Optimizer

2016 Ontario Budget Edition

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In this budget commentary, we provide an overview of the proposed tax changes and how they will impact Ontario businesses and individuals.


PERSONAL


Personal Income Tax Rates


No changes were proposed in the 2016 Ontario budget. As a result, the combined federal and Ontario marginal tax rates for income over $90,564 will be as follows for 2016.

Combined federal and Ontario personal income tax rates for 2016

 

Marginal Rate

Taxable Income

Basic Tax 

Income 

Capital Gains 

Eligible Dividends 

Other Dividends 

$90,564 to $140,388

$21,107

43.41%

21.70%

25.38%

33.46%

$140,389 to $150,000

$42,736

46.41%

23.20%

29.52%

36.97%

$150,001 to $200,000

$47,197

47.97%

23.98%

31.67%

38.80%

$200,001 to $220,000

$71,182

51.97%

25.98%

37.19%

43.48%

$220,001 and up

$81,576

53.53%

26.76%

39.34%

45.30%


Non-eligible Dividend Tax Credit


The 2015 federal budget announced reductions in the federal small business corporate tax rate over four years, starting 2016. As a result, the gross-up rate and dividend tax credit for non-eligible dividends (generally issued by companies taxed at the small business rate) also changed. These corresponding changes will be paralleled by Ontario. Ontario’s non-eligible dividend tax credit rate will decline from 4.5% for 2015 to 4.2863% for 2016.

Ontario will review its non-eligible dividend tax credit rate for 2017 and later years.


Personal Income Tax Credits


Tuition and Education Tax Credits

The budget proposes to discontinue the Ontario tuition and education tax credits, beginning in September 2017. It is interesting to note that the Federal Liberals campaigned on cancelling the education and textbook tax credits, but maintaining the tuition tax credit. For all the post-secondary education federal and provincial credits, the tuition credit is generally most beneficial.

Unused credits will still be available for carry-forward and claimed in future years provided the individual continues to reside in Ontario.

Children’s Activity Tax Credit (“CATC”)

The budget proposes to end the CATC as of January 1, 2017. Currently, CATC allows parents to receive up to $55.10 back for each child under 16 if the child is registered in qualified activities.

Healthy Home Renovation Tax Credit (“HHRTC”)

The budget proposes to end the HHRTC as of January 1, 2017. Currently, HHRTC allows seniors or their family members to receive up to $1,500 back for $10,000 worth of eligible renovation expenses.


Tax on Split Income


The budget proposes to parallel the federal approach to tax income that is split with certain related minor children. As a result, top marginal personal income tax rate applies to all such split income. Starting January 1, 2016, such split income would be taxed at Ontario’s top marginal personal income tax rate of 20.53%. No surtax would be payable on that income.



CORPORATE


Research and Development Tax Credits


The budget proposes to reduce the rate for the Ontario Research and Development Tax credit (“ORDTC”) from 4.5% to 3.5%, and the rate for the Ontario Innovation Tax Credit (“OITC”) from 10% to 8%.

The reductions are effective June 1, 2016 and will be prorated for taxation years straddling June 1, 2016.

Apprenticeship Training Tax Credit


The Ontario government is considering changes to the Apprenticeship Training Tax Credit (“ATTC”), but did not go into any specific details at this time. More information will be announced later in 2016.

Greenhouse Gas Emissions Cap and Trade Program


A cap and trade program on greenhouse gas emissions would create tradable emissions allowances for a specified period. Allowances could then be bought or sold in the carbon market.

Legislation related to the program was introduced earlier this month, and the budget provides further information regarding the details of this program, which is scheduled to take effect on January 1, 2017.

Ontario Registered Pension Plan


The Ontario government remains committed to the mandatory Ontario Registered Pension Plan (“ORPP”) and the final elements of the plan that were announced in January 2016. Legislation focusing on employer eligibility, benefit calculations and compliance/enforcement is expected to be introduced in the spring.

An employer verification and enrolment process will launch in 2017.

The ORPP phase-in and contribution schedule is as follows:

Type of Employer Jan. 1, 2018  Jan. 1, 2019  Jan. 1, 2020  Jan. 1, 2021 
Large employers without registered workplace pension plans 0.8% 1.6% 1.9% 1.9%
Medium employers without registered workplace pension plans 0.8% 1.6% 1.9% 1.9%
Small employers without registered workplace pension plans 0% 0.8% 1.6% 1.9%
Employers with registered pension plans that either do not meet the comparability test or do not cover all classes of employees 0% 0% 1.9% 1.9%
                         Source: Table 1.8 of Ontario Budget


The contribution rate applies to pensionable earnings in excess of $3,500 up a maximum earnings threshold of $90,000 (expressed in 2017 dollars). Equal contributions will be required from employers and employees, with a maximum combined rate of 3.8%.



TOBACCO AND ALCOHOL


Tobacco


Ontario’s tobacco tax will increase from 13.975 cents to 15.475 cents per cigarette and per gram of tobacco products (other than cigars). The new rate is effective 12:01am the day after February 25, 2016.

Going forward, tobacco tax rates will be indexed to inflation over each of the next five years, starting in 2017.


Alcohol


LCBO will increase the ad valorem mark-up for wine products by 2%, beginning in June 2016. The wine mark-up will be further increased 2% in April 2017, 1% in April 2018, and 1% in April 2019.

The basic tax on non-Ontario wine purchased at winery retail stores will increase by 1% in each of June 2016, April 2017, April 2018, and April 2019.

The minimum retail prices for table wine will increase to $7.95 (including deposit) for a 750ml bottle. The phase in will be over the next three years. Minimum prices for cider, fortified wine, and low-alcohol wine will also be phased in over three years.

The budget also proposes to introduce legislation at a later date that will establish higher basic wine tax rates for sales at winery retail outlets that operated inside grocery stores, and replace the current mark-up and commission structure at on-site distillery retail stores with a tax on purchase of spirits.



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Editor:

Brook Scarr, CPA, CA
Partner, Taxation

All rights reserved. Permission to reproduce or copy in any form or means is prohibited without the express written consent of SF Partnership, LLP. All information contained in this publication is general in nature, and should not be construed as professional advice. Readers are urged to consult their professional advisors before taking any action based on this publication. ©SF Partnership, LLP 2016