2012 Ontario Budget

Tax Highlights

Download the budget highlights as a PDF file.


On March 27, 2012, Ontario’s Minister of Finance, Dwight Duncan, presented the province’s 2012 budget. As expected, the budget freezes the general corporate income tax rate at 11.5%. Scheduled reductions to this rate are deferred until Ontario’s budget is balanced. Starting 2013, planned decreases to Business Education Tax rates are similarly delayed.

The budget does not change personal income tax rates. It does increase the annual deductible under the Ontario Drug Benefit for higher-income seniors. The budget also includes numerous technical amendments, many of which are intended to improve the administration of the tax system.

In addition, the government promises to review certain aspects of the taxation system relating to mining, research and development, and apprenticeship training. It also commits to continue to work with the federal government on several initiatives, including interprovincial income allocation and corporate tax avoidance.

This Tax memo discusses these and other tax measures introduced in the budget. Please contact your PricewaterhouseCoopers LLP (PwC) adviser or any of the individuals listed on our website at www.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 defers previously announced reductions to the general corporate income tax rate until Ontario returns to a balanced budget (scheduled for 2017-18). The resulting rates are shown in the following table.

 

General rate

M&P rate

Small business rate

Effective date

Before July 1, 2011

12%

10%

4.5%

July 1, 2011

11.5%1

  1. The rate had been scheduled to drop to 11% on July 1, 2012, and to 10% on July 1, 2013.

Combined corporate income tax rates

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

 

General

M&P

Canadian-controlled private corporations

Active business income

to $500,000

Investment income

2011

28.25%

26.5%

15.5%

46.41%

2012

26.50%

25%

46.17%

Business Education Tax

The budget temporarily freezes Business Education Tax (BET) reductions, beginning 2013. The government is committed to resuming BET rate reductions when Ontario returns to a balanced budget (scheduled for 2017-18).

Employer Health Tax

For Employer Health Tax (EHT) assessments issued after March 27, 2012, Ontario will strengthen its administrative practice in the determination of an employer-employee relationship. It will continue to use federal rulings to determine whether an employer-employee relationship exists, but will not necessarily be bound by these rulings for EHT purposes.

Government reviews

The budget comments that Ontario will review the following aspects of the taxation system:

  • Mining – It will work with stakeholders to ensure Ontario is fairly compensated for its non-renewable resources.
  • Research and development (R&D) – It will continue to review the effectiveness of R&D tax credits in supporting innovation and the overall framework of provincial and federal business supports. Advice will be sought on improvements to R&D tax support that would increase R&D expenditures in the province and simplify tax compliance and administration.
  • Apprenticeship training – It will review the effectiveness and efficiency of the Apprenticeship Training Tax Credit in promoting apprenticeship completions.

Personal tax measures

Top personal tax rates

Top combined federal/Ontario rates follow:

 

Ordinary income
& interest

Capital gains

Canadian dividends

Eligible

Non-eligible

2011

46.41%

23.20%

28.19%

32.57%

2012

29.54%

Ontario Drug Benefit

Currently, under the Ontario Drug Benefit program, seniors (other than lower-income seniors) pay the first $100 of their annual drug costs. Starting August 2014, the $100 deductible will increase to the following levels:

  • Single seniors with incomes over $100,000 – to $100 plus 3% of net income over $100,000.
  • Senior couples with combined incomes over $160,000 – to $200 plus 3% of the combined net income over $160,000.

This change will not affect the per prescription co-payment.

Healthy homes renovation tax credit 

The budget provides a reminder that, commencing 2012, the healthy homes renovation tax credit allows seniors (homeowners and tenants), as well as people who share a home with a senior relative, to claim a refundable tax credit on up to $10,000 of expenses (maximum annual credit is $1,500) for permanent home modifications that:

  • improve the senior’s accessibility; or
  • help a senior be more functional or mobile.

The $10,000 annual limit applies to claims by different people (e.g., couples) in respect of the same shared home in a year. For 2012, the $10,000 maximum applies to expenses paid or payable from October 1, 2011, to December 31, 2012.

Ontario Trillium Benefit

The 2011 Ontario budget introduced the Ontario Trillium Benefit (OTB), which combines the Ontario Sales Tax Credit, the Ontario Energy and Property Tax Credit, and Northern Ontario Energy Credit into one credit to be paid monthly, starting July 1, 2012. The government will look at options to allow taxpayers to choose to receive these refundable tax credits monthly or as a single payment after the year end.

Other tax measures

Pension reform

Ontario supports a modest, phased-in and fully funded enhancement to the Canada Pension Plan (CPP) and believes that the implementation of pension innovation, such as the federal Pooled Registered Pension Plans (PRPPs), should be tied to CPP enhancement.

Ontario has concerns with the federal PRPP model and will continue to work with the other provinces and the federal government to develop this model. For more information, see our Tax memos:

  • “Pooled Registered Pension Plans – Tax rules introduced”; and
  • “Pooled Registered Pension Plans: A new retirement savings vehicle,”

at www.pwc.com/ca/taxmemo.

The budget announces the government’s intention to proclaim the following provisions from the Pension Benefits Amendment Act, 2010, on July 1, 2012:

  • future partial plan wind-ups would be prohibited;
  • pension benefits would be immediately vested;
  • multi-employer pension plans and jointly sponsored pension plans would be able to elect not to provide grow-in benefits; and
  • grow-in benefits would be available to all eligible members terminated other than for cause, effective July 1, 2012.

The budget proposes to:

  • restructure the financial-hardship unlocking program to create a simpler, more streamlined process to access locked-in pension funds, by allowing applicants to request withdrawals directly from their financial institutions;
  • extend the temporary 2009 solvency relief regulations, which apply to sponsors of private-sector defined benefit pension plans; and
  • provide additional flexibility for employers when funding their pension plans.

Federal/provincial tax issues

Ontario will explore ways to protect its fiscal interest from unilateral federal changes to the common tax bases. It will also continue to work with the federal government to:

  • ensure that corporations apply losses in a manner that is fair and reasonable, and that upholds the principles underlying the interprovincial allocation of income (Ontario will work with other provinces on this initiative too);
  • ensure that the federal administration of Ontario taxes is conducted in the most efficient and effective manner;
  • strengthen the integrity and effectiveness of the tax system; and
  • combat corporate tax avoidance and underground economy activities.

Corporate tax avoidance

Ontario will consider implementing various measures used by Quebec to fight aggressive tax planning, such as arrangements that shift income or losses across international or provincial borders.

Ontario will work with the Canada Revenue Agency to see if the tax collection agreement can be used to counter inter-provincial income shifting. If required, Ontario will implement supplementary measures to address this problem.

Underground economy

Ontario will adopt measures to combat the underground economy and is exploring ways to:

  • mitigate the use of point-of-sale software designed to electronically conceal sales, including fines, penalties and progressive deterrent action for repeat offenders;
  • enhance information sharing across Ontario ministries, municipalities and with the Canada Revenue Agency;
  • help identify those who facilitate or participate in tax evasion schemes, including disclosure requirements, fines and penalties; and
  • build collaborative work among ministries.

 Jobs and Prosperity Fund

The government will consolidate many of the more than 40 existing programs spread across at least seven ministries into one Jobs and Prosperity Fund that will:

  • focus on productivity growth and job creation in the business sector;
  • target a minimum 25% reduction in administrative costs; and
  • wind down programs that no longer fit the new focus.

A newly established Jobs and Prosperity Council will advise the government on a plan to boost Ontario’s productivity, including consolidating and refocusing existing business support programs.

Tobacco tax

Amendments to the Tobacco Tax Act will be introduced to provide additional enforcement and compliance tools. In addition, Ontario is working with the federal government and other provinces to enhance tobacco enforcement.

Improving administration

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

  • Debt collection – Various tax statutes will be amended to enable Ontario to collect tax revenue more efficiently. The amendments will affect Ontario’s garnishment powers.
  • Compliance with tax obligations – New measures will require recipients of government grants and other forms of direct government assistance to be compliant with their tax obligations. Additional changes will ensure businesses are compliant with their tax obligations before bidding on projects and contracts that involve provincial funding.

Retail Sales Tax

Currently, taxpayers can apply for Retail Sales Tax (RST) refunds and rebates until the time limits for claiming them have expired or June 30, 2014, whichever is earlier. The budget shortens the deadline, requiring these applications to be made before January 1, 2013. This change does not affect the refund and rebate application periods for RST paid in respect of insurance premiums or private transfers of used vehicles.

Technical amendments

Ontario will amend its provincial statutes to:

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