On May 2, 2013, Finance Minister Charles Sousa tabled the Ontario minority government’s 2013 Budget entitled “A Prosperous & Fair Ontario” (Budget 2013). Budget 2013 estimates the deficit for the 2012-13 fiscal year just ended to be $9.8 billion (a $5 billion improvement compared with the 2012 budget forecast), and states that the government is on track to continue beating its deficit reduction targets and return to balanced budgets beginning in 2017-18.
The proposed tax measures in Budget 2013 focus on fairness, revenue integrity and closing tax loopholes, themes familiar from the federal government’s March 2013 budget. Most significant is the introduction of new disclosure rules for aggressive tax avoidance transactions similar to the rules already introduced federally and in Quebec. The disclosure rules would require taxpayers to report aggressive tax avoidance transactions that attempt to avoid Ontario tax. Last year’s budget forewarned of the introduction of these rules, so they are not a surprise. The Ontario and federal governments have also negotiated a new agreement for enhanced compliance activities focused on aggressive international tax planning.
Budget 2013 also announced that the Ontario and federal governments have negotiated an agreement aimed at enhancing compliance activities that will improve the integrity of the tax system and generate incremental tax revenues from non-compliant corporations and individuals. In addition, the government intends to expand the use of its automated risk assessment system “to identify tax accounts that pose the highest risk of tax loss”.
Other tax measures proposed in Budget 2013 include:
- Changes to the employer health tax (EHT) to better target the current private sector payroll exemption: starting on January 1, 2014, the current exemption from EHT for the first $400,000 of private sector employers’ payroll will be increased to $450,000 (and adjusted for inflation every five years), but 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 be able to claim the exemption regardless of payroll size.
- Elimination of the apprenticeship training tax credit for expenditures incurred after March 31, 2014 relating to information technology contact centre technical support agents, inside sales agents and customer care agents.
- Repeal of Ontario’s fuel tax exemption for biodiesel, effective April 1, 2014, as part of the government’s green energy mandate.
- Adoption of tax measures proposed in the 2013 federal budget, including those relating to extending accelerated capital cost allowance for manufacturing and processing machinery and equipment, reducing the dividend tax credit for non-eligible dividends, and restricting corporate and trust loss trading, character conversion transactions and leveraged life insurance arrangements (to read our bulletin outlining the tax measures announced in the 2013 federal budget, please click here).
Budget 2013 notes that the government is reviewing the current system of mining tax incentives (as was first announced in last year’s budget), and “looks forward to working 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”.
Good news for businesses include no change to corporate income tax rates (the general rate remains at 11.5%), and the implementation of a Commercialization and Innovation Voucher pilot program, which will help entrepreneurs and small businesses to access innovations, productivity and commercialization services offered by Ontario’s research institutions. Ontario is also working with the federal government to establish a new Ontario-based venture capital fund of up to $300 million in partnership with the private sector to help strengthen Ontario’s venture capital industry.
To view the tax measures contained in Chapter IV of Budget 2013, please click here.