2010 Ontario Budget

Not Much New

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Introduction

On Thursday, March 25, 2010, Ontario’s Minister of Finance, Dwight Duncan, presented the province’s 2010 budget. The budget does not change personal income tax rates or previously announced corporate income tax rate reductions. It confirms that a federally administered harmonized sales tax will replace the retail sales tax on July 1, 2010, and provides additional rules to ease the transition. Few other tax measures are included.

For more information on how the budget will affect you or your corporation, please contact your PricewaterhouseCoopers adviser or any of the individuals listed here pwc.com/ca/taxcontacts.

Business Tax Measures | Personal Tax Measures | Ontario Sales Tax Harmonization | Other Tax Measures

 

Business Tax Measures

Corporate income tax rates

The budget does not revise corporate income tax rates. Previously announced decreases to these rates follow.

Combined corporate income tax rates

The following combined federal/Ontario rates apply to December 31 year ends:

Capital taxes

The budget does not revise capital tax rates. Capital tax:

  • was eliminated on January 1, 2007, for certain manufacturing and resource corporations; and
  • will be eliminated on July 1, 2010, for other corporations.

Corporate group taxation

The 2010 federal budget announced that the federal government will explore whether the tax system could be improved by new rules for the taxation of corporate groups, such as the introduction of a formal system of loss transfers or consolidated reporting.

Ontario will work with the federal government to explore these options and how they will affect provincial tax and interprovincial income allocation. In particular, the province wants to ensure that tax losses are used by a corporation in the province where the loss occurs.

 

Personal Tax Measures

Personal income tax rates

Top 2010 personal tax rates

The budget does not change personal tax rates. Top combined 2010 personal tax rates are outlined in the following table.

The table below shows the combined federal and Ontario income tax payable at various income levels and the additional tax due to the health premium.

Dividend tax rates

As a result of previously announced changes, top personal tax rates on dividends will increase as follows:

Personal tax credits

The budget introduces the following personal tax credits:

  • Ontario Energy and Property Tax Credit – The Ontario Property Tax Credit is converted into the Ontario Energy and Property Tax Credit, effective 2010. The credit will be paid quarterly, except for 2010, when it will be paid in 2011 (after 2010 tax returns have been filed). Details are forthcoming.
  • Northern Ontario Energy Credit – Starting in 2010, northern Ontario residents who pay rent or property tax for their principal residence will be eligible for a new refundable tax credit, the Northern Ontario Energy Credit. For 2010, the credit will be paid in the fall of 2010 and early 2011. Subsequently, it will be paid quarterly. The details follow.

 

Ontario Sales Tax Harmonization

As previously announced, commencing July 1, 2010, Ontario’s Retail Sales Tax (RST) will be converted to a value-added tax. It will be combined with the federal Goods and Services Tax (GST) to create a federally administered harmonized sales tax (HST). The HST will have a combined rate of 13%. For more on the transitional measures and insights on the effect of harmonization, visit pwc.com/ca/harmonization.

The budget proposes the following measures to ease the transition to the HST:

  • Shortened RST collection period – Compensation of up to $375 will be extended to RST vendors for the April 1, 2010, to June 30, 2010, shortened collection period.
  • Small businesses – Ontario will be able to prescribe the 12-month period for calculating the $2 million taxable sales threshold for purposes of the small business transition assistance.
  • RST refunds – Vendors will be permitted to provide RST refunds to purchasers after October 31, 2010, other than for returned goods. Purchasers can claim a refund directly from the Ontario Ministry of Revenue for goods that are purchased before July 1, 2010, but are returned to the vendor after October 31, 2010.
  • Both RST and HST paid – An RST rebate will be provided to purchasers that pay both RST and HST on goods and services acquired after June 30, 2010.
  • Multi-jurisdictional vehicles – Multi-jurisdictional vehicles will no longer be subject to RST when they cease to be registered under the International Registration Plan after June 30, 2010.
  • Gifts of used vehicles – The exemption for gifts of used vehicles between siblings will be available effective July 1, 2010.
 

Other Tax Measures

Retail sales tax on insurance

Certain types of insurance will remain taxable under the Retail Sales Tax Act after June 30, 2010. The budget proposals address this.

Vendor compensation

Vendors of taxable insurance will continue to be eligible for vendor compensation of up to $1,500 annually. For the transitional year of April 1, 2010, to March 31, 2011, vendor compensation will be:

  • April 1, 2010 to June 30, 2010 – up to $375; and
  • July 1, 2010 to March 31, 2011 – up to $1,125.

Avoiding double taxation

To ensure that certain costs and fees, such as administration fees for benefit plans, will not be subject to both HST and RST, an RST exemption will be provided.

Pension reform

Working with the federal and the other provincial governments, Ontario is reviewing the current retirement income system. The focus is on sustainability and options to strengthen the pension system for future pensioners. The budget confirms the province’s intention to:

  • implement its previously announced initiatives, including its December 2009 reforms;
  • consult on regulations relating to pension division on marriage breakdown; and
  • finalize an agreement with other Canadian jurisdictions for the regulation and administration of multi-jurisdictional pension plans.

Land transfers by charities

Certain transfers of land by registered charities after March 25, 2010, will be exempt from the province’s land transfer tax. Transfers of land from trustees to a non-share capital corporation, or from one non-share capital corporation to another, will be exempt if:

  • the transferee will continue the same charitable purpose for the same members as the transferor; and
  • no consideration is paid, other than the assumption of any existing liabilities registered on the land.

 It is uncertain whether Toronto will mirror this change in its land transfer tax.

Tobacco tax

Tobacco retailers that do not hold a vendor’s permit on June 30, 2010, must obtain a retail dealer’s permit under the Tobacco Tax Act. They will no longer be able to obtain a vendor’s permit under the Retail Sales Tax Act.

Technical amendments

Ontario will amend its provincial statutes to:

  • improve effectiveness and enforcement;
  • enhance legislative clarity and flexibility; and
  • preserve policy intent.

Federal harmonization

Measures in the 2010 federal budget that Ontario will automatically adopt, once the relevant federal legislative and regulatory changes are enacted, include changes affecting:

  • the tax treatment of employee stock option benefits;
  • capital cost allowance; and
  • the disbursement quota for charities.
Read our Tax Memo — 2010 Federal Budget: Focus on Fairness for more information.

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