2011 Ontario Budget

Tax Highlights

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On Tuesday, March 29, 2011, Ontario’s Minister of Finance, Dwight Duncan, presented the province’s 2011 budget. The budget does not change personal income tax rates, the previously announced corporate income tax rate reductions or Harmonized Sales Tax rates. It does include numerous technical amendments, many of which are intended to improve the administration of the tax system, although few details are provided.

Please contact your PwC adviser or any of the individuals listed on pwc.com/ca/taxcontacts for more information on how the budget will affect you or your corporation.

Business Tax Measures | Personal Tax Measures | Other Tax Measures

Business Tax Measures

Corporate income tax rates

The budget does not revise corporate income tax rates. The following table shows previously announced decreases.

Combined corporate income tax rates

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

Ontario Book Publishing Tax Credit

The Ontario Book Publishing Tax Credit is a 30% refundable tax credit available to Ontario book publishing corporations for qualifying expenditures related to publishing and promoting a book by a Canadian author. For expenditures incurred after March 29, 2011, the period for qualifying marketing expenditures will start one year before and end one year after the date of publication. This replaces a 12-month period.

Functional currency – Mining

For taxation years beginning after December 31, 2010, mine operators in Ontario that calculate their Canadian tax results using a functional currency other than the Canadian dollar under the Canadian Income Tax Act (the Act) can elect under the Ontario Mining Tax Act to file their Ontario mining tax returns in that functional currency. The election applies until the mine operator revokes its functional currency election under the Act or otherwise ceases to meet the conditions under the functional currency rules in the Act or the rules to be included in the Ontario Mining Tax Act.

These amendments will be of significant benefit to Ontario mine operators because they will no longer have to prepare a separate set of Canadian-dollar financial statements solely for the purpose of filing the Ontario mining tax return.

Research and development

The federal government is reviewing its support for business innovation, including both direct support of research and development (R&D) and the scientific research and experimental development (SR&ED) tax program. Ontario will work with the federal government to improve the effectiveness of federal R&D tax support by strengthening administration, enhancing collaboration between the business and education sectors, and making the system fairer for small businesses that perform R&D.

Taxation of corporate groups

In November 2010, the federal government released a consultation paper on whether a formal system for the taxation of corporate groups should be implemented in Canada. See our Tax Memo “Taxation of Corporate Groups—Consultation Paper Released” at www.pwc.com/ca/taxmemo.

Ontario supports this initiative provided it increases the competitiveness of Canada’s corporate tax system and ensures that the provinces receive the revenues to which they are entitled.

Personal Tax Measures

Personal income tax rates

Top 2011 personal tax rates

The budget does not change personal tax rates. Top combined 2011 personal tax rates follow.

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:

Children’s Activity Tax Credit

The budget provides a reminder that, commencing 2010, the Children’s Activity Tax Credit allows parents to claim a refundable tax credit of up to $50 for each child under 16 who is enrolled in a physical activity or other qualifying program. An additional $50 credit is available for children under 18 who qualify for the disability tax credit.

Low-income assistance

Two measures will assist individuals with low incomes:

  • Starting July 1, 2012, the Ontario Sales Tax Credit, the Ontario Energy and Property Tax Credit and the Northern Ontario Energy Credit will be combined and paid monthly. The combined payment will be referred to as the Ontario Trillium Benefit.
  • The Ontario Child Care Supplement for Working Families (OCCS) and Ontario Child Benefit (OCB) will be combined and paid per child. If a family’s OCCS entitlement with respect to a child exceeds its OCB for that child, the family will receive the extra OCCS payment.

Other Tax Measures

Pension reform

Ontario will continue to work with the federal, provincial and territorial governments to expand coverage, promote innovation and enhance retirement savings opportunities. As stated in its October 2010 discussion paper, Ontario is committed to strengthen the retirement system with:

  • a modest, phased-in and fully funded expansion to the Canada Pension Plan; and
  • the creation of innovative pension options, such as Pooled Registered Pension Plans.

The budget confirms the province’s intention to:

  • review the administration of unlocking locked-in accounts for those facing financial hardship;
  • provide a permanent solvency funding exemption for certain jointly sponsored and multi-employer pension plans;
  • implement proposed regulations for pension division on marriage breakdown;
  • sign an agreement with other Canadian jurisdictions for the regulation of multi-jurisdictional pension plans; and
  • mitigate risk and enhance the sustainability of the Pension Benefits Guarantee Fund.

Improving administration

The budget announced the following measures to improve the administration of the tax system:

  • Tax Collection Agreement (TCA) – During its review of the TCA in 2011, Ontario will work with the federal government to ensure consistency with current needs, best practices, new technology and changes in the federal/provincial partnership.
  • Estate Administration Tax – To enhance compliance, the administration of this tax will be integrated with audit and verification functions at the Ministry of Revenue, starting January 1, 2013.
  • Garnishment – Ontario will continue to ensure that debts to family dependants and to the Crown are collected efficiently and effectively.
  • Retail Sales Tax Act (RSTA) – The Minister will be allowed to withhold issuing clearance certificates required for sales under the Bulk Sales Act, until tax debts are paid or secured under specified statutes (e.g., Gasoline Tax Act, Fuel Tax Act, Tobacco Tax Act). This amendment to the RSTA will apply to bulk sales completed after June 30, 2011, except for those under written agreements entered into before March 30, 2011.
  • Amendments to various provincial tax statutes will:
    • allow the province to recover reasonable third-party costs incurred in the course of collections;
    • extend the garnishment period for monies to be lent or advanced from 90 days to 365 days;
    • standardize provisions concerning director liability and issuing warrants;
    • set out deeming rules for the receipt of notices of demand and requirement sent by registered mail; and
    • allow an appeal to be dismissed and a notice of appeal to be struck down in certain instances.

Promotional wine and beer

Retroactive to July 1, 2010, exemption from beer and wine taxes will be provided for up to 10,000 litres of wine, wine coolers or beer distributed annually without charge by Ontario manufacturers. The exemption will be pro-rated based on the manufacturers’ sales year. Beer distributed without charge will be ineligible for the small beer manufacturers’ tax credit.

Technical amendments

Ontario will amend its provincial statutes to:

  • improve effectiveness and enforcement;
  • maintain integrity and equity of its tax and revenue collection system; and
  • enhance legislative clarity and flexibility to preserve policy intent.