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ONTARIO BUDGET

COMMENTARY

FEBRUARY 25, 2016

This analysis is of a general nature and is based on the Ontario Budget and other documents included with the Ontario Budget package and is presented only for the general information of our clients and staff. The proposals when enacted may vary substantially from the summary described herein. The reader is advised to refer to the amending legislation upon enactment. Specific professional advice should be obtained before taking action based upon the information provided in this commentary.


FEBRUARY 25, 2016 ONTARIO BUDGET COMMENTARY
INDEX

1.0 INTRODUCTION

2.0 PERSONAL TAXATION

2.1 Personal Income Tax Rates
2.2 Tuition and Education Tax Credit
2.3 Children?s Activity Tax Credit
2.4 Healthy Homes Renovation Tax Credit
2.5 Tax on Split Income
2.6 Simplification of Personal Income Tax

3.0 BUSINESSES TAXATION

3.1 Corporate Income Tax Rates
3.2 Research and Development Tax Credits (ORDTC)
3.3 Apprenticeship Training Tax Credit (ATTC)
3.4 Workplace Safety Insurance Premiums

4.0 OTHER MEASURES

4.1 Tobacco Tax
4.2 Alcohol Charges
4.3 Underground Economy
4.4 Tackling Climate Change
4.5 Ontario Retirement Pension Plan
4.6 Property Tax Measures
4.7 User Fees

1.0   INTRODUCTIONtop.gif (291 bytes)Top

    On February 25, 2016 Finance Minister Charles Sousa tabled his fourth Budget.

    The deficit for the 2015-2016 fiscal year is projected to be $5.7 billion, which is $2.8 billion less than had been forecasted in the 2015 Budget. The deficit is projected to drop to $4.3 billion for 2016-2017 and to be eliminated by 2017-2018. Furthermore, the government is also projecting a balanced budget in 2018-2019.

    The Budget does not include any changes to Ontario?s personal tax rates but certain personal tax credits are being eliminated. In addition, changes to the so-called ?sin taxes? are proposed. From a business prospective, although there are no changes to corporate tax rates, there are proposed reductions to certain credits.

    The Budget plan is as follows (billions of dollars):

    BUDGETARY REVENUES
    Actual
    2013-2014
    Actual
    2014-2015
    Interim
    2015-2016
    Budget Plan
    2016-2017
    Personal income tax $ 26.9 $ 29.3 $ 30.3 $ 32.2
    Retail sales tax 20.5 21.7 23.5 24.0
    Corporations tax 11.4 9.6 11.4 12.0
    Employer health tax 5.5 5.6 5.7 5.8
    Education property tax 5.5 5.6 5.7 6.0
    Ontario Health Premiums 3.1 3.4 3.5 3.6
    Gasoline and fuel tax 3.1 3.2 3.2 3.3
    Other taxes 4.2 4.1 7.5 4.9
    80.0 82.3 90.8 91.8
    Payments from the Federal Government 22.3 21.7 22.9 24.7
    Other non-tax revenues 8.3 9.0 8.6 9.1
    Income from government enterprises 5.3 5.6 4.3 5.0
    Total Budgetary Revenues 115.9 118.6 126.6 130.6
    BUDGETARY EXPENDITURES
    Health and long-term care 48.9 50.0 50.8 51.8
    Education, training colleges and universities 31.2 32.3 32.6 33.5
    Community and social services 10.0 10.6 11.3 11.5
    Community safety and security 2.4 2.5 2.5 2.7
    Children and Youth Services 4.0 4.2 4.3 4.3
    Other Ministries Program spending 19.3 18.7 19.4 18.3
    Total Budgetary Expenditures 115.8 118.2 120.9 122.1
    OPERATING SURPLUS .1 .4 5.7 8.5
    PUBLIC DEBT INTEREST (10.6) (10.7) (11.2) (11.8)

    ANNUAL BUDGETARY OPERATING
    SURPLUS (DEFICIT) BEFORE RESERVE

    (10.5) (10.3) (5.5) (3.3)
    RESERVE - - (.2) (1.0)
    ANNUAL BUDGETARY DEFICIT $(10.5) $(10.3) $(5.7) $(4.3)
    TOTAL ONTARIO PUBLIC DEBT $267.2 $284.6 $296.1 $308.3
    GROSS DOMESTIC PRODUCT (GDP) $693.2 $722.0 $748.2 $778.4
    Net Ont. Public Debt as a % of Ont. GDP 38.5% 39.4% 39.6% 39.6%
    Net debt per capita (Dollars) $19,717 $20,806 $21,470 $22,103
    Population of Ontario (in thousands) 13.6 13.7 13.8 13.9

2.0   PERSONAL TAXATION top.gif (291 bytes)Top

    2.1   Personal Income Tax Rates top.gif (291 bytes)Top

      While this Budget does not propose any changes to personal income tax rates, federal personal rates were changed effective January 1, 2016. The resulting top marginal rates where income is over $220,000 are as follows:

      Type of Income20152016

      Salary and other income53.53% 49.53%
      Capital gains26.76% 24.76%
      Eligible dividends39.34% 33.82%
      Non-eligible dividends45.30% 40.13%

    2.2   Tuition and Education Tax Credits top.gif (291 bytes)Top

      The Budget proposes a radical restructuring of post-secondary education funding. The changes are intended to target increased support for students from lower income families.

      Ontario Tuition and Education Credits (?TEC?) are being eliminated effective fall 2017. Tuition for studies after September 4, 2017 will not be eligible for the credit. In addition, months of study after August 2017 will not be eligible. Where the student is resident in Ontario at December 31, 2017, any carry forward TEC will continue to carry forward and can be claimed in the future. If the student becomes an Ontario resident after 2017, any tuition and education amounts carry forward from another province cannot be claimed.

      The TEC, as well as the 30% Off Tuition Grant, Ontario Access Grants and other grants, will be replaced by the Ontario Student Grant (?OSG?) starting with the 2017-18 school year. Where family income is $50,000 or less the OSG should exceed average tuition. No student will receive less than that to which they are currently entitled.

    2.3   Children's Activity Tax Credit top.gif (291 bytes)Top

      The Children?s Activity Credit (?CATC) is a refundable credit designed to assist parents with the cost of enrolling children in various extracurricular activities. The CATC is to be eliminated effective January 1, 2017, as it largely benefits higher income families.

    2.4   Healthy Homes Renovation Tax Credit top.gif (291 bytes)Top

      The Healthy Homes Renovation Tax Credit (?HHRTC?) is intended to assist with home renovations that improve safety and/or accessibility of the home for seniors. The HHRTC is 15% of up to $10,000 of eligible expenditures. Since there has been little ?take up? on the HHRTC, it is to be eliminated January 1, 2017.

    2.5   Tax on Split Income top.gif (291 bytes)Top

      The Budget proposes that, effective January 1, 2016, Ontario will parallel the federal taxation of income split with related minors, commonly referred to as ?Kiddie Tax?. Split income will be taxed at Ontario?s top marginal rate, with no surtax applying.

    2.6   Simplification of Personal Income Tax top.gif (291 bytes)Top

      The Budget indicates that the government is planning to examine ways to simplify the personal tax calculation.


3.0   BUSINESSES TAXATION top.gif (291 bytes)Top

    3.1   Corporate Income Tax Ratestop.gif (291 bytes)Top

      The Budget proposes no changes to corporate income tax rates, which are as follows for 2016:

      IncomeOntarioFederalCombined

      Small Business income4.5%10.5%15.0%
      CCPC investment income11.5% 38.67%50.17%
      Manufacturing and Processing income10.0% 15.0%25.0%
      General income11.5% 15.0%26.5%

    3.2   Research and Development Tax Creditstop.gif (291 bytes)Top

      The Budget proposes reductions to research and development tax credits.

      The Ontario Research and Development Tax Credit (?ORDTC?) is a 4.5% non-refundable credit. The ORDTC rate is to be reduced to 3.5% of eligible expenditures effective June 1, 2016.

      The Ontario Innovation Tax Credit (?OITC?) is a 10% refundable credit for small to medium companies. The rate is to be reduced to 8% of eligible expenditures effective June 1, 2016.

      Where the taxation year straddles June 1, 2016 the rate will be pro-rated for both the ORDTC and the OITC.

    3.3   Apprenticeship Training Tax Credittop.gif (291 bytes)Top

      As announced in the 2015 Budget, the Apprenticeship Training Tax Credit (?ATTC?) is being reviewed to ensure that it meets its objectives. Budget 2016 confirms that the ATTC review is continuing along with other reviews of initiatives in support of apprenticeships.

    3.4   Workplace Safety Insurance Premiumstop.gif (291 bytes)Top

      As a consequence of steps taken in respect of cost reductions and improving the financial condition of the Workplace Safety and Insurance Board (?WSIB?), the Budget projects a significant reduction in WSIB premiums, starting in 2017.


    4.0 OTHER MEASUREStop.gif (291 bytes)Top

      4.1   Tobacco Tax top.gif (291 bytes)Top

        Effective 12:01 a.m. February 26, 2016, the tobacco tax is being increased from 13.975 cents to 15.475 cents per cigarette and gram of tobacco products other than cigars. The Budget proposes to inflation index the tobacco tax annually after 2016.

      4.2   Alcohol Chargestop.gif (291 bytes)Top

        The Budget proposes the following changes in respect of alcohol charges:

        • Increase in the ad valorem wine mark-up by the LCBO by two percentage points effective June 2016 with further increases of two percentage points in each of April 2017 and 2018 and one percentage point in April 2019;
        • Increase in the basic tax on non-Ontario wine purchased at winery retail stores by one percentage point in each of June 2016, April 2017, April 2018 and April 2019;
        • Increase in the minimum retail price for table wine to $7.95 per 750 ml bottle, including deposit, phased in over three years;
        • Phase-in of minimum retail prices for cider, fortified wine and low-alcohol wine over three years;
        • Establishment of higher basic wine tax rates for sales at winery retail outlets in grocery stores; and
        • Replacement of the current mark-up and commission structure with a tax on purchases at on-site distillery retail stores.

      4.3   Underground Economy top.gif (291 bytes)Top

        The Budget indicates that the government is continuing to focus on underground economy activities in all high-risk sectors. It will work with the Canada Revenue Agency in launching specialized audit teams. It will also propose legislation to enhance enforcement capabilities.

      4.4   Tackling Climate Change top.gif (291 bytes)Top

        The Budget indicates that Ontario intends to move forward with a cap-and-trade system in respect of carbon pricing, effective January 1, 2017. The program will place a cap on greenhouse gas emissions, create tradable emissions allowances for a given period and require covered emitters to hold allowances equal to their emissions in that period. Those who reduce their emissions will be able to sell their excess allowances in the carbon market. As a result of this program, it is projected that the price of gas at the pump will increase by 4.3 cents per litre, average household natural gas costs will rise by $5 per month and residential electricity costs decrease by $2 per month.

      4.5   Ontario Retirement Pension Plan top.gif (291 bytes)Top

        Legislation to implement the Ontario Retirement Pension Plan will be introduced in spring 2016. The employer verification and enrolment process will start in 2017, with employer and employee contributions beginning in 2018.

      4.6   Property Tax Measures top.gif (291 bytes)Top

        The Budget confirms the continued review of the property tax assessment system including the Business Property Tax Capping Program, the Vacant Unit Rebate and Vacant/Excess Land Subclasses. Ontario will also continue consultations on the Provincial Land Tax which applies to land outside municipal areas in Northern Ontario.

      4.7   User Fees top.gif (291 bytes)Top

        As of January 2016, hospitals have been directed not to raise their daily parking rates for the next three years. The Budget introduces additional measures effective October 1, 2016 that will reduce parking costs for frequent hospital users.

        Ontario has revised its fee schedule for court services and will continue to update licensing and vehicle validation fees. The government will eliminate certain fees related to adoptions and the Drive Clean emissions test. Other fees will be reviewed for potential elimination or updating.




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