. The government continues to consider measures to create a more equitable property taxation regime for northern residents, and to improve the Municipal Property Assessment Corporation's property tax assessment system.  Finally, Budget 2016 introduces a "Cap and Trade" program to reduce greenhouse gas emissions.

Ontario's deficit for 2015-16 is estimated to be $5.7 billion, a $2.8 billion improvement compared with the 2015 Budget forecast. The government is projecting a return to a balanced budget in 2017-18.

Details of the significant tax measures proposed in Budget 2016 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 (a threshold of $90,000 in 2017 dollars).

The Province acknowledges the business community's concerns about the timing of implementation of the ORPP, and will, therefore, provide employers with more time to make the technical changes required. Implementation will now begin to be phased in on January 1, 2018, for large and medium employers without registered workplace pension plans, and will be fully implemented for all employers who have a registered plan that does not meet minimum requirements by January 1, 2021.

Business Tax Measures

Research and Development Tax Credits

The Ontario Research and Development Tax Credit ("ORDTC") is a non-refundable tax credit applied to research and development expenditures. Budget 2016 proposes to reduce the ORDTC rate from 4.5% to 3.5%.

The Ontario Innovation Tax Credit ("OITC") is a refundable tax credit benefiting small-to-medium-sized companies incurring eligible research and development expenditures. Budget 2016 proposes to reduce the OITC rate from 10% to 8%.

The reductions in the ORDTC and OITC are applicable for eligible research and development expenditures incurred in taxation years that end on or after June 1, 2016. For taxation years that straddle June 1, 2016, the rate reductions will be prorated.

Budget 2016 proposes to reinvest the resulting savings into new targeted investments and projects across key sectors of Ontario's economy in an effort to continue to encourage research and development activities in the province.

Apprenticeship Training Tax Credit

The Apprenticeship Training Tax Credit ("ATTC") is available to businesses that employ and train Its purpose is to encourage enrollment in, and completion of, apprenticeship programs for trades in the construction, industrial, motive power and service industries.

Budget 2016 proposes to review the ATTC by undertaking an engagement process with stakeholders and partners with the goal of ensuring that the ATTC encourages businesses to help apprentices gain the skills and certifications that they need.

Personal Tax Measures

Tuition and Education Tax Credits

Budget 2016 proposes to eliminate the Ontario Tuition and Education Tax Credits effective fall 2017. Students will be able to claim the Ontario Tuition Tax Credit for eligible tuition fees paid in respect of studies up to and including September 4, 2017, and the Education Tax Credit for months of study before September 2017.

Taxpayers who are resident in Ontario on December 31, 2017, and have Ontario carry-forward tuition and education tax credits, will be able to claim these credits in future years. However, taxpayers who move to Ontario from other provinces after December 31, 2017, will no longer be able to claim their carry-forward tuition and education tax credits in Ontario.

Budget 2016 proposes to make post-secondary education free for students from families with incomes of $50,000 or less. Moreover, students from families with income of $83,000 or less will be eligible for non-repayable grants in excess of average tuitions.

Children's Activity Tax Credit

The Children's Activity Tax Credit ("CATC") is a refundable tax credit that was designed to help parents with the cost of various extracurricular activities. Budget 2016 proposes to eliminate the CATC as of January 1, 2017, but at the same time, develop other programs to encourage physical activity and healthy eating for children.

Healthy Homes Renovation Tax Credit

The Healthy Homes Renovation Tax Credit ("HHRTC") is a non-refundable tax credit intended to make safety and accessibility home renovations for seniors more affordable. Budget 2016 proposes to eliminate HHRTC as of January 1, 2017 due to a low take-up rate, and the fact that it provided little support to lower-income seniors.

Ontario Non-Eligible Dividend Gross-Up and Tax Credit

In its 2015 budget, the federal government announced that it would reduce the federal small business corporate income tax rate over four years. As a result of this change, it modified the gross-up rate for non-eligible dividends.

Budget 2016 proposes to parallel the federal non-eligible dividend gross-up rate and, as a result, Ontario's non-eligible dividend tax credit will decrease as previously expected from 4.5% to 4.2863% for 2016. A review of the 2017 non-eligible dividend rate for 2017 and subsequent years will be undertaken.

Tax on Split Income

Budget 2016 proposes to parallel the federal approach of applying the top marginal personal income tax rate to income that is split with minor children ("split income").

Effective January 1, 2016, split income will be taxed at Ontario's top marginal personal income tax rate of 20.53%. No surtax will be payable on this income.

Other Significant Measures

Cap and Trade Program

Starting in 2017, Budget 2016 proposes to introduce a cap on greenhouse gases in Ontario. This cap would continue to decline through to 2020. Allowances would be made available through "free of charge" allocations and auctioning.

Emitters would be required to hold an allowance for every tonne of greenhouse gas they produce. To remain compliant as the cap decreases, emitters will need to reduce their emissions or purchase allowances in the carbon market.

Tax on Tobacco and Wine

Effective February 25, 2016, Ontario's tobacco tax will increase to 15.475 cents (from 13.975 cents) on each cigarette and gram of tobacco (other than cigars). Moreover, tobacco tax rates will increase based on inflation over each of the next five years, beginning in 2017.

Budget 2016 proposes to increase the ad valorem mark-up for wine products, as follows:

  • By two percentage points in April 2017;
  • By two percentage points in April 2018; and
  • By one percentage point in April 2019.

Ontario will establish a definition of "authorized grocery store", where alcohol can be sold, and provide for the collection of tax in those stores.

Budget 2016 proposes to increase the basic tax on Ontario wine purchased at winery retail stores by one percentage point on each of June 2016, April 2017, April 2018 and April 2019.

In addition, the minimum retail price for a 750mL bottle of table wine will increase to $7.95, including deposit. This change will be phased in over three years, as will the increases to the minimum retail prices for cider, fortified wine and low-alcohol wine.

Click Here to download a copy of the tax letter (PDF).

The information in our Tax Letter is current to February 25, 2016. 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.

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