March 27, 2012
Today Ontario Minister of Finance Dwight Duncan delivered the province’s 2012 budget. The budget forecasts a deficit of $15.2 billion for 2012-13, $13.3 billion for 2013-14 and $10.7 billion for 2014-15. The budget is expected to be balanced in 2017-18.
The budget proposes to cancel scheduled cuts to the general corporate income tax rate and freeze the rate at 11.5%. The budget does not include any personal income tax rate changes. The government intends to review a range of tax programs including the tax regime for mining, and tax credits for research and development and apprenticeships.
The budget addresses a number of recommendations made in a recent report by the Commission on the Reform of Ontario’s Public Services (the Drummond report), including recommendations affecting the Business Education Tax and the Ontario Clean Energy Benefit.
Highlights of tax measures announced in today’s budget are summarized below.
Corporate tax rates
The budget proposes to freeze the general corporate tax income tax rate at 11.5% until the budget is balanced. Previously, the government intended to reduce the rate to 11% on July 1, 2012 and to 10% on July 1, 2013. The budget states that Ontario is scheduled to return to a balanced budget in 2017-18. At that time, the budget states the corporate tax rate reductions would resume. As a result, Ontario’s general corporate tax rate will be as follows:
The rate for income from manufacturing and processing will remain at 10% and the small business rate for Canadian controlled private companies on the first $500,000 of active business income will remain at 4.5%.
Mining sector review
The budget states that, since Ontario mining operations have benefited from recent changes to the province’s tax regime, the government is proposing to work with stakeholders in reviewing the current mining tax system “to ensure Ontario receives fair compensation for its non-renewable resources.”
Business tax credits review
The government will review business tax expenditures to maximize the value of public investment in the economy and make tax support more effective.
Business research and development
The budget notes that the federal government recently received a report on federal support for innovation that included recommendations to simplify the Scientific Research and Experimental Development tax credit (see KPMG’s TaxNewsFlash-Canada 2011-30, “Expert Panel Recommends Changes to Federal R&D Funding Programs”).
Ontario agrees with the federal panel that there is a need for greater federal-provincial collaboration regarding research and development (R&D) support.
The budget says Ontario will continue to review the effectiveness of tax credits for R&D in supporting innovation and the overall framework of provincial and federal direct and indirect business supports. The government will seek advice from the new Jobs and Prosperity Council on improvements to R&D tax support that would increase R&D expenditures in the province and simplify compliance and administration under the tax system.
The province will review the effectiveness and efficiency of the Apprenticeship Training Tax Credit in promoting apprenticeship completions. Linking support to the completion of apprenticeships would further strengthen the apprenticeship system in Ontario.
Business Education Tax
The budget proposes to temporarily freeze the Business Education Tax reduction plan, beginning in 2013. This property tax reduction plan was originally announced in 2007 to cover a seven-year period. The budget states that the Business Education Tax rate reductions will resume when the budget is balanced in 2017-18.
Clean Energy Benefit for large users
The budget proposes to cap the 10% Ontario Clean Energy Benefit (OECB) for large users. A cap of 3,000 kilowatt-hours per month would apply to keep the benefit in place, effective September 1, 2012. As such, the budget says almost all residential customers and most small retail businesses would continue receiving the full 10% benefit.
Employer Health Tax
Ontario will strengthen its administrative practice in the determination of an employer-employee relationship for purposes of the Employer Health Tax. As such, Ontario will not necessarily be bound by federal rulings for EHT purposes. This change in administrative practice will apply to EHT assessments issued after March 27, 2012.
Corporate tax avoidance
Ontario will consider implementing various measures used by Quebec to fight aggressive tax planning in the province. Ontario will work with the federal government and Ontario businesses and stakeholder groups on this initiative.
Ontario will also remain diligent in ensuring that income and losses are allocated to the province where the underlying economic activity has occurred. Ontario proposes to work with the federal government to explore the extent to which the CRA can address this issue under the tax collection agreement, and to implement supplementary Ontario measures if required to achieve this result.
The budget notes that Quebec has adopted several measures to address the underground economy in that province. Ontario proposes to adopt similar measures, including fines and penalties and disclosure requirements, to:
- Mitigate the use of point-of-sale software designed to electronically conceal sales
- Enhance information sharing across ministries, municipalities and the CRA
- Identify those who facilitate or participate in tax evasion schemes.
Entities that receive government funding or contracts
Ontario will expand the government’s existing procurement requirements to ensure that businesses are compliant with their tax obligations before bidding on projects and contracts where provincial funding is involved.
Also, the government proposes to require recipients of government grants and other forms of direct government assistance to be compliant with their tax obligations.
The budget notes that the federal government has an administrative practice that facilitates an informal loss transfer system between corporate group members. This system can have a permanent impact on a province’s revenue when losses are transferred between corporations within a corporate group and across provincial borders.
Ontario will continue to work with the federal government and other provinces to ensure that corporations apply losses in manner that is fair and reasonable and that upholds the long-standing principles that underlie the interprovincial allocation of income.
Pooled Registered Pension Plans
The budget notes that Ontario has some concerns about the federal model for Pooled Registered Pension Plans (PRPPs) as currently proposed. Ontario will work collaboratively with other provinces and the federal government to develop the PRPP model.
Further, Ontario believes that pension innovation should be tied to any Canada Pension Plan enhancements as part of a comprehensive approach.
Retail sales tax refunds and rebates
As part of the wind-down of retail sales tax (RST), the budget proposes to shorten the RST refund and rebate period. Currently, a taxpayer may apply for refunds and rebates of RST until the time limits for claiming them have expired or June 30, 2014, whichever is earlier. Proposed amendments would require such applications to be made on or before December 31, 2012.
The current refund and rebate application periods will continue for RST paid in respect of insurance premiums or private transfer of used vehicles.
Along with freezing business tax rates, the budget proposes to increase certain user fees related to transportation, environmental programs and services, water taking charges and hazardous waste.
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 March 27, 2012. 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, the audit, tax and advisory firm (kpmg.ca), a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 140,000 professionals, including more than 7,900 partners, in 146 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/
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.