Tax Insights: 2018 Ontario fall economic statement ─ Tax highlights

November 15, 2018

Issue 2018-43

In brief

On November 15, 2018, Ontario’s Minister of Finance, Victor Fedeli, presented the 2018 Ontario Economic Outlook and Fiscal Review (economic statement). The economic statement:

  • confirms that several measures introduced in the previous government’s March 28, 2018 Ontario budget will not be implemented – the measures in that budget were never enacted, because of the June 8, 2018 election
  • addresses US tax reform
  • announces that the Employer Health Tax exemption will increase to $490,000
  • introduces a non-refundable tax credit for low-income individuals and families

This Tax Insights discusses these and other tax initiatives outlined in the economic statement

In detail

Business tax measures 

Corporate income tax rates

Ontario’s corporate income tax rates will remain as shown in the tables below. The tables also show combined federal/Ontario corporate tax rates.

General and M&P income tax rates Ontario Federal + Ontario
  2017-2019
General income 11.5% 26.5%
M&P income 10% 25%
Small business income tax rates Ontario Federal + Ontario
Taxation year ending December 31, 2017 4.5% 15%
December 31, 2018

 

3.5%

13.5%1
December 31, 2019 12.5%1

1. The combined rates reflect the decline in the federal small business tax rate from 10.5% to 10% on January 1, 2018, and to 9% on January 1, 2019.

Passive investment income and the small business deduction (SBD) limit

Ontario will not parallel the 2018 federal budget measure that phases out the $500,000 SBD limit for Canadian-controlled private corporations (CCPCs) that earn between $50,000 and $150,000 of passive investment income in a taxation year, for taxation years beginning after 2018. By not paralleling the federal measure, a CCPC could continue to save up to $40,000 in Ontario tax annually.

US tax reform

To address the recent US tax reform, Ontario has written to the federal government to encourage initiatives that will help maintain Canada’s, as well as the province’s, tax competitiveness for business investment. The economic statement indicates that if the federal government introduces a measure that accelerates the expensing of new depreciable assets, Ontario will parallel this measure.

Research and development (R&D)

Ontario will not implement the enhancements to the Ontario Innovation Tax Credit and the Ontario Research and Development Tax Credit that had been proposed in the March 28, 2018 Ontario budget. The economic statement indicates that the government will review its tax support for R&D activity and ensure that it will be effective and efficient.

Film and television tax credits

The economic statement states that Ontario is committed to maintaining the existing Ontario film and television tax credits.

Employer Health Tax (EHT) exemption

The economic statement announces that the EHT exemption will increase, as a result of indexation, from $450,000 to $490,000 on January 1, 2019, thereby reducing the EHT payable for an eligible private-sector employer by up to $780 annually.

In addition, Ontario will not implement measures proposed in the March 28, 2018 Ontario budget that would have restricted access to the EHT exemption, as follows:

  • have the EHT exemption follow the eligibility criteria for the federal SBD
  • incorporate federal anti‐avoidance rules related to the multiplication of the SBD into the Employer Health Tax Act

Personal tax measures

Personal income tax rates

The economic statement does not change personal income tax rates. It announces, however, that the province will not adopt the simplified personal tax system ─ which would have eliminated the surtax, adjusted tax brackets and rates, and enhanced the charitable donations tax credit ─ that was proposed in the March 28, 2018 Ontario budget.

The top two personal income tax rates are shown in the table on the next page.

Combined federal/Ontario rates

Taxable income

Ordinary income

Capital gains

Canadian dividends

Eligible

Non-eligible

2019

 

Top bracket

 

>$220,000

 

53.53%

 

26.76%

 

39.34%

47.40%1, 2

2018

46.65%1, 2

2017

45.30%

2019

 

 

2nd from top bracket

$205,8423 to

$220,000

 

 

51.97%

 

 

25.98%

 

 

37.19%

45.60%1, 2

2018

$205,842 to $220,000

44.84%1, 2

2017

$202,800 to $220,000

43.48%

1. Combined non-eligible dividend tax rates increase in 2018 and 2019, because of decreases to both the federal and Ontario non-eligible dividend tax credit rates (which results from decreases to both the federal and Ontario small business tax rates, as noted above).
2. The 2018 economic statement confirms that Ontario will make legislative changes so that its non-eligible dividend tax credit rate for 2018 and 2019 will be 3.2863%, which is the rate stated in the November 14, 2017 Ontario Economic Outlook and Fiscal Review. The rates in the table reflect this non-eligible dividend tax credit rate for 2018 and 2019.
3. The $205,842 threshold will be indexed for 2019.

Low-Income Individuals and Families Tax (LIFT) Credit

Ontario will introduce a non-refundable tax credit, to eliminate Ontario personal income tax for low-income Ontario taxpayers with employment income. The LIFT credit will apply starting with the 2019 tax year and be calculated as the lesser of:

  • $850
  • 5.05% of employment income

This amount is then reduced by 10% of the greater of:

  • adjusted individual net income exceeding $30,000
  • adjusted family net income (i.e. income of the taxpayer and a spouse or common-law partner) exceeding $60,000

The amount of the LIFT credit is limited to the taxpayer’s Ontario income tax otherwise payable (excluding the Ontario health premium). To be eligible for the LIFT credit, a taxpayer must be resident in Canada at the beginning of the year and resident in Ontario at the end of the year.

Tax-on-split income (TOSI)

Ontario will parallel the federal change that allows taxpayers subject to TOSI to apply the disability tax credit against any TOSI payable.
 

Contact us

Ken Griffin

Partner, PwC Canada

Tel: +1 416 815 5211

Bruce Harris

Partner, PwC Canada

Tel: +1 416 218 1403

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