Canada: Ontario Budget 2017 Tax Highlights

Today (27th April, 2017), Ontario's Finance Minister, the Honourable Charles Sousa, tabled the province's budget for 2017 ("Budget 2017"). This year's budget aims to return to a balanced budget in 2017-18 – the first since the 2008-09 global recession – and includes significant investments in health care and education.  This budget proposes to provide free prescription drugs for individuals who are 24 years of age or younger, make investments to reduce patient wait times, assist students financially and make life more affordable for Ontario families.

Ontario's deficit for 2016-17 is estimated to be $1.5 billion, a $2 billion improvement from 2015-16's actual results.

Budget 2017 does not propose any changes to personal and/or corporate income tax rates.  The details of the significant tax measures proposed in Budget 2017 are outlined below.

Please contact your Crowe Soberman LLP advisor for additional information on any of these measures.

Business Tax Measures

Employer Health Tax (EHT) Avoidance

  • The EHT is a provincial-level tax that is levied on an employer's annual gross payroll cost. The first $450,000 of gross payroll cost of an "associated" group of employers is exempt from EHT (the "EHT exemption").
  • The association of two or more corporations, for purposes of the EHT, is governed by the association rules under section 256 of the federal Income Tax Act.
  • The 2016 federal budget introduced new anti-avoidance measures to prevent the multiplication of the small business deduction through certain complex structures.
  • Budget 2017 proposes to parallel one of the federal budget measures by eliminating the EHT exemption for any employer that is a designated member of a partnership, as defined in the federal Income Tax Act. This change will be effective on a prescribed date (to be announced at a later date), but no earlier than January 1, 2018.  In the meantime, employers have the opportunity to provide feedback and consultation on the proposed change.
  • The Province will review other structures that directly or indirectly avoid the EHT. The objective is to ensure that the EHT exemption is targeted at smaller employers only. The public will again have the opportunity to provide feedback on any proposed changes that may be introduced following the government's review.

Personal Tax Measures

Paralleling Federal Measures

(1) Clarifying the Treatment of Fertility –Related Expenses under the Medical Expense Tax Credit

  • The Ontario Fertility Program provides publicly-funded fertility services at 51 fertility clinics across the province. This program is available to eligible Ontario residents of any sex, gender, sexual orientation or family status.
  • The 2017 federal budget proposed to clarify the application of the federal medical expense tax credit so that individuals who require medical intervention to conceive a child are eligible to claim the same expenses that would generally be eligible for individuals experiencing medical infertility.
  • Budget 2017 proposes to apply the same federal changes to the 2017 and subsequent taxation years once they have been adopted by the federal government.
  • Ontarians will benefit by being eligible to claim a medical tax credit in respect of fertility treatments that are not otherwise covered under OHIP.

(2) Consolidating Tax Credits for Caregivers

  • The 2017 federal budget proposed to simplify the existing system of personal income tax credits for caregivers by creating a new consolidated Canada Caregiver Credit, which is effective for the 2017 taxation year.
  • To parallel the federal changes and simplify the current system, Budget 2017 proposes to replace the provincial caregiver and infirm dependent tax credits with a new Ontario Caregiver Tax Credit ("OCTC"). The highlights of the proposed OCTC include:
    • A non-refundable tax credit of up to $4,794, computed at the rate of 5.05%
    • Availability in respect of relatives who are infirm dependents, including adult children of the claimant or of the claimant's spouse or common-law partner.
    • Dependents will not be required to live with the caregiver who is claiming the OCTC.
    • A phase-out beginning when the dependent's net income reaches $16,401.
  • The credit will not be available in respect of non-infirm senior parents or grandparents who live with their adult children or grandchildren.

Ontario Seniors Public Transit Tax Credit

  • Budget 2017 proposes a new Ontario Seniors' Public Transit Tax Credit for all Ontarians aged 65 or older.
  • This credit would be available to seniors in their 2017 tax returns, in respect of transit costs incurred as of July 1, 2017.
  • Further details about the credit, including eligibility criteria, will be forthcoming.

Multi-jurisdictional Tax Filers

  • Budget 2017 proposes to amend the way the provincial surtax and the Ontario Tax Reduction ("OTR") are calculated for Ontario residents who pay tax to another province, and for non-residents of Ontario who pay tax to Ontario (i.e., multijurisdictional filers). Currently, the amount of surtax and the OTR for multijurisdictional filers do not appropriately reflect their total income.
  • The purpose of the proposed changes is to ensure consistency between the surtax and OTR treatment for multijurisdictional filers and other filers.
  • Budget 2017 proposes that the surtax will be calculated based on the total amount of Ontario tax on taxable income. The total amount of tax payable, including the surtax, will then be prorated based on the percentage of income allocated to Ontario.
  • Budget 2017 also proposes that the OTR amounts be prorated based on the percentage of income allocated to Ontario.
  • These changes will be effective for taxation years ending after December 31, 2016.

Other Significant Measures

Granting Municipalities the Authority to Levy a Hotel Tax

  • Currently, the City of Toronto Act, 2006 ("COTA") gives the City of Toronto the authority to levy its own taxes, with the exception of its own hotel tax. Budget 2017 proposes to amend the COTA to eliminate this exclusion, such that the City of Toronto may introduce its own hotel tax.
  • Budget 2017 also extends the authority to introduce a hotel tax to single-tier and lower-tier municipalities.
  • Under the extended authority, all municipalities that adopt the hotel tax and have an existing Destination Marketing Fee ("DMF") program in place, would be required to share their hotel tax revenue with the appropriate not-for-profit tourism organization. For municipalities that do not have a DMF program, at least 50% of their hotel tax revenue will be shared with the respective Regional Tourism Organization or a not-for-profit tourism organization.

Strengthening Ontario's Tax System

  • In an effort to build on existing initiatives that include combating the underground economy and ensuring the ongoing integrity of the tax system, the Province will conduct a policy, legislative and administrative review of all taxes, including taxes that are shared with the federal government.
  • The purpose of this review is to identify and eliminate loopholes, further strengthen administration of existing tax laws and enhance partnerships with other government bodies, including the Canada Revenue Agency.
  • The Province will also review revenues from government business enterprises.

Income Tax Avoidance

  • The 2017 federal budget announced a review of tax planning strategies involving private companies and their shareholders.
  • The Province will work closely with the federal government to eliminate unfair tax advantages and will devote additional expert resources to identify and address tax loopholes and sophisticated tax planning strategies.
  • Further details on both the federal and Ontario reviews will be forthcoming.

Increasing Tobacco Taxes

  • Budget 2017 proposes to increase tobacco tax rates by $10 per carton of 200 cigarettes over the next three years.
  • The first change, which will be effective April 28, 2017, will see the tax rate increase from 15.475 cents to 16.475 cents per cigarette or gram of tobacco products other than cigars.

Supporting Renewable Bio-diesel in the Coloured Fuel Market

  • Budget 2017 proposes changes to allow biodiesel, which is a renewable alternative to fossil fuel, to be more widely available as part of Ontario's tax-exempt coloured fuel program.
  • Currently, Ontario provides certain companies, referred to as registered dyers, with the authority to colour fuel. Coloured fuel purchased from registered dyers is tax-exempt fuel and can only be used for specific purposes as defined under the Fuel Tax Act.
  • Budget 2017 proposes to add a new category of registered dyers that will be allowed to dye biodiesel that has not been blended, mixed or combined with any other type of grade of fuel. This new category of registered dyers will be exempt from the fuel transportation requirements currently imposed on all registered dyers.

Click here to download a PDF copy of the 2017 Ontario Budget Tax Highlights including the Appendix.

The information in our Tax Letter is current to April 27, 2017. 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.

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.

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Authors
Aaron Schechter, CPA, CA
 
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