2013 Ontario Budget

Tax Highlights

Download the budget highlights as a PDF file.


On May 2, 2013, Ontario’s Minister of Finance, Charles Sousa, presented the province’s 2013 budget. The budget does not change corporate or personal income tax rates.

This Tax memo discusses the tax measures introduced in the budget. For more information on how the budget will affect you or your corporation, please contact:

  • your PricewaterhouseCoopers LLP (PwC) advisor; or
  • any of the individuals listed on our website at www.pwc.com/ca/taxcontacts.

Business tax measures

Corporate income tax rates

The budget does not change corporate income tax rates, which will remain as follows:

 

General

M&P

Small business

Rate

11.5%1

10%

4.5%

  1. The rate was to decline to 11% on July 1, 2012, and to 10% on July 1, 2013, but these reductions were rescinded until Ontario’s budget is balanced (scheduled for 2017-2018).

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

2012

26.5%

25%

15.5%

46.17%

2013

2014


Employer Health Tax

Starting January 1, 2014, Ontario’s Employer Health Tax (EHT) exemption will increase from $400,000 to $450,000 (to be indexed every five years thereafter; expected to be $500,000 in 2019). This change will reduce the annual EHT by up to $975. The exemption will continue to apply to the payroll of groups of associated employers.

However, beginning January 1, 2014, the exemption will be eliminated for private-sector employers (including groups of associated employers) with annual Ontario payrolls over $5 million. Registered charities will continue to claim the exemption at all payroll sizes. As a result, large employers will pay $7,800 more in EHT annually than currently.

Apprenticeship Training Tax Credit

For expenditures incurred after March 31, 2014, the following apprenticeship trades in “Information Technology – Contract Centre” will no longer be eligible for the Apprenticeship Training Tax Credit:

  • Technical Support Agent (634a);
  • Inside Sales Agent (634d); and
  • Customer Care Agent (634e).

Renewable fuels and biodiesel exemption

Ontario proposes to update its green transportation-fuels policies by:

  • repealing the fuel tax exemption for biodiesel, effective April 1, 2014; and
  • consulting with stakeholders on a provincial mandate for greener diesel fuels, including with respect to the amount of renewable fuel content and greenhouse gas requirements.

Mining tax system review

Ontario’s 2012 budget announced the government would conduct a review to determine whether Ontario is compensated fairly for its renewable resources. The 2013 budget states that the government will work “with stakeholders over the next several months to ensure that the Province is supporting the exploration and production of minerals while receiving a fair return on its resources.”

Personal tax measures

Top personal tax rates

Top combined federal/Ontario rates follow:

 

Ordinary income
& interest

Capital gains

Canadian dividends

Eligible

Non-eligible

20111

46.41%

23.20%

28.19%

32.57%

20121

47.97%

23.98%

31.69%

34.52%

20131

49.53%

24.76%

33.85%

36.47%

20141

38.60%2

  1. While the 2011 rates apply to taxable incomes above $128,800, the 2012 and 2013 rates apply to taxable incomes above $500,000 and $509,000, respectively. The $509,000 threshold will be further indexed for 2014.
  2. Federal tax changes revise the top marginal rate as shown (and decrease Ontario’s non-eligible dividend tax credit rate on grossed-up dividends from 4.5% to 3.72% in 2014).

Ontario Trillium Benefit

Commencing 2014, recipients of the Ontario Trillium Benefit can choose to receive the benefit monthly or as a single payment at the end of the benefit year. The Ontario Trillium Benefit includes the Ontario Sales Tax Credit, the Ontario Energy and Property Tax Credit and the Northern Ontario Energy Credit.

Other tax measures

Tax avoidance

The budget proposes to combat tax avoidance in several ways:

  • Closing loopholes – Ontario and the federal government have negotiated a new agreement for enhanced compliance activities focused on aggressive international tax planning. In addition, Ontario will introduced new disclosure rules for aggressive tax avoidance transactions, similar to the federal measures in Bill C-48. Ontario will continue to work with the federal government to strengthen the integrity of the tax system. In particular, it wants transactions that avoid provincial tax by shifting profit or losses across provinces to be targeted.
  • Underground economy – Ontario calls on the federal government to do more to combat the underground economy, including releasing its strategy as early as possible.
  • Enhancing audit – Ontario’s will expand the use of its automated risk assessment system to identify tax accounts that pose the highest risk of tax loss.
  • Retail Sales Tax Act clearance certificates – As a result of a 2011 budget measure, the Minister can withhold issuing clearance certificates 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). The June 30, 2013, sunset date for this measure is repealed.
  • Tobacco tax – To reduce illegal tobacco, Ontario recently introduced several compliance activities and is considering others, including amending the Tobacco Tax Act.

Pension reform

Ontario continues to update its employment pension framework, address the challenges facing many pension plans and improve the affordability and sustainability of plans in the public sector.

Ontario is developing regulations to streamline the financial-hardship unlocking process for Ontario-regulated locked-in accounts and implement the “split pension” provisions. In addition, Ontario intends to:

  • review the  Ontario  Court of Appeal ruling on spousal entitlements in Carrigan v. Carrigan Estate;
  • allow employer-sponsored, single-employer pension plans to transfer assets to, or be converted to, jointly sponsored pension plans;
  • implement a new “funding concerns” test that would determine when plans that are not obliged to satisfy solvency funding requirements are required to file annual valuations;
  • implement a framework for contribution holidays that specifies eligibility conditions and ensures affected pension parties are appropriately informed;
  • update regulatory requirements to reflect appropriate changes to standards  issued by professional bodies; and
  • prescribe rules for plan documents and statements for former and retired members.

The government will also establish a technical working group to advise on the design and governance of a new pooled asset management entity.

Pooled registered pension plans (PRPPs)

Ontario will introduce legislation to implement PRPPs after consulting with interested parties.

Target pension plans

Ontario will implement regulatory changes related to target benefits in eligible multi-employer pension plans. A framework will be developed for single-employer, target-benefit plans, including funding rules, plan governance and the timing of necessary benefit reductions.

Federal harmonization

Measures in the 2013 federal budget that Ontario will automatically adopt, once the relevant federal legislative changes are enacted, include changes affecting:

  • capital cost allowance;
  • the dividend tax credit on non-eligible dividends;
  • the lifetime capital gains exemption;
  • restricted farm losses;
  • the deduction for safety deposit boxes;
  • corporate and trust loss trading;
  • mining expenses;
  • character conversion transactions; and
  • leveraged life insurance arrangements.

See our Tax memo2013 Federal budget: Staying the course” for more information.

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.