Ontario’s newly re-elected Liberal government reintroduced the 2014 Ontario budget on July 14, 2014. The July budget, which remains essentially the same as the budget originally presented on May 1, 2014, increases personal income tax on taxable incomes above $150,000. The July budget also reintroduces the phase-out or elimination of the Small Business Deduction for certain large Canadian-controlled private corporations (CCPCs) and a new Ontario Retirement Pension Plan.
Ontario’s Bill 14 containing certain 2014 budget measures received first reading on July 14, 2014. As a result, measures related to the Small Business Deduction, aggressive tax transactions and the Land transfer Tax are considered substantively enacted for purposes of IFRS and Accounting Standards for Private Enterprise (ASPE) as of this date, since Ontario has a majority government.
Selected budget measures reintroduced in the July budget are highlighted below. For details on these and other tax measures included in the budget, see KPMG’s TaxNewsFlash-Canada 2014-30, "Highlights of the 2014 Ontario Budget".
Personal income tax
The July budget reintroduces the increase to personal income tax on taxable income above $150,000. Specifically, the July budget reintroduces the new tax rate of 12.16% on taxable income between $150,000 and $220,000 and reintroduces the lower taxable income threshold for the 13.16% tax rate for income greater than $220,000 (from $514,090). These changes apply to taxation years ending after December 31, 2013. The new income thresholds will not be adjusted for inflation each year.
As a result, Ontario’s combined top marginal tax rates for 2014 are as follows:
There is no change to the top marginal tax rates for 2014, which remain as follows:
As a result of these changes, individuals who earn interest and regular income of $514,090 or more will pay an additional $10,268 in Ontario tax.
The July budget reintroduces a mandatory new provincial pension plan based on the Canada Pension Plan (CPP). The Ontario Retirement Pension Plan (ORPP), proposed to be introduced in 2017, is intended to provide additional retirement income. The ORPP would be publically administered at arm’s length from the Ontario government. The plan requires equal contributions shared between employers and employees (not exceeding 1.9% each, or 3.8% in total) up to a maximum annual earnings threshold of $90,000. The threshold will increase each year, consistent with the CPP maximum earnings threshold. Benefits are earned as contributions are made.
The July budget also reintroduces amendments to create regulatory authority to prescribe requirements for converting a single-employer pension plan to a jointly-supported pension plan, and reiterates plans to:
- Introduce legislation for pooled registered pension plans (PRPPs) in fall of 2014
- Introduce a new asset pooling entity to enable pooling pension plan assets in the public sector.
- Address certain pension issues, including targeting benefit pension plans, regulation of financial planning and changes to the funding rules.
Small business deduction
The July budget phases out the provincial Small Business Deduction for large CCPCs (and associated groups of CCPCs) with more than $10 million in taxable capital employed in Canada in the previous year. The July budget also eliminates the Small Business Deduction for large CCPCs (and associated groups of CCPCs) with more than $15 million in taxable capital employed in Canada in the previous year.
These measures, which would be effective for taxation years that end after May 1, 2014 (and pro-rated for taxation years that straddle May 1, 2014), parallel the federal phase-out of the Small Business Deduction.
The phase-out of the provincial Small Business Deduction could result in addition taxes of up to $35,000 for affected CCPCs (on an annual basis when fully implemented).
Ontario’s corporate income tax rates generally remain as follows:
*on first $500,000 of active business income, subject to the phase-out discussed above for taxation years that end after May 1, 2014 (and pro-rated for taxation years that straddle May 1, 2014)
Aggressive tax transactions
The July budget reintroduces amendments to require corporations in Ontario to disclose aggressive tax avoidance transactions to the federal Minister of National Revenue, parallel to the federal rules on reportable transactions, in respect of a reportable transaction entered into after May 1, 2014.
The July budget also reintroduces measures to:
- Remove the Debt Retirement Charge cost from residential users’ electricity bills after December 31, 2015
- Increase tobacco tax from 12.350 cents to 13.975 cents per cigarette (i.e., from $24.70 to $27.95 per carton of 200 cigarettes) and per gram of tobacco products (other than cigarettes or cigars), effective 12:01am on May 2, 2014
- Raise the tax on aviation fuel to 3.7 cents per litre (from 2.7 cents per litre) effective September 1, 2014, with an additional tax increase of one cent per year in 2015, 2016 and 2017, effective April 1 of each year
- Introduce a general anti-avoidance rule to the Land Transfer Tax Act, effective for transactions completed after May 1, 2014
- Introduce registration and licensing requirements on road-building machines
- Clarify the scope of the property tax exemption to non-profit hospices providing end-of-life care
- Parallel certain federal income tax and HST measures introduced in the 2014 federal budget.
Download KPMG’s Tax Hub Canada app
KPMG’s Tax Hub Canada app provides timely and convenient tax news to your iPhone, iPad, BlackBerry and Android. Download now.
We can help
Your KPMG adviser can help you assess the effect of the tax changes in this year’s Ontario budget on your personal finances or business affairs, and point out ways to take advantage of their benefits or ease their impact. We can also keep you abreast of the progress of these proposals as they make their way into law and help you bring any concerns you may have to the attention of the Ontario Ministry of Finance.
Information is current to July 14, 2014. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.
KPMG LLP, an Audit, Tax and Advisory firm (kpmg.ca) and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”). KPMG member firms around the world have 155,000 professionals, in 155 countries.
The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.
KPMG's Canadian web site is located at http://www.kpmg.ca/