Little Tax Relief

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Introduction

On March 25, 2008, Ontario’s Minister of Finance, The Honourable Dwight Duncan, presented the province’s 2008 budget. The budget does not change personal or corporate income tax rates, but does accelerate the elimination of capital tax for Ontario companies engaged primarily in manufacturing and resource activities. The budget also introduces or enhances several targeted tax incentives. For example, it introduces a 10-year income and minimum tax exemption for qualifying corporations that commercialize intellectual property, and enhances the Ontario Interactive Digital Media Tax Credit and the Ontario Innovation Tax Credit. These and other key tax measures are discussed below.

Personal Tax Measures

Personal tax rates

The budget does not change Ontario's personal tax rates. Top combined 2008 personal tax rates are outlined in the table below.

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
The budget confirms that Ontario will maintain its plan to increase its eligible dividend tax credit rate, as shown below. As a result of this increase and federal changes that are effective after 2009, the top combined federal/Ontario tax rate on eligible dividends will be revised as follows:

Tax relief for seniors

Senior Homeowners' Property Tax Grant
Commencing 2009, senior homeowners will be eligible to receive a property tax grant. The maximum grant of $250 ($500 after 2009) can be obtained by seniors who pay at least $500 in property taxes and have incomes not exceeding $35,000 for single seniors or $45,000 for senior couples. The maximum grant will be reduced proportionately when income exceeds these thresholds and will be eliminated once income reaches $50,000 for single seniors and $60,000 for senior couples.

Seniors will apply for the grant when filing their 2008 and subsequent income tax returns.

Property and Sales Tax Credits for Seniors
The budget increases the income threshold ($23,820 for 2007) at which the Ontario Property and Sales Tax Credits for senior couples are reduced. The new threshold will be announced when the federal government finalizes the Old Age Security and Guaranteed Income Supplement amounts for 2008.

Business Tax Measures

Corporate tax rates

The budget does not change Ontario's corporate income tax rates, which will remain as follows.

Capital taxes

Manufacturing and resource corporations
Capital tax will be eliminated for Ontario companies engaged primarily in manufacturing and resource activities retroactively to January 1, 2007, instead of on January 1, 2008 (as was previously scheduled), for corporations that have employees reporting to a permanent establishment in Ontario on March 25, 2008.

The elimination of capital tax is based on the corporation's salaries and wages related to manufacturing or processing (M&P), mining, logging, farming or fishing activities as a percentage of its total salary and wages in Ontario, as follows:

The government will provide this relief by issuing a refund or offsetting other corporate taxes owing.

Other corporations
The budget does not revise Ontario's capital tax rates for Ontario companies not engaged in manufacturing or resource activities. Therefore, plans to phase out Ontario's capital tax remain as follows:

Capital tax deduction
The budget does not change Ontario's capital tax deduction, which increased as shown:

Ontario Tax Exemption for Commercialization (OTEC)

The budget introduces the OTEC, a 10-year income and minimum tax exemption for qualifying corporations that commercialize intellectual property (e.g., bio-economy/clean, advanced health, telecommunications, computer and digital technologies) developed by qualifying Canadian universities, colleges or research institutes.

A qualifying corporation must be incorporated in Canada after March 24, 2008, and before March 25, 2012, and derive all or substantially all of its income from eligible commercialization activities carried on in Ontario. These activities include the development of prototypes and the marketing and manufacturing of products related to the intellectual property.

Ontario Interactive Digital Media Tax Credit (OIDMTC)

The OIDMTC is a refundable tax credit that reduces the cost of developing interactive digital media products, such as educational CD-ROMs and games, in Ontario. The budget enhances the OIDMTC by:

• increasing the rate from 20% to 25% for expenditures incurred after March 25, 2008, and before January 1, 2012:
  • by qualifying corporations with gross revenues exceeding $20 million and total assets exceeding $10 million; or
  • for fee-for-service work;
• extending the 30% rate for small corporations (annual gross revenues up to $20 million and total assets up to $10 million) for expenditures incurred after December 31, 2009, and before January 1, 2012; and
• increasing the eligibility period for eligible labour expenses from two years to three, for digital media products completed after March 25, 2008.

Ontario Innovation Tax Credit (OITC)

The budget enhances Ontario's scientific research and experimental development (SR&ED) incentives by paralleling enhancements to the federal SR&ED tax credit proposed in the 2008 federal budget. The Ontario enhancements, which will be introduced after the implementing federal legislation is enacted, increase the thresholds used to determine the OITC for taxation years ending after February 25, 2008, as follows:

Phase-in rules will apply and will parallel the federal amendments.

Corporate tax harmonization

The budget provides a reminder that, commencing taxation years ending after December 31, 2008, the Canada Revenue Agency (CRA) will administer Ontario's corporate income tax, capital tax, Corporate Minimum Tax (CMT) and Special Additional Tax on life insurers. The CRA has started to collect Ontario corporate income tax instalments for taxation years ending in 2009.

Furthermore, starting April 3, 2008, federal and Ontario audits, rulings, objections and appeals for all pre-2009 taxation years will be integrated.

Corporate tax instalments
For taxation years ending after 2008, Ontario will adopt federal corporate tax instalment rules. These rules:

• permit small Canadian-controlled private corporations to remit instalments quarterly; and
• exempt corporations paying up to $3,000 federal tax in the current or previous year from the requirement to make instalments.

Business Education Taxes (BET)

The 2007 budget reduced BET by introducing a target maximum BET rate of 1.6% to be phased in by 2014. The 2008 budget accelerates the full BET reduction for northern Ontario businesses to 2010, as follows:

Retail Sales Tax (RST) Measures

RST exemptions

The budget extends the following temporary exemptions:

• Destination marketing fees — extended to fees billed before July 1, 2010.
• Admissions to live theatres of not more than 3,200 seats — made permanent, effective April 1, 2008.
• Qualifying new ENERGY STAR household appliances and light bulbs — extended to:
  • appliances purchased, rented or leased before September 1, 2009, that are delivered before October 1, 2009; and
  • light bulbs purchased before September 1, 2009.
• Bicycles and related safety equipment — extended to purchases made before January 1, 2011.
• Nicotine replacement therapies — made permanent and, for purchases made after March 25, 2008, the qualifying therapies are broadened.

Newspapers

As announced in December 2007, publications with smaller circulation or less frequent publishing schedules will qualify for the RST exemption for newspapers. This change will be retroactive to January 1, 2000.

Containers

In response to the decision in Procter & Gamble v. The Minister of Finance (Ontario), effective May 7, 1997, amendments will confirm that RST is exigible on:

• purchases of containers and other packaging, storing and shipping items intended to be returned for reuse in the packaging, storing and shipping of goods; and
• containers and other items provided as a promotional distribution.

Other Tax Measures

Property assessment increases

The 2007 budget introduced a four-year property reassessment cycle and a mandatory phase-in of assessment increases for residential properties. The 2008 budget expands the mandatory phase-in to all property classes, including commercial, industrial and multi-residential.

Transfers from family farm corporations

A land transfer tax exemption will be provided to transfers of farmland from family farm corporations to individual family members made after March 25, 2008.

Tobacco tax

To strengthen its tobacco-related enforcement activities, Ontario will broaden registration requirements and provide additional penalties.

Long-term care homes

Ontario will review the property tax treatment of long-term care homes that were established under the Charitable Institutions Act to clarify and maintain eligibility for the tax exemption that has been provided to these facilities.

Succession duties

Succession duties were eliminated in 1979. Legislation will be repealed or amended to complete the process of bringing these duties to an end.

Technical amendments

Ontario will amend its provincial statutes to improve effectiveness and enforcement, as well as to enhance legislative clarity and flexibility.

Federal harmonization

The budget states that Ontario will automatically adopt several 2008 federal budget measures, once the relevant federal legislative and regulatory changes are enacted. Measures that will be paralleled include:

• adoption of the Tax-Free Savings Account;
• capital cost allowance enhancements;
• changes affecting:
  • charitable donations; and
  • the excess corporate holdings regime for private foundations; and
• changes to the Registered Education Savings Plan program.

See Tax Memo: 2008 Federal Budget — Treading Softly in Old Shoes for more information.