Ontario Budget Announcement - 2017

ONTARIO BUDGET ANNOUNCEMENT - 2017

ONTARIO BUDGET HIGHLIGHTS

On Thursday, April 27, 2017, the Honourable Charles Sousa, Ontario’s Minister of Finance, tabled the province’s 2017 Budget. Delivering the first balanced budget in the province since the 2008-09 recession, Budget 2017 has not introduced any new individual or corporate income tax increases and projects a balanced budget for the next three years. Some technical changes, however, are proposed with respect to the application of Ontario’s personal income surtax to multi-jurisdictional filers and to ensure that changes to the federal tax rules relating to the small business deduction and association are being implemented provincially.

The 2016-17 deficit has also been reduced to $1.5 billion, as a result of stronger-than-expected corporate and personal tax revenues driven by a growing economy. Furthermore, Ontario land transfer tax revenues have been boosted by higher-than-expected increases in housing prices.

Along with increased spending for health care, education, and infrastructure, Budget 2017 also includes universal drug coverage to all children and youth in Ontario and re-announces proposals to reduce household electricity bills by an average of 25 per cent.

Although Ontario’s economy has experienced significant growth in the last three years, housing affordability has become a primary concern, particularly in the larger cities and surrounding areas. Recent proposals have been introduced by the provincial government to address the issues, including the expansion of rent controls and the introduction of a 15 per cent non-resident speculation tax.

A. Corporate Tax Measures

Corporate Tax Rates

No new corporate income tax rate changes have been announced in this year’s Budget. The current corporate income tax rates for 2017 are as follows:

Small Business Corporations General Corporations

Rate Threshold Non M&P M&P

Federal 10.5% $500,000 15.0% 15.0%

Ontario 4.5% $500,000 11.5% 10.0%

Employer Health Tax Avoidance

The government has proposed to parallel one of the measures introduced by the 2016 Federal Budget related to the multiplication of the small business deduction, by eliminating the Employer Health Tax (“EHT”) exemption for any employer that is a “designated member” of a partnership. Currently, a group of associated entities is treated as a single enterprise with respect to sharing the EHT exemption and the small business deduction. Recently, the 2016 Federal Budget introduced new anti-avoidance measures to prevent access to or eliminate the multiplication of the small business deduction, including the use of complex structures involving fees charged by corporations related to a member of a partnership. If the corporation is considered a “designated member” of a partnership pursuant to the federal Income Tax Act, it would no longer be eligible for the EHT exemption under the proposed changes to the Employer Health Tax Act.

ONTARIO BUDGET ANNOUNCEMENT - 2017

Small Business Deduction Parallel Changes

As a result of the proposed changes in the 2016 Federal Budget with respect to the small business deduction, Ontario will implement parallel changes that will reduce a corporation’s provincial small business limit by the same amount that the federal business limit is reduced. Ontario Computer Animation and Special Effects Tax Credit

Talk shows and certain other productions will be listed as ineligible directly in legislation for the purposes of claiming the Ontario Computer Animation and Special Effects tax credit.

Review of Tax Planning Strategies

As announced in the 2017 Federal Budget, the federal government will be undertaking a review of tax planning strategies involving private corporations, including the following:

Income splitting with family members;

Holding a passive investment portfolio inside a private corporation; and

Converting regular business income to capital gains. The Ontario government will work closely with the federal government in this review, which is aimed at identifying and addressing tax loopholes and sophisticated tax planning schemes.

B. Personal Tax Measures

Personal Tax Rates No new personal income tax rate changes have been announced in this year’s Budget. The top marginal personal income tax rate for Ontario, including surtax, remains at 20.53% for 2017. The current top combined federal and Ontario marginal rates for 2017 are as follows:

Salary, business income, interest 53.53%

Capital gains 26.76%

Eligible dividends 39.34%

Non-eligible dividends 45.30%

Fertility-Related Expenses under the Medical Expense Tax Credit Ontario’s medical expense tax credit will parallel the changes proposed to the federal tax credit in the 2017 Federal Budget. These changes will allow Ontarians to claim tax relief for eligible fertility treatment costs that are not directly covered by the province. The federal government’s proposed changes permit all individuals who require medical intervention to conceive a child to be eligible to claim the same expenses that would generally be eligible for individuals on account of medical infertility, regardless of sex, gender, sexual orientation, or family status.

Consolidation of Caregiver Tax Credits As a result of the federal government’s proposed simplification of the personal income tax credits for caregivers, Ontario has proposed to replace the provincial caregiver and infirm dependant tax credits with a new Ontario Caregiver Tax Credit (“OCTC”). The changes would apply beginning in the 2017 taxation year and include the following:

The non-refundable OCTC, at the rate of 5.05 per cent, would be available in respect of relatives who are infirm dependants, including adult children of the claimant or of the claimant’s spouse or common-law partner.

Dependants would not be required to live with the caregiver claiming the new credit.

ONTARIO BUDGET ANNOUNCEMENT - 2017

For 2017, the maximum amount of taxable income for which this credit is available would be $4,794 and would begin phasing out when the dependant’s net income is over $16,401.

New Ontario Seniors’ Public Transit Tax Credit A new refundable tax credit of 15 per cent is proposed for eligible public transit costs for all individuals 65 years of age or older. This tax credit would provide an average annual benefit of $130 and would cover eligible public transit costs as of July 1, 2017.This provincial tax credit for seniors effectively replaces the federal Public Tax Pass Tax Credit, which is scheduled to be eliminated as of July 1, 2017.

Multijurisdictional Tax Filers The Ontario government has proposed changes to the calculation of the Ontario surtax and the Ontario Tax Reduction for multijurisdictional tax filers, including Ontario residents who pay tax to another province and non-residents of Ontario who pay tax to Ontario. The changes would ensure that the surtax would be calculated based on the total amount of Ontario tax on taxable income. The total amount of tax payable, including the surtax, would then be prorated based on the percentage of income allocated to Ontario. The Ontario Tax Reduction would also be prorated based on the percentage of income allocated to the province. These changes would be effective for taxation years ending after December 31, 2016 and will largely impact non-incorporated self-employed professionals. The projected net effect of these changes would provide increased tax revenues to Ontario.

Tuition and Education Tax Credits

Budget 2016 proposed to discontinue the Ontario tuition and education tax credits, effective

September 5, 2017. Ontario students would be able to claim the Tuition Tax Credit for

eligible tuition fees paid in respect of studies up to and including September 4, 2017 and

would be able to claim the Education Tax Credit for months of study before September 2017.

The eligible portion of 2017 tax credits would be transferable to a qualifying family member.

Tax filers who are resident in Ontario on December 31, 2017 and have unused tuition and

education tax credits available for carry-forward, would be able to claim them in future years.

Tax filers who move to Ontario from other provinces after December 31, 2017 would no

longer be able to claim their accumulated tuition and education tax credits in Ontario.

Ontario plans to reinvest all of the additional revenue from eliminating these tax credits to support the new Ontario Student Grant or other post-secondary, education, training and youth jobs programs.

C. Other Tax Measures

Tobacco Tax Increase Tobacco tax rates will be increased by $10 per carton of 200 cigarettes over three years. The changes will begin with an increase to tobacco tax rates from 15.475 cents to 16.475 cents per cigarette (i.e., $2.00 per carton) or gram of tobacco products other than cigars, effective April 28, 2017. In 2018 and 2019, tobacco taxes will be increased by an additional 2 cents per cigarette (i.e., $4.00 per carton) or gram of tobacco each year.

Authority to Levy Hotel Taxes Budget 2017 proposes to provide the City of Toronto with the authority to levy a tax on transient accommodation (i.e. a hotel tax). This authority would also be extended to single-tier and lower-tier municipalities. However, the revenues from the hotel tax would have to be shared with the appropriate not-for-profit tourism organization.

ONTARIO BUDGET ANNOUNCEMENT - 2017

Land Transfer Tax The Ontario government has proposed the following changes in connection with land transfer tax measures:

First-time homebuyers refund: The first-time homebuyers refund is restricted with

respect to the claim of a qualifying purchaser’s spouse’s interest if the spouse is not a Canadian citizen or permanent resident of Canada.

Ontario Home Ownership Savings Plan: All provisions relating to the Ontario

Home Ownership Savings Plan will be repealed. The “offence” provision currently under this plan will be transferred to the first-time home buyers’ provision and the fine amount increased from $2,000 to $4,000.

Refund or rebate wrongly obtained: A provision will be introduced to deem the

amount of a refund or rebate wrongly obtained to be tax payable on the date the refund or rebate was paid to the taxpayer.

Property Tax Measures The Ontario government has proposed the following changes in connection with property tax measures:

Railway Rights-of-Way: Property tax rates on railway rights-of-way will be

adjusted to reflect the average annual percentage change in taxes on commercial properties, resulting in an increase to municipal property tax rates by approximately $6 per acre for 2017.

Small-scale Agricultural Farm Businesses: A legislative framework will be

introduced to provide municipalities with the flexibility to reduce property tax rates for eligible small-scale, value-added and commercial activities on farms.

Renewable Biodiesel The province has proposed changes to allow biodiesel, a renewable alternative to fossil fuel, to be more widely available as part of Ontario’s tax-exempt coloured fuel program. The changes would add a new category of registered dyers who would be permitted to dye biodiesel that has not been blended, mixed or combined with any other type or grade of fuel.

D. Additional Measures

Ontario Retirement Pension Plan and Canada Pension Plan As a result of enhancements to the Canada Pension Plan (“CPP”), the province has discontinued the development of the planned Ontario Retirement Pension Plan. The enhanced CPP will result in greater mandatory contributions by employers and employees, beginning January 1, 2019.

ONTARIO BUDGET ANNOUNCEMENT - 2017

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Ontario Region Contacts

Name Region Phone Number

Don Carson GTA 416.263.6930

Brandon Hodge GTA 416.515.3840

Glenn Willis GTA 416.515.3850

Eddy Burello GTA 647.943.4081

Jeanne Cheng GTA 647.775.1768

Michael Saxe GTA 647.943.4120

Le Van GTA 416.515.5036

Rosario Suppa GTA-West 416.641.4948

Alex Makuz GTA-West 416.641.4944

Rachelle Siksna GTA-West 416.641.4956

Dave Thompson GTA-West 416.641.4935

Kal Ruprai Indirect Tax - Toronto 416.515.3811

Tim Bloos Int'l Tax - Toronto 416.515.3888

John Durland Int'l Tax – Toronto 416.263.6921

Frank Kacsandi Int'l Tax - Toronto 416.515.3818

Andrew Lam Int'l Tax - Toronto 416.263.6989

Melinda Nguyen-Raybould Int’l Tax – Toronto 416.515.3805

Kevyn Nightingale Int'l Tax - Toronto 416.515.3881

Mark Pearlman Int'l Tax - Toronto 416.260.3510

Michael Shumate Int'l Tax - Toronto 416.260.3509

Anthony Bellamo Int’l Tax – Toronto 416.515.5001

Steve Blazino NW Ontario 807.623.2141

Gavin Miranda Ottawa 613.691.4224

Peter Bangs

Tim Edworthy

Ottawa

SW Ontario

613.691.4212

519.772.7498

Bryan Walters SW Ontario 289.293.2314

Jay McLean SRED – Waterloo 519.772.2986

Neha Tiku SRED – Markham 416.515.3834

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