Economic Outlook and Fiscal Review 2005 - Annex III Transparency in Taxation

Adoption Expense Credit — The 2005 Ontario Budget proposed a non-refundable tax credit equal to 6.05% of eligible adoption expenses of up to $10,000.

Age Credit — Tax-filers aged 65 and over are entitled to a claim of 6.05% of $4,002. The base amount is reduced by the lesser of $4,002 and 15% of the individual's net income in excess of $29,793. Any unused portion may be transferred to a supporting spouse or common-law partner.

Amounts Transferred from Spouse — The unused portions of the age credit, pension income credit, disability credit, and education and tuition fee amounts may be transferred to a supporting spouse or common-law partner.

Basic Personal Credit — Tax-filers are entitled to claim a basic personal credit of 6.05% of $8,196.

Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) Contributions Credit — Tax-filers are entitled to claim 6.05% of their CPP and QPP contributions.

Caregiver Credit — Tax-filers who reside with and are responsible for the in-home care of an infirm, dependent relative or an elderly parent/grandparent (including in-laws) can claim a credit equal to 6.05% of $3,863 less the amount by which the dependant's net income for the year exceeds $13,218.

Charitable Donations Credit — Tax-filers can claim 6.05% of the first $200 of charitable donations and gifts and 11.16% of donations and gifts in excess of $200.

Disability Credit — Tax-filers who have a severe and prolonged mental or physical impairment causing a marked restriction in basic activities of daily living may claim a credit equal to 6.05% of $6,622. Any unused amount may be transferred to a supporting relative.

Eligible Dependant Credit — Tax-filers who qualify to claim an eligible dependant are entitled to a claim of 6.05% of $6,960. The base amount is reduced by the amount of the eligible dependant's net income in excess of $696 but less than $7,656.

Employment Insurance (EI) Premiums Credit — Tax-filers are entitled to claim 6.05% of their EI premiums.

Infirm Dependant Credit — The amount that a tax-filer can claim for an infirm dependant is 6.05% of $3,863 less the amount by which the dependant's net income exceeds $5,492.

Medical Expense Credit — A credit for non-reimbursed medical expenses, including those incurred on behalf of a tax-filer's spouse or common-law partner or minor children, may be claimed by tax-filers. Generally, the credit is 6.05% of eligible expenses in excess of the lesser of $1,856 and 3% of the individual's net income for the year. In addition, up to $5,095 of qualifying medical expenses paid on behalf of other dependent relatives, which the 2005 Ontario Budget proposes to increase to $10,000, may be claimed to the extent that they exceed the lesser of $1,856 and 3% of the dependant's net income.

Ontario Overseas Employment Tax Credit — A tax credit is available to eligible employees working abroad for more than six months in connection with certain resource projects or construction, installation, agricultural or engineering activities.

Pension Income Credit — A 6.05% tax credit on up to $1,133 of eligible pension income may be claimed by qualified tax-filers. Any unused portion may be transferred to a supporting spouse or common-law partner.

Spouse or Common-law Partner Credit — Tax-filers who are married or have common-law partners are entitled to a claim of 6.05% of the lesser of $6,960 and the spouse's or common-law partner's net income deducted from $7,656.

Student Loan Interest Credit — A 6.05% tax credit on the interest portion of student loan payments made in a year may be claimed in the year in which it is paid or in any of the subsequent five years. The credit is available with respect to payments under the Canada Student Loan Program and similar provincial programs.

Tuition Fee and Education Credits — Students may claim a credit of 6.05% of eligible tuition fees and another credit of 6.05% of $441 (for full time) or $132 (for part time) for each month of enrolment at a qualifying postsecondary institution. The unused portions of the tuition fee and education amounts may be transferred to a supporting spouse or common-law partner, parent or grandparent. The maximum transfer from a student for the two amounts combined is $5,667. To the extent that students do not claim or transfer all their tuition fee and education credits in the year, the unused amounts can be carried forward indefinitely for their own use in a future year.

Ontario Tax Deduction

Ontario Tax Reduction (OTR) — This program eliminates or reduces Ontario personal income tax otherwise payable by tax-filers with low and moderate incomes. All Ontario tax-filers can claim a basic exemption plus a supplementary amount for each dependent child aged 18 or under and each disabled or infirm dependant. An individual with Ontario tax of less than the sum of these amounts pays no Ontario tax.

Ontario Focused Flow-through Share Tax Credit — To improve access to capital for mining exploration companies and stimulate mineral exploration in Ontario, individual shareholders can claim a 5% refundable credit on eligible investments.

Ontario Political Contributions Tax Credit — Contributions to registered Ontario political parties as well as to their candidates and associations are eligible for a tax credit of 75% of the first $336, 50% of the next $784 and 33.3% of the next $1,428. A contribution of $2,548 or more results in a credit of $1,120.

Ontario Property and Sales Tax Credits (OPSTCs) — The Property Tax Credit is the lesser of occupancy cost and a basic property tax credit amount plus 10% of occupancy cost. Occupancy cost is property tax or 20% of rent paid on an individual's or couple's principal residence plus $25 if residing in a college residence. The basic property tax credit amount is $250 for non-senior individuals or couples and $625 for senior individuals or couples. The Sales Tax Credit is $100 for an individual plus $100 for a spouse or common-law partner and $50 for each dependent child aged 18 or under. The credits for non-seniors are jointly reduced by 2% of family net income in excess of $4,000; the credits for seniors are jointly reduced by 4% of family net income in excess of $22,000, which the 2005 Ontario Budget proposes to increase for senior couples. The maximum OPSTCs are $1,000 for non-seniors and $1,125 for seniors. The estimate includes the proposed increase to the income threshold for senior couples, which is expected to be $22,250 for 2005.

Ontario Labour Sponsored Investment Fund and Employee Ownership Tax Credits

Employee Ownership (EO) Tax Credit — A tax credit is available to individual employee investors based on a maximum lifetime investment of $150,000 in the EO corporation.

Labour Sponsored Investment Fund (LSIF) Tax Credit — LSIFs are venture capital corporations designed to provide alternative sources of capital to small and medium-sized Ontario businesses. A tax credit of 15%, to a maximum of $750, is available to eligible investors. On September 30, 2005, it was announced that the LSIF tax credit would be phased out and eliminated after 2010.

Research-oriented Investment Fund (ROIF) Tax Credit — In addition to the LSIF credit, a tax credit of 5%, to a maximum of $250, is available to eligible investors where the LSIF qualifies as a Research-oriented Investment Fund. As with the LSIF credit, the ROIF tax credit would also be eliminated after 2010.

Business

Items for Which an Estimate Is Not Available

Assistance for Artists and Deduction for Canadian Art Purchased by Unincorporated Businesses — Canadian art acquired by businesses for display in an office may be depreciated on a 20% declining-balance basis even though Canadian art may depreciate at a much slower rate (and, in some cases, may appreciate). Artists may deduct the costs of creating a work of art in the year the costs are incurred rather than in the year the work of art is sold.

Assistance for Prospectors and Grubstakers — Where a prospector or grubstaker disposes of mining property to a corporation in exchange for shares in that corporation, the tax liability is deferred until the subsequent disposition of the shares.

Deduction of Accelerated Capital Cost Allowance — The depreciation allowable for tax purposes is called capital cost allowance. A tax deferral may be created when tax deductions in the early years of the life of an asset exceed the actual depreciation in the value of the asset. The difference is captured over time or upon subsequent disposition of the asset.

Deferral Through Use of Billed-basis Accounting by Professionals — In computing their income for tax purposes, professionals are allowed to elect either an accrual or billed-basis accounting method. Under the latter method, the costs of work in progress can be written off as incurred even though the associated revenues are not brought into income until the bill is paid or becomes receivable. This treatment gives rise to a deferral of tax.

Employment

Deduction for Clergy Residence — A full-time member of the clergy or a regular minister of a religious denomination may deduct housing costs from income for tax purposes. Where a member of the clergy is supplied living accommodation by his or her employer or receives housing allowances, an offsetting deduction may be claimed to the extent that this benefit is included in income.

Deduction of Home Relocation Loans — An offsetting deduction from taxable income is provided for the benefit received by an employee with respect to a home relocation loan. The amount of the deduction is the lesser of the amount included in income as a taxable benefit, and the amount of the benefit that would arise with respect to a five-year, interest-free loan of $25,000.

Deduction of Other Employment Expenses — Employees generally cannot deduct work-related expenses. However, specific employment expenses (e.g., automobile expenses, cost of meals and lodging for certain transport employees, legal expenses paid to collect salary) are deductible in certain circumstances in the computation of income.

Deduction of Union and Professional Dues — Annual union, professional or like dues are deductible from income.

Employee Stock Options — Provided certain conditions are met, an employee of a corporation or Canadian mutual fund is allowed to deduct from net income a portion of the stock (or mutual fund unit) option benefit included in calculating employment income. In 2005, the deductible portion of the benefit is one-half.

Moving Expense Deduction — A deduction may be made for eligible moving expenses if the tax-filer changes residences within Canada and moves at least 40 kilometres closer to a new job, business location or postsecondary institution where the individual will engage in full-time schooling. The estimates do not include non-taxable reimbursements received from employers.

Northern Residents' Deductions — To offset the relatively higher cost of living and travelling in the North, individuals living in a qualifying remote location in Canada for a continuous period of at least six months may claim certain deductions from income.

Items for Which an Estimate Is Not Available

Deduction for Apprentice Vehicle Mechanics' Tools — Registered apprentice vehicle mechanics may deduct from their apprenticeship income an amount for the cost of their tools in excess of a proportion of that income.

Deduction for Artists and Musicians — Employed musicians may claim the cost of maintenance, rental, insurance and capital cost allowance on musical instruments against employment income earned as a musician. Employed artists may deduct expenses related to their artistic endeavours, up to a limit.

Deduction for Military and Police Deployed to High-risk International Missions — Members of the Canadian Forces or a Canadian police force who serve on a high-risk international mission may claim an offsetting deduction for their income earned on the mission.

Deduction for Tuition Assistance for Adult Basic Education — Students may deduct from income tuition assistance provided under the Employment Insurance Act.

Deferral of Salary Through Leave of Absence/Sabbatical Plans — Employees may defer salaries through a leave of absence/sabbatical plan. Provided certain conditions are met, these amounts are not subject to tax until received.

Employee Benefit Plans — Employers may make contributions to an "employee benefit plan" on behalf of their employees. The employee is not required to include in income the contributions to the plan, or the investment income earned within the plan, until amounts are received. Employers may not deduct these contributions to the plan until the contributions are actually distributed to employees.

Non-taxation of Allowances to Public Officials — Federal Members of Parliament, Senators and some other public officials receive flat allowances for expenses incidental to their duties. These amounts are not included in income for tax purposes.

Non-taxation of Business-paid Health and Dental Benefits — Employer-paid benefits for private health and dental plans are not taxable. Self-employed individuals may deduct private health and dental insurance premiums from their business income.

Non-taxation of Certain Non-monetary Employment Benefits — Certain fringe benefits, such as subsidized meals in staff cafeterias, subsidized recreational facilities and special clothing provided to employees by their employers, are not taxable.

Special Tax Computations for Certain Retroactive Lump-sum Payments — Certain retroactive lump-sum payments totalling $3,000 or more are eligible for a special tax calculation.

Farming and Fishing

Items for Which an Estimate Is Not Available

Cash-basis and Flexibility in Inventory Accounting — Individuals engaged in farming and fishing may elect to include revenues when received, rather than when earned, and deduct expenses when paid rather than when the related revenue is reported. Farmers using the cash-basis method of accounting are allowed to depart from it with respect to their inventory.

Deduction of Farm Losses for Part-time Farmers — Individuals whose major source of income is not farming are allowed to deduct farm losses up to an annual maximum against other income.

Deferral of Income for Farmers — Income received from herd reduction in a drought region or the statutory forced destruction of livestock can be deemed to be income in the following year. Cash purchase tickets for deliveries of grain before year-end only become income in the year the tickets are cashed.

Net Income Stabilization Account for Farmers — Farmers may deposit a percentage of a given year's eligible net sales, up to a limit, to their Net Income Stabilization Account. Some deposits are matchable by the federal and provincial governments. Governments also pay a 3% interest bonus annually on deposits that remain in the account. Governments' contributions and interest accrued in the account are not taxable until withdrawn.

Investment

$500,000 Lifetime Capital Gains Exemption for Farm Property and Small Business Shares — A $500,000 lifetime capital gains exemption is available for gains with respect to the disposition of qualified farm property and small business shares.

Deduction of Allowable Business Investment Losses — A portion of capital losses with respect to shares or debts of a small business corporation (allowable business investment losses) may be used to offset other income.

Deduction of Carrying Charges Incurred to Earn Income — Interest and other carrying charges, such as investment counselling fees and safety-deposit-box charges, incurred to earn business or investment income are deductible.

Deduction of Resource-related Expenditures — Individuals are entitled to deduct certain expenses associated with the exploration for, and the development of, Canadian natural resources. These expenses are deductible if the taxpayer either engages directly in these resource activities or provides financing to a resource company that in turn "flows through" the tax deductions to the taxpayer.

Partial Inclusion of Capital Gains — Fifty per cent of net realized capital gains are included in income. The amount of the tax expenditure is the additional tax that would have been collected had the full amount of the capital gains been included in income.

Items for Which an Estimate Is Not Available

Capital Gains Exemptions — $1,000 on Personal-use Property and $200 on Foreign Exchange Transactions — In calculating the capital gain on personal-use property, if the proceeds of disposition are less than $1,000, no capital gain needs to be reported. The first $200 of net capital gains on foreign exchange transactions is exempt from tax.

Deduction of Limited Partnership Losses — A limited partner is able to deduct losses against other income up to the amount of investment at risk, whereas a shareholder is normally not permitted to deduct corporate losses against personal income. Unused losses may be carried back three years or forward seven years.

Deferral of Capital Gains Through Five-year Reserve — If proceeds from a sale of capital property are not all receivable in the year of the sale, realization of a portion of the capital gain may be deferred until the year in which the proceeds are received. A minimum of 20% of the gain must be brought into income each year, creating a maximum five-year reserve period.

Deferral of Capital Gains Through Rollovers — Individuals (other than trusts) are permitted a rollover of capital gains on eligible small business investments. To the extent that the proceeds are reinvested in one or more eligible small business corporations, the liability for personal income tax on the gain is deferred until the replacement property is sold. In addition, capital gains on intergenerational transfers of farm property are deferred in certain circumstances until the property is disposed of outside the immediate family.

Deferral of Capital Gains Through 10-year Reserve for Farm Property and Small Business Shares — If proceeds from the sale of small business shares or from the sale of farm property to a child, grandchild or great-grandchild are not all receivable in the year of sale, realization of a portion of the capital gain may be deferred until the year in which the proceeds become receivable. However, a minimum of 10% of the gain must be brought into income each year, creating a maximum 10-year reserve period. For most other assets, the maximum reserve period is five years.

Deferral of Capital Gains Through Transfers to a Spouse or Spousal Trust — Individuals may transfer capital property to their spouses or spousal trusts at the adjusted cost base of the property rather than the fair market value. This provides a deferral of the capital gain until the subsequent disposition of the property or until the transferee spouse dies.

Non-taxation of Capital Gains on Principal Residences — Capital gains realized on the disposition of a tax-filer's principal residence are non-taxable.

Reduced Inclusion Rate for Capital Gains Arising from Certain Donations — The inclusion rate for gifts of securities and ecologically sensitive land is 25%, which is half the inclusion rate for capital gains. In addition, capital gains on certain objects certified as being of cultural importance to Canada are exempt from tax if donated to a designated museum or art gallery.

Taxation of Capital Gains Upon Realization — Capital gains are taxed upon the disposition of property and not on an accrual basis. This provides a tax deferral.

Non-taxable Income

Guaranteed Income Supplement and Allowance Benefits — Although Guaranteed Income Supplement and Allowance benefits for an eligible spouse, common-law partner, widow or widower must be included in income, an offsetting deduction from net income is provided. This approach effectively exempts such benefits from taxation while ensuring that they are taken into account in determining income-tested credits.

Social Assistance Benefits — Social assistance benefits must be included in income. However, an offsetting deduction from net income is provided. This approach effectively exempts such benefits from taxation while continuing to have the amount of the benefit affect income-tested credits.

Workers' Compensation Benefits — Workers' compensation benefits must be included in income. However, an offsetting deduction from net income is provided. This approach effectively exempts such benefits from taxation while continuing to have the amount of the benefit affect income-tested credits.

Items for Which an Estimate Is Not Available

Certain Federal Government Pensions and Allowances — Pension payments, allowances and other compensation received with respect to an injury, disability or death associated with service in the Royal Canadian Mounted Police are non-taxable. In addition, veterans' allowances, veterans' disability pensions and support for dependants, civilian war pensions and allowances, and other service pensions are not included in income for tax purposes.

Damages With Respect to Personal Injury or Death — Amounts received with respect to damages for personal injury or death, and awards paid pursuant to the authority of criminal-injury compensation laws are not taxable. In addition, investment income earned in personal injury awards is excluded from income until the end of the year in which the person reaches the age of 21.

Death Benefits of Up to $10,000 — Up to $10,000 of death benefits paid by an employer to the spouse of a deceased employee are non-taxable.

Employer-paid CPP/QPP Contributions and EI Premiums — Employer-paid CPP/QPP contributions and EI premiums are not included in the calculation of income for employees.

Gifts and Bequests — Gifts and bequests are not included in income of the recipient for tax purposes.

Income of Indians on Reserves — The income of status Indians is exempt from tax if situated on a reserve.

Income from the Office of the Governor General and Allowances for Diplomats and Other Government Employees Posted Abroad — The income of the Governor General is exempt from personal income taxation. Diplomats and other government employees posted abroad receive a non-taxable income supplement to cover the additional costs associated with living outside Canada.

Investment Income on Life Insurance Policies — The investment income earned on some life insurance policies is not taxed as income to the policyholder. Instead, for reasons of administrative convenience, insurance companies are subject to tax on such earnings.

Lottery and Gambling Winnings — Lottery and gambling winnings are excluded from income for tax purposes.

Strike Pay — Strike pay is non-taxable.

Special Circumstances

Child Care Expense Deduction — A claim may be made for expenses incurred with respect to an eligible child to allow an individual to be employed for which an income is earned, to study, to take an occupational training course for which an allowance under the National Training Act is received, or to conduct research for which a grant is received. The spouse with the lower income must generally claim the deduction.

Treatment of Alimony, Maintenance and Child Support Payments — As of May 1, 1997, child support paid pursuant to a written agreement or court order made on or after that day, is not deductible to the payer nor included in the income of the recipient. Child support paid pursuant to a court order or written agreement made before that date continues to be deductible to the payer and included in the income of the recipient, unless the agreement is varied or both parties elect to have the new rules apply. The tax changes do not apply to spousal support. Spousal support payments remain deductible by the payer and are included in the income of the recipient.

Items for Which an Estimate Is Not Available

Deduction Related to Vows of Perpetual Poverty — Where a person has taken a vow of perpetual poverty as a member of a religious order, that person may deduct donations to the religious order up to his or her total employment and pension income (but not investment or other income) in lieu of the charitable donations credit.

Disability Supports Deduction — Individuals may deduct expenses from income with respect to disability supports if they are incurred for education or employment purposes.

Partial Exemption of Scholarship, Fellowship and Bursary Income — For students eligible for the education credit, the first $3,000 of scholarship, fellowship and bursary income is exempt from tax.

Tax-free Amount for Emergency Service Volunteers — The first $1,000 of amounts received by a tax-filer in connection with volunteer duties as an ambulance technician, firefighter or other emergency worker is exempt from tax.

Tax-deferred Savings

Registered Pension Plans (RPPs) and Registered Retirement Savings Plans (RRSPs) – Deduction for Contributions — Contributions by individuals to registered plans are deductible, subject to certain limits.

Items for Which an Estimate Is Not Available

Deferred Profit-sharing Plans — Employer contributions to deferred profit-sharing plans on behalf of their employees are tax-deductible. Withdrawals from the plans are taxable in the hands of the employees.

Registered Education Savings Plans (RESPs) — Individuals may contribute to registered education savings plans on behalf of designated children. Income accrued within the plans is not taxed until withdrawn for the postsecondary education of the named beneficiaries.

RPPs and RRSPs — Non-taxation of Investment Income — Investment income in registered plans is not taxed as it accrues. Individuals benefit from a deferral of tax on investment income until funds are withdrawn from these plans.

Ontario Refundable Tax Credits

Apprenticeship Training Tax Credit — A 25% (30% for small businesses) refundable corporate/personal income tax credit for corporations and unincorporated businesses hiring apprentices prior to January 1, 2008 in industrial, construction, motive power and certain service trades.

Co-operative Education Tax Credit — A 10% (15% for small businesses) refundable corporate/personal income tax credit for corporations and unincorporated businesses hiring a co-op student.

Ontario Book Publishing Tax Credit — A 30% refundable tax credit for Ontario book publishing companies for publishing and promoting the first three literary works by a Canadian author in each eligible category of writing.

Ontario Business Research Institute Tax Credit — A 20% refundable tax credit for contract research and development (R&D) performed at eligible Ontario research institutes.

Ontario Computer Animation and Special Effects Tax Credit — A 20% refundable tax credit for digital animation and special effects in films or television productions. The credit is available in addition to Ontario's film and television tax credits.

Ontario Film and Television Tax Credit — A 20% (rate proposed to increase to 30% effective January 1, 2005 to December 31, 2009) refundable tax credit for certified domestic film and television production activity in Ontario. First-time producers are eligible for an additional 10% credit. There is a 10% bonus credit for filming outside the Greater Toronto Area.

Ontario Innovation Tax Credit — A 10% refundable tax credit for small corporations performing R&D in Ontario.

Ontario Interactive Digital Media Tax Credit — A 20% refundable tax credit for the creation, marketing and distribution of original interactive digital media products.

Ontario Production Services Tax Credit — An 11% (rate proposed to increase to 18% effective January 1, 2005 to March 31, 2006) refundable tax credit for foreign-based and non-certified domestic film and television production activity in Ontario.

Ontario Sound Recording Tax Credit — A 20% refundable tax credit for Ontario sound recording companies for producing and marketing sound recordings by an emerging Canadian artist or group.

Ontario Deductions and Exemptions

Additional Deduction for Credit Unions — A credit union may be eligible for a tax credit of up to 8.5% of its taxable income in excess of the income eligible for the small business deduction.

Assets Used to Generate Clean Energy — An immediate 100% deduction for new assets acquired before January 1, 2008 that are used to generate electricity from clean, alternative or renewable energy sources.

Manufacturing and Processing (M&P) and Resource Sector Credit — The general corporate income tax rate is reduced two percentage points to 12% for income from M&P (including income from the sale of electrical generation and from the production of steam), and farming, fishing, mining and logging.

Non-taxation of the Federal Investment Tax Credit — Federal investment tax credits earned for Scientific Research and Experimental Development incurred in Ontario are exempt from Ontario corporate income tax.

Ontario Current Cost Adjustment — An additional 30% deduction from income for acquiring new pollution control equipment.

Ontario Depletion Allowance — An additional deduction from income of a stated percentage of certain pre-1990 resource expenditures.

Ontario New Technology Tax Incentive — An immediate 100% deduction for qualifying intellectual property in a qualifying property transfer.

Ontario Political Contributions — A corporation may deduct from its taxable income certain contributions to registered Ontario political parties, constituency associations and candidates.

Ontario Resource Allowance — A deduction equal to 25% of resource profits that functions as a proxy for Crown royalties and mining taxes paid, which are not deductible for Ontario income tax purposes.

Ontario School Bus Safety Tax Incentive — An additional 30% deduction for corporations (5% refundable personal income tax credit for unincorporated businesses) for new, safer school buses acquired before January 1, 2006.

Small Business Deduction — Canadian-controlled private corporations qualify for a reduced corporate income tax rate of 5.5% on the first $400,000 of active business income. The benefit of the lower rate is generally phased out as taxable income rises to $1,128,519.

Exemptions, Deductions and Deferrals Shared with the Federal Government

Allowable Business Investment Losses — A portion of capital losses with respect to shares or debts of a small business corporation (allowable business investment losses) may be used to offset other income.

Deductibility of Charitable Donations — Donations to registered charities are deductible in computing taxable income within certain limits.

Deductibility of Gifts to the Crown — Gifts to Canada or a province are deductible in computing taxable income within certain limits.

Deductibility of Gifts of Cultural Property and Ecologically Sensitive Land — Gifts of cultural property and ecologically sensitive land are deductible in computing taxable income within certain limits.

Deferral of Income for Farmers — Income received from herd reduction in a drought region or the statutory forced destruction of livestock can be deemed to be income in the following year. Cash purchase tickets for deliveries of grain before year-end only become income in the year the tickets are cashed.

Holdback on Progress Payments to Contractors — A contractor may exclude from taxable income the portion of progress payments (e.g., 10% to 15%) that may be held back until a project is completed satisfactorily.

Non-taxation of Non-profit Organizations — Non-profit corporations are generally exempt from income tax.

Partial Inclusion of Capital Gains — Fifty per cent of net realized capital gains are included in income. The amount of the tax expenditure is the additional tax that would have been collected had the full amount of the capital gains been included in income.

Items for Which an Estimate Is Not Available

Accelerated Writeoff of Capital Assets and Resource-related Expenditures — The difference between accelerated deductions for tax purposes (i.e., Capital Cost Allowance) and the true economic rate of depreciation based on an asset's useful life. Includes certain capital equipment for R&D and manufacturing as well as costs associated with exploration and development.

Cash-basis and Flexibility in Inventory Accounting — Corporations engaged in farming and fishing may elect to include revenues when received, rather than when earned, and deduct expenses when paid rather than when the related revenue is reported. Farmers using the cash-basis method of accounting are allowed to depart from it with respect to their inventory.

Deductibility of Countervailing and Anti-dumping Duties — Cash outlays for duties are deductible in the year they are paid even though these amounts may be refunded, in whole or in part, in a subsequent year.

Deferral Through Capital Gains Rollovers — The realization of capital gains may be deferred for tax purposes through various rollover provisions.

Deferral Through Use of Billed-basis Accounting by Professionals — In computing their income for tax purposes, professionals are allowed to elect either an accrual or billed-basis accounting method. Under the latter method, the costs of work in progress can be written off as incurred even though the associated revenues are not brought into income until the bill is paid or becomes receivable. This treatment gives rise to a deferral of tax.

Expensing of Advertising Costs — Advertising expenses are deductible on a current basis even though some of these expenditures provide a benefit in the future.

Non-taxation of Provincial, Municipal and Federal Crown Corporations — Provincial, municipal and certain federal Crown corporations are generally not subject to income tax.

Non-taxation of Registered Charities — Registered charities are generally exempt from income tax.

Tax Exemption on Income of Foreign Affiliates of Canadian Corporations — Active business income from foreign affiliates is exempt from taxation until repatriated in the form of dividends.

Taxation of Capital Gains Upon Realization — Capital gains are taxed upon the disposition of property and not on an accrual basis. This provides a tax deferral.

Capital Tax Deduction — The first $7.5 million is deducted from taxable paid-up capital for purposes of calculating Ontario capital tax. The deduction will increase to $10 million on January 1, 2006, $12.5 million on January 1, 2007, and $15 million on January 1, 2008.

Deferred Mining Exploration and Development Expenses — Mining corporations may deduct the full cost of exploration and development expenses from paid-up capital.

Deferred Ontario New Technology Tax Incentive (ONTTI) and Scientific Research and Experimental Development (SR&ED) Costs — Corporations may deduct the full amount of ONTTI and SR&ED assets from paid-up capital.

Exemption for Assets Used to Generate Clean Energy — Assets used to generate electricity from clean, alternative or renewable energy sources and acquired by December 31, 2007 are exempt from capital tax.

Exemption for Family Farm Corporations, Family Fishing Corporations, Credit Unions and Other Specified Entities — Credit unions, caisses populaires, family farm corporations, fishing corporations and other specified entities are exempt from capital tax.

Small Business Investment Tax Credit for Financial Institutions — The tax credit reduces the capital tax liability of financial institutions and is available for patient capital investments in small businesses, for below-prime loans made to small businesses and for investments in Community Small Business Investment Funds.

Items for Which an Estimate Is Not Available

Renounced Mining Expenses — Mining corporations may deduct from paid-up capital exploration and development expenses renounced to individual shareholders.

Mining Tax Exemption — Annual mining profits up to $500,000 are exempt from mining tax.

Mining Tax Holiday for Mines (other than remote mines) — For a period of three years, the first $10 million of profits generated by a new mine or a major expansion of an existing mine are exempt from mining tax.

Mining Tax Holiday for New Remote Mines — For a period of 10 years, the first $10 million of profits generated by a new mine opened in a remote Ontario location are exempt from mining tax.

Mining Tax Rate for Remote Mines — After the 10-year mining tax holiday period ends for new remote mines, a 5% mining tax rate applies to profits from the operation of a remote mine.

Processing Allowance — Mine operators that process mine output in Canada receive an allowance deduction from mining profits based on the capital cost of processing assets. The allowance can range from 8% to 20% depending on the type and location of the asset.

Items for Which an Estimate Is Not Available

Fast Writeoff of Exploration Costs — Up to 100% of exploration, development and pre-production costs incurred by a mine operator in Ontario may be deducted in a taxation year.

Exemptions

Life Leases — There is a land transfer tax (LTT) exemption for the acquisition of a unit in a non-profit or charitable life-lease development, where the unit is used as the principal residence of the owner, the owner's spouse or parent.

Deferrals and Exemptions for Corporate Reorganizations — Transfers between corporations can be made without LTT, providing the transfer is between affiliated corporations, or as part of certain corporate reorganizations, and is not registered on title.

Items for Which an Estimate Is Not Available

Hospital Restructuring — Transfers between hospitals as a result of an amalgamation or the closure/transfer of hospital programs are exempt.

Oil/Pipeline Easements and Mineral Lands — There are LTT exemptions regarding the acquisition of an easement or right of way in land for the purpose of enabling an oil or gas pipeline to be constructed/operated, and for certain acquisitions of mineral rights.

Other Transfers and Dispositions — There are LTT exemptions for certain transfers and dispositions of land, including conveyances to the Crown, transfers between spouses, and transfers of family farms or family businesses. There are also exemptions for unregistered dispositions relating to employee relocation packages, as well as for the acquisition of a de minimus interest in a partnership and the acquisition of a unit in a mutual fund trust.

There are also various other tax expenditures including no tax payable for a transfer of a leasehold interest in land that has an unexpired term that cannot exceed 50 years and a reduction in the value of consideration for land purchased to replace land taken under statutory authority.

Refunds

Refund for First-time Home Buyers — An LTT refund is available for first-time buyers of newly constructed homes. The maximum amount of the refund is $2,000.

Exemptions/Reduced Rates

Exemption for Biodiesel — Biodiesel is exempt from the 14.3 cents/litre tax under the Fuel Tax Act, regardless of whether it is mixed with diesel fuel.

Exemption for Coloured Fuel — Coloured fuel is exempt from the 14.3 cents/litre tax under the Fuel Tax Act. Examples of permitted coloured fuel use are operating unlicensed construction, forestry, mining, farm and other business equipment; generating electricity; use as heating, lighting or cooking fuel; and operating commercial marine vessels.

Reduced Rate for Railway Diesel — Diesel fuel used to power locomotives is taxed at the rate of 4.5 cents/litre.

Refunds

Auxiliary Power Take-off Equipment — Powering a unit from an engine that uses taxable fuel from a vehicle's tank is considered a "Power Take-off" function and qualifies for a refund of the 14.3 cents/litre fuel tax (e.g., mixer on ready-mix concrete trucks).

Exemptions/Reduced Rates

Exemption for Ethanol, Methanol and Natural Gas — Ethanol, methanol and natural gas are exempt from the 14.7 cents/litre gasoline tax. In the case of ethanol-gasoline blends, the ethanol portion of the blend is exempt.

Reduced Rate for Aviation Aircraft — Aviation fuel purchased or delivered in Ontario, or transferred into fuel tanks of an aircraft in Ontario, is taxed at the rate of 2.7 cents/litre.

Reduced Rate for Propane — Propane is taxed at the rate of 4.3 cents/litre.

Refunds

Auxiliary Power Take-off Equipment — Powering a unit from an engine that uses gasoline from a vehicle's tank is considered a "Power Take-off" function and qualifies for a refund of the 14.7 cents/litre gasoline tax.

Aviation Fuel — Aviation fuel used for technical stops refuelling at Ottawa International Airport is eligible for a refund of the 2.7 cents/litre aviation fuel tax.

Tax-exempt Use in Unlicensed Equipment — Any equipment or vehicle that is not licensed or required to be licensed under the Highway Traffic Act and operated in Ontario by any business, industry or institution (excluding recreational use) may qualify for a refund of gasoline and/or propane tax. Examples of equipment for which a refund may be claimed include unlicensed farming, construction and forestry equipment, and boats used in business operations such as commercial or construction boats.

Exemptions

25 Coin Pay Phone Calls — An RST exemption applies to the 25 charge for local telephone calls made by depositing coins into pay telephones.

Agricultural Goods — RST exemptions are provided for a wide range of agricultural products and goods used in the agricultural industry.

Audio Books Purchased by Persons Who Are Legally Blind — Audio books can be purchased exempt from RST by or for a person who is legally blind, as identified by a Canadian National Institute for the Blind membership card.

Automobile Insurance Premiums — Auto insurance premiums are exempt from RST.

Basic Groceries — Groceries exempt from RST include the majority of food products for preparation and consumption at home, as well as vitamins and minerals. Tax is charged on soft drinks, candies and confections, certain snack foods and alcoholic beverages.

Books, Newspapers and Magazines Sold by Subscription — Books published solely for educational, technical, cultural or literary purposes and containing no third-party advertising are exempt. Exempt newspapers include unbound printed publications that are usually issued daily or weekly, and contain news, advertising and literary matter. Exempt magazines include those that are sold by subscription and that are printed bound publications issued annually or more frequently and that contain articles from various identified contributors and may also contain pictures and advertising. This exemption also pertains to newsletters and to publications produced or purchased by religious, charitable or benevolent organizations. The 2005 Ontario Budget proposed that the RST exemption for publications produced or purchased by religious, charitable or benevolent organizations be extended to include CD-ROMs and DVDs used to promote the objectives of the organization.

Children's Car Seats and Booster Seats — Car seats intended to secure children within a motor vehicle and that meet prescribed federal government standards are exempt. The 2005 Ontario Budget proposed that the exemption be extended to include booster seats.

Children's Clothing — Clothing, in sizes up to and including girls' Canada Standard Size 16 and boys' Canada Standard Size 20, or clothing designed for girls or boys and sized small, medium or large, is exempt from RST. Diapers are also included in the exemption.

Commercial Aircraft, Vessels Greater than 1,400 Cubic Metres, and Commercial Vessels Less than 1,400 Cubic Metres — Commercial air and water transportation equipment generally capable of interjurisdictional travel is exempt.

Custom Software — Custom computer programs are exempt from RST. Custom computer programs are those that are designed and developed solely to meet the specific requirements of, and that are intended for the exclusive use of, a particular person. This includes computer programs that are modified to meet the specific requirements of a particular person where the price of the modification is greater than the cost of the pre-written program if sold separately, or if sold together, the price for the modified program is more than 200% of the unmodified program.

Donations to Schools, Colleges and Universities — Gifts to schools, colleges and universities are exempt from RST.

Educational CD-ROMs and DVDs — CD-ROMs purchased by schools, school boards, community colleges, universities and public libraries are exempt from RST. The 2005 Ontario Budget proposed that the exemption be extended to include educational DVDs, provided they will not be used for commercial exhibition for profit.

Energy — Forms of energy exempt from RST include electricity, home heating fuels, cooking fuels, wood, coal, coke and energy sources taxed under other Acts.

Feminine Hygiene Products — Sanitary pads, sanitary belts and tampons are exempt from RST.

Footwear Sold for $30 or Less — Regardless of size, individual footwear sold for $30 or less per pair is exempt.

Goods Purchased for Use by Fishers and Fur-trappers — RST exemptions are provided for a number of goods used by persons engaged in the business of fishing or fur-trapping.

Individual Life and Health Insurance Premiums — RST does not apply to premiums for individual life and health insurance.

Mobile Homes — Mobile homes are taxed at 8% on 50% of the dealer's selling price and modular homes at 8% on 55% of the manufacturer's selling price to the dealer. Mobile and modular homes eligible for exemption are those that are built to CSA Z240 standards and represent an alternate form of "home building" intended for permanent placement on a site.

Municipal Fire-fighting Equipment — Fire-fighting vehicles when purchased at a price of more than $1,000 per vehicle for the exclusive use of a municipality, university, public hospital, local services board or volunteer group, and repair parts for such vehicles, are exempt from RST.

Prepared Foods Sold for $4 or Less — Tax applies to all prepared foods, including takeout, with the exception of prepared foods for which the total charge is $4 or less.

Prescription Drugs and Medical Supplies — A variety of drugs, medicines and medical supplies used to treat or cope with an illness, chronic disease or physical disability are exempt from RST. This exemption may be conditional upon prescription by an authorized health care practitioner (e.g., prescription drugs, optical devices); purchase by a hospital or other health care facility for patient care (e.g., specialized beds, medical supplies, medical equipment); or goods designed solely for dealing with a particular condition and thus specifically exempted within the Retail Sales Tax Act (e.g., artificial limbs, orthopedics, other equipment or animals for persons with physical disabilities).

Production Machinery and Equipment — Machinery, equipment and other apparatus used primarily and directly in the manufacturing or production of tangible personal property are exempt. Ontario also exempts consumables and processing materials; R&D equipment for manufacturers and non-profit medical R&D equipment; explosives and refractory materials; plans and drawings; and typesetting, artwork and similar materials.

Religious Equipment — Equipment used by a religious institution exclusively in that part of its premises where religious worship or sabbath school is regularly conducted (e.g., altars, baptismal fonts, linens, organs, pulpits, stained glass) is exempt.

Repairs and Replacements Performed Under Warranty — Parts and labour used to carry out repairs under warranty are exempt from RST.

Seedlings — Cones, cuttings, seeds, seedlings, similar planting stock and other such silvicultural material when purchased for planting in a Crown forest, by a person holding a subsisting forest resource licence issued by the Ministry of Natural Resources, are exempt.

Services — Services are generally exempt except for a number of specifically listed items such as telecommunications, repair and maintenance labour, and parking.

Toll-free Telephone Services — Toll-free telephone services can be bought exempt by any commercial, industrial, institutional, vocational, occupational or other organization for business use. Toll-free telephone services include telephone numbers beginning with 1-800, 1-888, 1-877, 1-866, etc.

Transient Accommodation — Purchasers of transient accommodation (lodging in hotels, motels, hostels, apartment houses, clubs and other similar accommodation for periods of less than one month) pay tax at the rate of 5%.

University Research Equipment — Equipment purchased by the governing body of a university that is designed for use, and used exclusively in research and investigation, and repair parts for that equipment are exempt from RST.

Items for Which an Estimate Is Not Available

Admissions — All admissions $4 and under are exempt. In addition, a number of special exemptions are provided, including admissions to live theatrical or musical performances in places of amusement where 90% of the performers are permanent residents of Canada; admissions to live events (e.g., plays, ballets, concerts, operas) held at theatres with 3,200 seats or less; events such as trade shows that are restricted to members of specified organizations and not advertised as being open to the general public; fund-raising events where no performer is paid or receives any other consideration for performing; and events held or sponsored by federally registered Canadian amateur athletic associations and their affiliates, federally registered charitable groups, labour unions and benevolent and fraternal societies, agricultural societies operating a place of amusement during an agricultural fair, or recognized educational institutions.

Municipal, Hospital Restructuring — Sales tax is not payable by a municipality or public hospital on the acquisition of tangible personal property from another municipality or hospital as part of a statutory restructuring, legally required amalgamation or closure of a hospital or hospital program.

Museums and Art Galleries — Museums and art galleries that are more than 50% funded by public donations and grants by public bodies may purchase works of art exempt of sales tax.

Used Adult Clothing or Footwear Sold for $50 or Less by Religious, Charitable and Benevolent Organizations — The sale of used clothing and footwear by a religious, charitable or benevolent organization, where the clothing and footwear are sold in one transaction for $50 or less, is exempt from RST.

Credits/Rebates

Rebate for Alternative Fuel Vehicles — The RST paid on vehicles powered by alternative fuels is refunded, to a maximum of $750 for propane vehicles and $1,000 for vehicles powered by any other alternative fuel. Certain hybrid electric passenger vehicles are also eligible for the rebate.

RST Rebate for Building Materials for Religious, Charitable and Benevolent Organizations — The Minister may rebate to the governing body of a religious, charitable or benevolent organization the RST inherently paid on building materials used in the construction or repair of real property owned by or under lease for a minimum of 20 years to the organization.

Tax Credit for Fuel Conservation — A $100 RST credit, the Tax Credit for Fuel Conservation, is available to purchasers of a new passenger automobile that consumes less than six litres of fuel per 100 kilometres of highway driving.

Temporary Exemption for Destination Marketing Fees — There is an RST exemption for Destination Marketing Fees (DMFs) charged on transient accommodation on or after May 19, 2004 and on or before May 18, 2005. The 2005 Ontario Budget proposed that the exemption be extended to include DMFs billed on or before June 30, 2006.

Temporary Rebate for Building Materials Incorporated into Electricity Generating, Qualifying Nuclear and Deep Lake-water Cooling Facilities — A rebate is available for RST paid on building materials purchased and incorporated into eligible electricity generating facilities or deep lake-water cooling facilities on or after November 26, 2002 and on or before December 31, 2007. The rebate is also available for building materials purchased and incorporated into qualifying nuclear facilities on or after June 2, 2003 and on or before December 31, 2007. The rebate applies to new facilities as well as upgrades and expansions of existing facilities.

Temporary Rebate for Solar Energy, Wind Energy, Micro Hydro-electric and Geothermal Energy Systems — A rebate is available for RST paid on the purchase of a new solar energy system installed into a residential premises, including a multi-residential building, or on any expansion or upgrade to an existing solar energy system. Systems must be purchased and incorporated on or after November 26, 2002 and on or before November 25, 2007. The 2004 Ontario Budget extended the rebate to include wind energy, micro hydro-electric and geothermal energy systems, or any expansion or upgrade to those systems, purchased and incorporated into a residential premises, including a multi-residential building, on or after March 28, 2003 and on or before November 25, 2007.

Vendor Compensation — Compensation is given to vendors for collecting RST on behalf of the Province. Compensation is based on the amount of RST collected on sales for the period. The maximum amount that can be claimed in compensation is $1,500 for a 12-month period from April 1 to March 31.

Compensation for Tax Collectors — Those who collect tobacco tax may be paid the lesser of $2,000 or 4% of the tax collected from April 1 to March 31 annually. For tax increases, wholesalers may claim 5% of the tax differential when required to conduct an inventory by the minister.