On March 26, 2009 the Ontario Government tabled its 2009 Budget. This Bulletin summarizes the principal tax measures contained in the Budget.
SALES TAX HARMONIZATION
The Budget proposes to eliminate Ontario’s retail sales tax and to adopt a federally administered, single value-added sales tax (“harmonized tax”) beginning July 1, 2010. The harmonized tax will be comprised of the federal goods and services tax (“GST”) of 5% and the former provincial retail sales tax of 8%, for a combined rate of 13%.
Impact on Businesses
- harmonized tax is intended to benefit businesses by reducing business costs through the reimbursement of taxes paid in the course of commercial activities and by reducing the compliance burden
- retailers who sell certain exempt items will have to ensure that their point-of-sale and accounting systems properly credit the provincial component of the harmonized tax
- businesses with annual taxable sales in excess of $10 million and financial institutions will be subject to restrictions in claiming certain input tax credits for the provincial component of the harmonized tax for five years (applicable to purchases of energy, telecommunication services (other than internet access or toll-free numbers), certain road vehicles, parts and fuel, and food, beverages and entertainment)
- a transition credit will assist small businesses in making changes to their point-of-sale and accounting systems
- “small suppliers” are subject to a threshold of $30,000, similar to the threshold for the GST
- public services bodies will be able to claim rebates corresponding to a percentage of the provincial component of the harmonized tax, as is currently the case under the federal GST regime.
Impact on Consumers
In order to provide relief to consumers, the Minister announced several relieving measures applicable to individuals:
- books, children’s clothing and footwear, diapers, children’s car seats and car booster seats and feminine hygiene products will be exempt from the provincial component of the harmonized tax
- buyers of newly constructed homes under $400,000 will be able to claim a new housing rebate of 75% of the provincial tax component of the harmonized tax (or 6% of the purchase price)
- for new homes priced up to $500,000, buyers can claim a rebate corresponding to a portion of the provincial tax component of the harmonized tax
- resale homes are not subject to harmonized tax
- Eligible low to middle income taxpayers will receive cheques totalling up to $300 for single individuals and $1,000 for single parents and couples.
BUSINESS INCOME TAX MEASURES
The Budget proposes a number of income tax measures aimed at making Ontario more competitive by:
- reducing corporate tax rates beginning July 1, 2010
- the general rate would fall from 14% to 12%, with a further reduction to 10% by 2013, resulting in a combined federal/Ontario rate of 25%
- the manufacturing and processing rate would fall from 12% to 10%
- the small business rate (for Canadian-controlled private corporations on the first $500,000 of active business income) would fall from 5.5% to 4.5%
- the small business deduction surtax of 4.25% would be eliminated
- the burden of corporate minimum tax (CMT) would be reduced for years ending after June 30, 2010 by cutting the rate of CMT from 4% to 2.7% and by increasing the exemption threshold in order to exempt corporations with assets of less than $50 million or sales of less than $100 million
- enhancing capital cost allowance (CCA) provisions
- the CCA rate for new eligible computers and software would be increased from 55% to 100%, paralleling a measure in the 2009 Federal Budget
- the accelerated CCA rate for manufacturing and processing equipment would be extended to equipment acquired before 2012, paralleling a measure in the 2009 Federal Budget
- enhancing various tax credits
- the income range at which the 10% Ontario Innovation Tax Credit is phased out would be increased from $400,000- $700,000 to $500,000-$800,000, paralleling a measure in the 2009 Federal Budget
- the previously announced 35% rate for the Ontario Film and Television Tax Credit would be made permanent
- the previously announced 25% rate for the Ontario Production Services Credit would be made permanent
- the rate for the Ontario Interactive Digital Media Tax Credit and the Ontario Computer Animation and Special Effects Tax Credit would be increased
- maintaining the plan to eliminate capital tax by July 1, 2010.
PERSONAL INCOME TAX MEASURES
The Budget proposes to reduce the rate of tax on the first $36,848 of income earned from 6.05% to 5.05%, effective January 1, 2010; however,
- the rates of tax on income in excess of $36,848 would remain unchanged
- the surtax on high-income earners would be adjusted to account for the 1% reduction
- personal tax credits would be based on the lower rate of 5.05%, resulting in a lower credit.