May 2, 2013
Today Ontario Finance Minister Charles Sousa delivered the province’s 2013 budget. The budget anticipates a deficit of $9.8 billion in 2013 and $11.7 billion in 2014.
The budget does not include any corporate or personal tax rate changes in addition to the 2013 personal tax rate changes introduced in the 2012 Ontario budget. The budget includes changes to Employer Health Tax and the Apprenticeship Tax Credit and proposes new disclosure rules for aggressive tax avoidance transactions similar to the federal rules.
Other proposals in the budget include a cost and rate reduction strategy that would reduce average auto insurance rates for consumers by 15% and road tolls for non-carpooling drivers to use certain high-occupancy highway lanes.
Highlights of tax measures in the budget are noted below.
Corporate income tax rates
The budget does not propose any changes to corporate income tax rates. As a result, Ontario’s corporate income tax rates effective January 1, 2013 remain as follows:
Corporate Income Tax Rates – As of January 1, 2013:
||Combined Federal and Ontario|
*on first $500,000 of active business income
Employer Health Tax
The budget proposes to increase the exemption for Employer Health Tax to $450,000 (from $400,000) of annual Ontario payroll, effective January 1, 2014. The exemption will be adjusted for inflation every five years. At projected rates, the budget states that the exemption is expected to rise to $500,000 in 2019.
The exemption will be eliminated for private sector employers (including groups of associated employers) with annual Ontario payrolls over $5 million, effective January 1, 2014. Registered charities would continue to claim the exemption at all payroll sizes.
Apprenticeship Training Tax Credit
The following apprenticeship trades in call centres will not be eligible for the Apprenticeship Training Tax Credit, effective for expenditures incurred after March 31, 2014:
- Information Technology – Contact Centre – Technical Support Agent (634a)
- Information Technology – Contact Centre – Inside Sales Agent (634d)
- Information Technology – Contact Centre – Customer Care Agent (634e)
The 2012 Ontario budget announced that the province would review its mining tax system. The 2013 budget says the Ontario government will work with stakeholders on this review over the next several months.
Pooled Registered Pension Plans
The budget notes that the federal government recently made the legislative changes necessary to support the introduction of pooled registered pension plans (PRPPs). Ontario will consult with interested parties to determine how PRPPs should be implemented as an optional retirement savings vehicle before introducing legislation.
Ontario will also develop a framework for single-employer, target-benefit pension plans to provide employers and employees with an additional retirement savings option.
The government proposes to update and strengthen securities laws. Proposed amendments would include changes to the Securities Act and Commodity Futures Act clarifying the procedures for the Ontario Securities Commission (OSC) to share investigative information with other regulatory and law enforcement authorities and adding new offences for attempted market manipulation and attempted fraud.
Amendments would also be introduced to the Securities Act to expand and clarify the insider trading provisions.
Changes to Ontario’s personal property security legislation would be introduced to make it easier for business and financial institutions to provide or obtain first-priority security interests in cash collateral.
The government plans to propose further changes to update the Securities Act following consultations in conjunction with the OSC.
The budget proposes a cost and rate reduction strategy that would reduce average auto insurance rates for consumers by 15%.
Youth Jobs Strategy
The budget proposes a comprehensive Youth Jobs Strategy that includes an investment of $295 million over two years. For example, a Youth Employment Fund would provide hiring incentives to employers to offer young people an entry point to long-term employment.
A Youth Entrepreneurship Fund is intended to focus on three priority areas: mentorship, seed-stage capital and high school entrepreneurship outreach.
The Ontario Youth Innovation Fund would provide post-doctoral fellows with skills and experience to lead and manage industrial research, development and commercialization efforts. The goal would be rapid commercialization of research and a boost to economic activity.
A Business-Labour Connectivity and Training Fund would support youth-focused training programs that strengthen innovation and collaboration skills and initiatives from business groups.
Personal income tax rates for 2013
Last year, Ontario’s 2012 budget introduced a new top statutory Ontario individual income tax rate on taxable income of more than $500,000 of 12.16% for 2012 (from 11.16%) and 13.16% in 2013. The high income threshold was indexed for 2013, so that it now applies to income in excess of $509,000.
As a result, the top Ontario marginal tax rates for 2013 on different types of income are as follows:
Ontario Personal Combined Top Marginal Rates for 2013
Interest and regular income
The new individual “top” Ontario tax rate of 13.16% is applied to income of inter vivos trusts and split income (i.e., the “kiddie tax”). In the case of donations however, the highest percentage that will apply to donations in excess of $200 will remain at 11.16%.
The 2013 budget does not introduce further changes to personal income tax rates.
Dividend tax credit
While the 2013 Ontario budget acknowledges that the 2013 federal budget proposed a tax increase to non-eligible dividends, the Ontario budget does not propose a change to Ontario’s dividend tax credit formula for non-eligible dividends for 2014 in response to the federal change (see TaxNewsFlash-Canada 2013-10, “2013 Federal Budget Highlights”). This results in an effective tax rate for ineligible dividends in 2014 of 34.9% (from 32.6%) for income less than $509,001 and 38.6% (from 36.5%) for income over $509,000.
Ontario Trillium Benefit
The Ontario Trillium Benefit for low to moderate income people combined several tax credits into one payment when it was introduced. Recipients of this benefit will have the choice to receive the benefit in a single payment at the end of the benefit year instead of monthly, starting in 2014.
Aggressive tax planning
The budget says Ontario will propose new disclosure rules for aggressive tax avoidance transactions similar to the rules introduced by the federal government. This new Ontario measure would require taxpayers to report aggressive tax avoidance transactions that attempt to avoid Ontario tax.
Ontario also calls on the federal government to ensure that corporations do not engage in transactions that attempt to avoid provincial tax by shifting profit or losses across provincial borders.
The budget states that Ontario will expand the use of its automated risk assessment system to identify tax accounts that pose the highest risk of tax loss to the government.
The Ontario budget notes that close collaboration between the federal government and the province is needed to tackle the underground economy. As such, Ontario and the federal government recently negotiated an agreement to enhance compliance activities to improve the integrity of the tax system. Ontario calls on the federal government to do more in this area, including releasing its strategy on the underground economy at the earliest opportunity.
Paralleling federal tax measures
The 2013 Ontario budget notes that, under the terms of the Canada-Ontario tax collection agreement, Ontario will adopt certain measures announced in the 2013 federal budget and their effective dates once federal legislative and regulatory changes have been approved. These measures include:
- Accelerated CCA for manufacturing and processing equipment
- Accelerated CCA for clean energy generation equipment
- Corporate and trust loss trading
- Character conversion transactions and leveraged life insurance arrangements
- Mining expenses
- The lifetime capital gains exemption on qualified small business shares and farming and fishing property
- Restricted farm losses
For details on these measures, see TaxNewsFlash-Canada 2013-10, “2013 Federal Budget Highlights”.
The budget proposes to convert select high-occupancy vehicle lanes in the Greater Toronto and Hamilton Area into high-occupancy toll lanes, in which carpooling drivers would continue to drive for free, but other drivers would be able to choose to drive in these lanes for a toll. Toll-free options would exist on all highways that have these toll lanes. The budget states that the province will consult with its partners and bring forward a plan by year-end.
Ontario will repeal the fuel tax exemption for biodiesel, effective April 1, 2014. The province will also consult with stakeholders on a provincial mandate for greener diesel fuels.
Businesses are required to obtain a clearance certificate under the Retail Sales Tax Act for sales to which the Bulk Sales Act applies. The 2011 budget introduced amendments allowing the government to withhold clearance certificates until tax debts under the following statutes were paid or secured: Alcohol and Gaming Regulation and Public Protection Act, 1996, Fuel Tax Act, Gasoline Tax Act, Race Tracks Tax Act and Tobacco Tax Act. These amendments were made effective until June 30, 2013. The 2013 budget proposes to repeal the sunset date for this measure.
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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 2, 2013. 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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