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Highlights of the 2014 Ontario Budget 

Tax News Flash
Tax News Flash
Tax News Flash

 

Highlights of the 2014 Ontario Budget

 

May 1, 2014
No. 2014-30

Today Ontario Finance Minister Charles Sousa delivered the province's 2014 budget. The budget proposes a personal income tax increase on taxable incomes above $150,000, phases out or eliminates the Small Business Deduction for certain large Canadian-controlled private corporations (CCPCs) and proposes a new Ontario Retirement Pension Plan. The budget projects a deficit of $12.5 billion for 2014, $8.9 billion for 2015, $5.3 billion for 2016 and a return to balanced budget for 2017.

 

Highlights of tax measures in the budget are noted below.

 

Personal Tax

 

Personal income tax

 

The budget proposes to lower the taxable income threshold for the 13.16% tax rate from $514,090 to $220,000. The budget also adds a new tax rate of 12.16% on taxable income between $150,000 and $220,000. These changes would apply to taxation years ending after December 31, 2013. The new income thresholds would not be adjusted for inflation each year.

 

As a result, Ontario's combined top marginal tax rates for 2014 are as follows:

 

Combined Marginal Tax Rates

 

(Income >$150,000 and <$220,000)

 

Pre-Budget

Post Budget

% Increase

 

Interest and regular income

46.41%

47.97%

1.56%

 

Capital gains

23.20%

23.98%

0.78%

 

Eligible dividends

29.52%

31.67%

2.15%

 

Non-eligible dividends

36.45%

38.29%

1.84%

 

Combined Marginal Tax Rates

 

(Income >$220,000 and <$514,090)

 

Pre-Budget

Post Budget

% Increase

 

Interest and regular income

46.41%

49.53%

3.12%

 

Capital gains

23.20%

24.76%

1.56%

 

Eligible dividends

29.52%

33.82%

4.30%

 

Non-eligible dividends

36.45%

40.13%

3.68%

 

There is no change to the top marginal tax rates for 2014, which remain as follows:

 

Combined Marginal Tax Rates

 

(Income >$514,090)

 

Interest and regular income

49.53%

 

Capital gains

24.76%

 

Eligible dividends

33.82%

 

Non-eligible dividends

40.13%

 

As a result of these proposed changes, individuals who earn interest and regular income of $514,090 or more will pay an additional $10,268 in Ontario tax.

 

Retirement savings

 

Ontario Retirement Pension Plan

 

The budget proposes a mandatory new provincial pension plan based on the Canada Pension Plan (CPP). The Ontario Retirement Pension Plan (ORPP), which would 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 would require 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 would increase each year, consistent with the CPP maximum earnings threshold. Benefits would be earned as contributions are made.

 

Enrolment into the ORPP would occur in stages, starting with large employers, with contribution rates phased-in over two years. Individuals that already participate in a similar workplace pension plan would not be required to enroll in the ORPP.

 

Pooled registered pension plans

 

The budget proposes to introduce legislation for pooled registered pension plans (PRPPs) in fall of 2014. Based on consultations with stakeholders, the budget announces that the key features of this legislation will be that the PRPPs:

 

  • Allow employers to choose to participate and choose to contribute to an employee's PRPP
  • Automatically enroll employees in the PRPP unless the employee opts out
  • Be provided at a low cost to plan members.

 

Asset pooling

 

The budget proposes to introduce a new asset pooling entity to enable pooling pension plan assets in the public sector. The entity would operate at arm's length from the government. Legislation is expected in spring 2015.

 

Jointly-supported pension plans

 

The budget proposes amendments to create regulatory authority to prescribe requirements for converting a single-employer pension plan to a jointly-supported pension plan.

 

Other issues

 

The government also said it intends to address the following pension issues:

 

  • Target benefit pension plans
  • Regulation of financial planning
  • Changes to the funding rules.

 

Tax credit for farmers who donate to community food programs

 

The budget announces that Ontario will draft legislation to implement a non-refundable income tax credit for farmers who donate food to community food programs, including food banks for donations beginning January 1, 2014. This credit was introduced in the Local Food Act, 2013 , which received Royal Assent on November 6, 2013.

 

Business Tax

 

Small business deduction

 

The budget proposes to phase 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 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.

 

As a result, the corporate income tax rates will remain as follows:

 

Corporate Income Tax Rates – As of January 1, 2014

 

Ontario

Combined Federal and Ontario

General

M&P

Small business *

11.5%

10.0%

4.5%

26.5%

25.0%

15.5%

 

*on first $500,000 of active business income, subject to the phase-out discussed above

 

Aggressive tax transactions

 

The budget proposes 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.

 

Business program reviews

 

The budget notes that Ontario expects to release the results of its review of business programs including tax credits and grants in spring 2014.

 

Ontario also continues to review R&D tax credits and training tax incentives, as previously announced in the 2013 Economic Update.

 

Indirect Tax

 

Tobacco tax

 

The budget proposes to 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). This measure would be effective 12:01am on May 2, 2014. As a result, wholesalers of tobacco tax are required to take an inventory of all tobacco products (except cigars) held at the end of May 1, 2014 and remit additional tax on this inventory.

 

Aviation fuel tax

 

The budget proposes to raise the tax on aviation fuel to 3.7 cents per litre (from 2.7 cents per litre) for 2014, with an additional tax increase of one cent per year until 2018. This measure is effective on Royal Assent, with subsequent rate increases effective on April 1 of 2015, 2016 and 2017.

 

Land Transfer Tax

 

The budget also proposes to introduce a general anti-avoidance rule to the Land Transfer Tax Act . Ontario notes that it is continuing to review aggressive tax avoidance structures that result in the acquisition of land without payment of the Land Transfer Tax.

 

Fuel tax for road-building machines

 

The budget proposes new registration and licensing requirements on road-building machines (i.e., mobile cranes, concrete pumpers and hydrovacs) that use public roads and highways. Once registered, these machines would no longer be allowed to use tax-exempt diesel fuel.

 

Hospices

 

The budget makes amendments to clarify the scope of the property tax exemption to non-profit hospices providing end-of-life care. This exemption was originally announced in the 2011 Ontario budget.

 

Other Measures

 

Jobs and Prosperity Fund and Trillium Advanced Manufacturing Network

 

The province announced that it will establish a new 10-year $2.5 billion Jobs and Prosperity Fund that will improve Ontario's ability to attract significant business investments, strengthen Ontario's strategic sectors and support the province's future economic growth. In particular, the province will provide $5 million over 10 years to establish the Trillium Advanced Manufacturing Network to support the growth of the manufacturing sector.

 

Paralleling federal tax measures

 

The 2014 Ontario budget notes that, under the terms of the Canada-Ontario tax collection agreement, Ontario will adopt certain measures announced in the 2014 federal budget and their effective dates once federal legislative and regulatory changes have been approved. These measures include:

 

  • Medical expenses
  • Tax changes for farmers and fishers
  • Amateur athlete trusts
  • Pension transfer limits
  • New limitations on shifting income to a minor child
  • Donations of ecologically sensitive land and certified cultural property
  • Clean energy generation equipment
  • Tax on insurance swaps and offshore regulated foreign financial institutions.

 

In addition, the 2014 federal budget proposal to exempt HST for certain health-related services and medical devices that will apply in Ontario once federal legislative changes are made.

 

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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 May 1, 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.

 

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