: 2009 Ontario Economic Outlook and Fiscal Review

Descriptions of the Tax Provisions Listed in Transparency in Taxation, 2009

As of October 22, 2009

The following descriptions are intended to provide a basic understanding of the tax provisions, but do not replace the relevant legislation or regulations. The descriptions are listed in the order that they appear in Tables 1, 5, 6, 7, 8, 9 and 10 of Transparency in Taxation, 2009.

For the conditions and limitations of the tax provisions, please refer to the legislation and regulations available at www.e-laws.gov.on.ca.

Personal Income Tax — Description of Tax Provisions

Many of the Ontario non-refundable tax credits are based on amounts that are adjusted for inflation each year.

Ontario Non-refundable Tax Credits

Adoption Expense Credit — Tax filers may claim eligible expenses incurred to adopt a child under 18 years of age. The non-refundable tax credit is equal to 6.05 per cent of eligible adoption expenses up to $10,835 for each child.

Age Credit — Tax filers aged 65 and over are entitled to claim a credit of 6.05 per cent of up to $4,336. The base amount is reduced by the lesser of $4,336 and 15 per cent of the individual’s net income in excess of $32,280. Any unused portion may be transferred to a supporting spouse or common-law partner.

Amounts Transferred from a Spouse or Common-law Partner — The unused portions of the age credit, pension income credit, disability credit, and the tuition and education 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 per cent of $8,881.

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

Caregiver Credit — Tax filers who reside with an infirm dependent adult relative or an elderly parent/grandparent (including in-laws) may claim a credit equal to 6.05 per cent of $4,186 less the amount by which the dependant’s net income for the year exceeds $14,321.

Charitable Donations Credit — Tax filers may claim a credit of 6.05 per cent of the first $200 of eligible charitable donations and gifts plus 11.16 per cent of eligible 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 per cent of $7,175. Eligible tax filers under 18 years of age may claim an additional amount, the disability supplement, equal to 6.05 per cent of up to $4,185. The base is reduced by total child and attendant care expenses in excess of $2,451 claimed with respect to the child by anyone. Any unused amount may be transferred to a supporting relative.

Eligible Dependant Credit — Tax filers who qualify to claim an eligible dependant may claim 6.05 per cent of $7,541 less the amount by which the eligible dependant’s net income exceeds $754.

Employment Insurance (EI) Premiums Credit — Tax filers may claim 6.05 per cent of their EI premiums.

Infirm Dependant Credit — The amount that a tax filer may claim with respect to an infirm dependent adult relative is 6.05 per cent of $4,186 less the amount by which the dependant’s net income exceeds $5,950.

Medical Expense Credit — Tax filers may claim a credit for eligible non-reimbursed medical expenses, including those incurred on behalf of the tax filer’s spouse or common-law partner or minor children. For 2009, the credit is calculated as 6.05 per cent of eligible expenses in excess of the lesser of $2,010 and three per cent of the individual’s net income for the year. In addition, up to $10,835 of qualifying medical expenses paid on behalf of other dependent relatives may be claimed to the extent that they exceed the lesser of $2,010 and three per cent 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 per cent tax credit on up to $1,228 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 may claim 6.05 per cent of $7,541 less the amount by which their spouse’s or common-law partner’s net income exceeds $754.

Student Loan Interest Credit — A tax filer who takes out an eligible student loan may claim a credit of 6.05 per cent of the amount of interest paid on that loan in the year the interest is paid or in any of the subsequent five years. The credit is available with respect to payments under the Canada Student Loans Program and similar provincial programs.

Tuition and Education Credits — Students may claim a tuition credit of 6.05 per cent of eligible tuition fees and an education credit of 6.05 per cent of $478 (if enrolled full time, or part time if eligible for the disability credit) or $143 (if enrolled part time) for each month of enrolment at a qualifying postsecondary institution. The unused portion of the tuition 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 $6,141. To the extent that students do not claim or transfer all of their tuition and education credits in the year, the unused amounts can be carried forward indefinitely for their own use in a future year.

Ontario Tax Reduction

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 may claim a basic exemption of $205 plus a supplementary amount of $379 for each dependent child aged 18 or under and each disabled or infirm dependant. An individual pays no Ontario tax if tax otherwise payable is less than the sum of these amounts.

Ontario Labour Sponsored Investment Fund Tax Credits

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 non-refundable tax credit of 15 per cent of investments in LSIFs of up to $7,500 is available to eligible investors. The LSIF tax credit will be phased out in 2010 and 2011 and eliminated after the 2011 taxation year.

Research Oriented Investment Fund (ROIF) Tax Credit — In addition to the LSIF credit, a tax credit of five per cent of LSIF investments of up to $7,500 is available to eligible investors where the LSIF qualifies as a ROIF. The ROIF tax credit will be eliminated after the 2011 taxation year.

Ontario Refundable Tax Credits

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 five per cent refundable credit on eligible investments.

Ontario Political Contribution Tax Credit — Contributions to registered Ontario political parties as well as to their candidates and associations are eligible for a refundable tax credit of 75 per cent of the first $372 plus 50 per cent of the next $868 and 33.33 per cent of the next $1,581. A contribution of $2,821 or more results in a maximum credit of $1,240.

Ontario Property and Sales Tax Credits (OTCs) — The refundable OTCs may be claimed by low- and moderate-income tax filers to offset the cost of property taxes and provincial retail sales taxes. The Property Tax Credit is calculated as the lesser of occupancy cost and a basic property tax credit amount ($250 for non-senior single individuals or couples, or $625 for senior single individuals or couples), plus 10 per cent of occupancy cost. Occupancy cost is equal to property tax paid or 20 per cent of rent paid on an individual’s principal residence, plus $25 if residing in a student residence. 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. For non-seniors, the OTCs are jointly reduced by two per cent of family net income in excess of $4,000; for single seniors, the credits are jointly reduced by four per cent of family net income in excess of $22,000. For senior couples, the 2009 Budget proposed that the credits be jointly reduced by four per cent of family net income in excess of $24,750. The maximum OTCs are $1,000 for non-seniors and $1,125 for seniors. Starting in 2010, the OTCs would be replaced with a new Ontario Sales Tax Credit and a new Ontario Property Tax Credit.

Exemptions, Deductions, Deferrals and Other Measures Shared with the Federal Government

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 per cent 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 income is provided for the taxable 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 for Military and Police Deployed to High-risk International Missions — Members of the Canadian Forces or of 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 of Other Employment Expenses — Employees generally cannot deduct work-related expenses. However, specific employment expenses (such as 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 Security Options — Provided certain conditions are met, an employee of a corporation or Canadian mutual fund is allowed to deduct from net income 50 per cent of the security option benefit included in calculating employment income. In addition, when an arm’s-length employee acquires a publicly listed security under an option granted by the employer and donates it to a qualified donee within 30 days, the remaining employment benefit is exempt from tax.

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. Eligible expenses 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 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 Tradespersons’ and 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 portion of that income.

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 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.

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

Investment

$750,000 Lifetime Capital Gains Exemption for Farm or Fishing Property and Small Business Shares — A $750,000 lifetime capital gains exemption is available for gains with respect to the disposition of qualified farm and fishing property and small business shares.

Deduction of Allowable Business Investment Losses — Fifty per cent 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 tax expenditure represents the additional tax that would have been collected had the full amount of the capital gains been included in income.

Tax-Free Savings Accounts (TFSAs) – Non-taxation of Investment Income — Up to $5,000 may be contributed to a TFSA each year by individuals aged 18 and over. Capital gains and investment income earned within and withdrawals from the account are not taxable. Withdrawals and unused room may be carried forward for contributions in the future. Individuals may hold similar qualified investments in the account as in a Registered Retirement Savings Plan, such as bonds, stocks, mutual funds and Guaranteed Investment Certificates.

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 forward indefinitely.

Deferral of Capital Gains Through Five-year Reserves — 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 per cent 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 farming or fishing property are deferred in certain circumstances until the property is disposed of outside the immediate family.

Deferral of Capital Gains Through 10-year Reserves for Farm or Fishing Property and Small Business Shares — If proceeds from the sale of small business shares or from the sale of farm or fishing 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 per cent 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.

Exemption for Capital Gains Arising from Certain Donations — Capital gains on gifts of publicly listed securities to a qualified donee are exempt from tax. Also exempt in certain circumstances are capital gains from securities exchanged for publicly listed securities that are then donated to a qualified donee. In addition, capital gains on gifts of ecologically sensitive land to a qualified donee (other than a private foundation) are exempt from tax, as are capital gains on certain objects certified as being of cultural importance to Canada that are donated to a designated museum or art gallery.

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

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 — Guaranteed Income Supplement and Allowance benefits must be included in income. However, 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 and benefits.

Social Assistance Benefits and Provincial Supplements — Social assistance benefits and provincial supplements such as Ontario’s Guaranteed Annual Income System payments must be included in income. However, 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 and benefits.

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 ensuring that they are taken into account in determining income-tested credits and benefits.

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 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.

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

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 deduction may be claimed for certain expenses incurred with respect to an eligible child to allow an individual to earn income from employment, 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.

Pension Income Splitting — Individuals may allocate up to half of their qualifying pension income to their spouse or common-law partner and may claim a deduction from income for the allocated amount. The person to whom the amount is allocated must include the allocated amount in income, and may claim the pension income credit to the extent that the allocated amount is eligible, based on the transferee’s age, not the age of the person who allocates the pension income. Allocating pension income to a lower-income spouse or common-law partner may increase tax expenditures for tax credits claimed by those individuals, such as the age credit or pension income credit. At the same time, pension income splitting may reduce tax expenditures for other tax measures provided to recognize that an individual’s income can support other family members. This happens because increasing the income reported by a lower-income spouse or common-law partner reduces the amounts that can be claimed by the higher-income spouse or common-law partner with respect to these measures. Such measures include the spouse or common-law partner credit and the transfer of unused amounts from a spouse or common-law partner (e.g., age credit, pension income credit, disability credit and tuition and education credits).

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 certain expenses from income with respect to disability supports if they are incurred for education or employment purposes.

Exemption of Scholarship, Fellowship and Bursary Income — For students eligible for the education credit, 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) — Deduction for Contributions — Contributions by individuals to registered plans are deductible, subject to certain limits.

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 Disability Savings Plans (RDSPs) — Non-taxation of Investment Income and Federal Contributions — Investment income on contributions to RDSPS and federal assistance will accumulate tax free in the plans and contributions will not be included in income for tax purposes when they are withdrawn. Only the portion of withdrawals from an RDSP that relates to federal assistance and investment income will be included in the income of the person with a disability. Individuals benefit from a deferral of tax on investment income and federal contributions until funds are withdrawn from these plans.

Registered Education Savings Plans (RESPs) — Non-taxation of Investment Income and Federal Contributions — Individuals may contribute to RESPs on behalf of designated children. Federal assistance and investment income accrued within the plans are not taxed until withdrawn for the postsecondary education of the named beneficiaries. Withdrawals are taxed in the hands of the beneficiaries.

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

RRSPs — Non-taxation of Investment Income — Investment income earned in these plans is not taxed as it accrues. Individuals benefit from a deferral of tax on investment income and capital gains until funds are withdrawn, with certain exceptions. For example, individuals can make tax-free withdrawals from their RRSPs to buy their first home under the Home Buyer’s Plan, or to enroll in full-time training or higher education under the Lifelong Learning Plan. The withdrawals must be repaid in annual instalments within 15 years or 10 years, respectively. Also, after 2008, the amount of post-death decreases in the value of an RRSP can be carried back and deducted against the year-of-death RRSP income inclusion.

Corporate Tax — Description of Tax Provisions

Corporate Income Tax

Ontario Refundable Tax Credits

Ontario Apprenticeship Training Tax Credit — A 25 per cent (30 per cent for small businesses) refundable Corporate/Personal Income Tax credit is available to corporations and unincorporated businesses on the labour expenses of qualifying apprentices in industrial, construction, motive power and certain service trades. The 2009 Budget proposed to enhance the credit rate to 35 per cent (45 per cent for small businesses), effective for expenditures incurred after March 26, 2009.

Ontario Book Publishing Tax Credit — A 30 per cent refundable tax credit is available to Ontario book publishing corporations for publishing and promoting qualifying books by a Canadian author in an eligible category of writing.

Ontario Business Research Institute Tax Credit — A 20 per cent refundable tax credit is available to corporations for qualifying research and development (R&D) expenditures incurred as part of an eligible research contract with an eligible Ontario research institute.

Ontario Computer Animation and Special Effects Tax Credit — A 20 per cent refundable tax credit is available to corporations for eligible labour expenses related to digital animation and special effects in qualifying Ontario film and television productions.

Ontario Co-operative Education Tax Credit — A 25 per cent (30 per cent for small businesses) refundable Corporate/Personal Income Tax credit is available to corporations and unincorporated businesses on the labour expenses of qualifying postsecondary co-op students.

Ontario Film and Television Tax Credit — A 35 per cent refundable tax credit for labour expenses is available to corporations for certified domestic film and television productions in Ontario. First-time producers are eligible for a 40 per cent credit on the first $240,000 of eligible labour expenses. A 10 per cent regional bonus credit is available where certain production activities occur outside the Greater Toronto Area.

Ontario Innovation Tax Credit — A 10 per cent refundable tax credit is available to small corporations with qualifying Scientific Research and Experimental Development (SR&ED) expenditures in Ontario.

Ontario Interactive Digital Media Tax Credit — A 25 per cent (30 per cent for small corporations) refundable tax credit for qualifying labour, marketing and distribution expenses is available for corporations that develop their own digital media products. A corporation may claim a 25 per cent refundable tax credit for qualifying labour expenses under a fee-for-service arrangement.

The 2009 Budget proposed to enhance the tax credit to 40 per cent for qualifying corporations, regardless of size, that develop their own eligible products and to 35 per cent for qualifying corporations that develop eligible products under a fee-for-service arrangement, effective for qualifying expenditures incurred after March 26, 2009.

Ontario Production Services Tax Credit (OPSTC) — A 25 per cent refundable tax credit for labour expenditures is available to corporations for qualifying foreign film and television production services and non-certified domestic film and television productions in Ontario.

As announced on June 29, 2009, effective for expenditures incurred after June 30, 2009, the government proposes to expand the OPSTC to additional production expenditures incurred in Ontario, including eligible service contracts as well as the purchase or rental of qualifying tangible properties such as equipment and studio rentals.

Ontario Sound Recording Tax Credit — A 20 per cent refundable tax credit is available to Ontario sound recording corporations for producing and marketing sound recordings by an emerging Canadian artist or group.

Ontario Deductions, Non-refundable Tax Credits and Exemptions

Ontario Credit Union Tax Reduction — Credit unions are eligible for a reduced Corporate Income Tax (CIT) rate of 5.5 per cent on taxable income in excess of the income eligible for the small business deduction in order to maintain the small business rate on all credit union taxable income.1

Ontario Political Contributions Tax Credit — A non-refundable tax credit, based on the general CIT rate, is available for eligible Ontario political contributions of up to $18,600 for taxation years ending after December 31, 2008.

Ontario Research and Development Tax Credit — A 4.5 per cent non-refundable tax credit is available to corporations on qualifying Ontario SR&ED expenditures.

Ontario Small Business Deduction — Canadian-controlled private corporations are eligible for a reduced CIT rate of 5.5 per cent on the first $500,000 of active business income. The Small Business Deduction Surtax of 4.25 per cent phases out the benefit of the lower rate as taxable income rises to $1,500,000.1

Ontario Tax Credit for Manufacturing and Processing (M&P) — The general CIT rate is reduced by two percentage points from 14 per cent to 12 per cent for income from M&P (including income from the generation of electricity and from the production of steam), farming, fishing, mining and logging. 2

Ontario Tax Exemption for Commercialization — New corporations established after March 24, 2008 and before March 25, 2012 that commercialize intellectual property developed at qualifying Canadian universities, colleges or research institutes are eligible for a refund of CIT paid in their first 10 taxation years.

Items for Which an Estimate is not Available

Ontario Resource Tax Credit — A non-refundable tax credit is available where a corporation’s notional resource allowance exceeds the amount paid with respect to Crown royalties.

Exemptions, Deductions, Deferrals and Other Measures 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 of Cultural Property and Ecologically Sensitive Land — Gifts of cultural property and ecologically sensitive land 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.

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 per cent to 15 per cent) that may be held back until a project is completed satisfactorily.

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 Write-off of Capital Assets and Resource-related Expenditures — An accelerated write-off permits an asset to be depreciated more quickly for tax purposes than the true economic rate of depreciation based on an asset’s useful life. Accelerated write-offs are provided for certain classes of capital equipment for R&D, high-efficiency and renewable energy generation as well as costs associated with exploration and development.

Temporary Incentive for Computers — Computers are eligible for a 55 per cent capital cost allowance (CCA) rate on a declining-balance basis. A temporary 100 per cent accelerated CCA rate is available for eligible computers and software acquired after January 27, 2009 and before February 2011.

Temporary Incentive for Manufacturing and Processing (M&P) Machinery and Equipment — An accelerated CCA rate of 50 per cent on a straight-line basis is available to corporations for assets acquired after March 18, 2007 and before 2012.

Cash-basis and Flexibility in Inventory Accounting — Farming and fishing corporations 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.

Donations of Medicine for the Developing World — Corporations that make donations of medicine from their inventory may claim an additional charitable deduction equal to the lesser of 50 per cent of the difference between the value of the donated medicine and its cost, and the cost of the medicine.

Exemption for Capital Gains Arising from Certain Donations — Capital gains on gifts of publicly listed securities to a qualified donee are exempt from tax. Also exempt in certain circumstances are capital gains from securities exchanged for publicly listed securities that are then donated to a qualified donee. In addition, capital gains on gifts of ecologically sensitive land to a qualified donee (other than a private foundation) are exempt from tax, as are capital gains on certain objects certified as being of cultural importance to Canada that are donated to a designated museum or art gallery.

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.

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

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.

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.

Capital Tax3

Capital Tax Deduction — A deduction of $15 million is permitted in calculating Ontario capital tax.

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

Small Business Investment Tax Credit for Financial Institutions — A non-refundable tax credit on the capital tax liability of financial institutions is available for patient capital investments in small businesses and for below-prime loans made to small businesses.

Mining Tax

Mining Tax Exemption — A mining tax exemption is available to a mine operator for annual mining profits of up to $500,000.

Mining Tax Holiday for Mines (other than remote mines) — Up to $10 million of profit over the first three years generated by a new mine or a major expansion of an existing mine is exempt from mining tax.

Mining Tax Holiday for New Remote Mines — Up to $10 million of profit over the first 10 years generated by a new mine opened in a remote Ontario location is exempt from mining tax.

Mining Tax Rate for Remote Mines — After the mining tax holiday ends for new remote mines, the mining tax rate is reduced from 10 per cent to 5 per cent on the profits from the operation of a remote mine.

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

Items for Which an Estimate is not Available

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

Sales and Commodity Tax — Description of Tax Provisions

Fuel Tax

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 fuel from the vehicle’s fuel tank is considered a “Power Take-off” function (e.g., refrigeration units). The tax paid on the fuel used to power the unit may qualify for a refund of the 14.3 cents/litre fuel tax.

Gasoline Tax

Exemptions/Reduced Rates

Exemption for Methanol and Natural Gas — Methanol and natural gas are exempt from the 14.7 cents/litre gasoline tax.

Reduced Rate for Aviation Fuel — Aviation fuel purchased or delivered to a person, or when transferred into fuel tanks of an aircraft, 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 the vehicle’s fuel tank is considered a “Power Take-off” function. The tax paid on the gasoline used to power the unit may qualify 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.

Land Transfer Tax (LTT)

Exemptions

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

Family Business Conveyances — There is an LTT exemption for conveyances of land from one or more family members to a family business corporation where the land is to be used in the continued operation of an active business.

Family Farms — There are LTT exemptions for conveyances of farmed land to a family farm corporation, between individual family members, and from family farm corporations to individual family members after March 25, 2008.

Life Leases — There is an 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.

Items for Which an Estimate is not Available

Hospital Restructuring — Transfers of land 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 on 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 conveyances of land, including conveyances to the Crown and transfers between spouses. 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 resulting from conveyances where no tax is payable, such as 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 new homes or resale homes purchased after December 13, 2007. The maximum amount of the refund is $2,000.

Tobacco Tax

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

Education Property Tax — Description of Tax Provisions

Brownfields Financial Tax Incentive Program — Municipalities may freeze or cancel the taxes on eligible brownfields properties for a defined period, and the Province may provide matching relief from education tax.

Charity Rebate — Municipalities must rebate a minimum of 40 per cent of the municipal and education taxes paid by charities occupying property in the commercial and industrial property classes, and may rebate any amount of property taxes paid by charities in other property classes. Municipalities may also rebate any percentage of the municipal and education taxes paid by organizations that are similar to eligible charities such as non-profit organizations.

Conservation Land Property Tax Exemption Program — Eligible conservation lands are exempt from municipal and education property taxes.

Eligible Convention Centres Exemption — Eligible large, privately owned convention centres are exempt from education property taxes.

Eligible Live Performance Theatres Exemption and Professional Sports Facility Tax Rate Reduction — Eligible theatres for live performances are exempt from municipal and education property taxes. Eligible professional sports facilities may receive a locally determined reduction from the otherwise applicable tax rates. Education taxes are reduced by an equivalent amount to the municipal taxes.

Farmlands Awaiting Development Sub-class Tax Rate Reduction — Eligible farmlands awaiting development may receive a locally determined reduction from the otherwise applicable tax rates.

Farm Property Class Tax Rate Reduction — Eligible farm properties are subject to residential education property tax rates reduced by 75 per cent. For municipal purposes, these properties are subject to residential property tax rates reduced by a locally determined amount of at least 75 per cent.

Heritage Property Tax Rebate — Municipalities may adopt a program to reduce the municipal and education property taxes of eligible heritage properties by up to 40 per cent.

Managed Forest Tax Incentive Program — Eligible managed forest properties are subject to residential property tax rates for municipal and education purposes that are reduced by 75 per cent.

Seniors and Persons with Disabilities Property Tax Relief — Expenditures under this category include locally determined municipal and education property tax relief in the form of reduced, cancelled or deferred reassessment-related tax increases on residential properties of low-income seniors and persons with disabilities; the exemption from property taxation of improvements to an existing home to accommodate seniors or persons with disabilities; and the exemption from taxation on 10 per cent of the assessment of newly built homes that provide accommodation to seniors and persons with disabilities.

Tax Exemptions Under Private Statutes — Property tax exemptions have been granted through private statutes to various cultural, heritage, recreational and community service organizations (e.g., YMCAs).

Vacant Commercial and Industrial Unit Rebate — Municipalities must rebate from 30 per cent to 35 per cent of the municipal and education property taxes paid with respect to vacant commercial and industrial buildings or portions of buildings (if vacancy is at least 90 consecutive days).

Vacant Land and Excess Land Sub-class Tax Rate Reduction — Municipal and education property tax rates on vacant and excess lands in the commercial and industrial property classes are reduced by 30 per cent to 35 per cent of the otherwise applicable class tax rates.

Items for Which an Estimate is not Available

Other Tax Exemptions under Public Statutes:

(1) Discretionary exemptions granted by municipalities to special purpose properties include:

  • properties used and occupied as memorial homes, clubhouses or athletic grounds by veterans of the Canadian or Allied Armed Forces;
  • properties owned by the Navy League of Canada and used and occupied solely for the purposes of carrying out the activities of the Ontario division of the Navy League;
  • municipal capital facilities operated by private-sector partners and used for municipal purposes. Examples of such facilities could include ice rinks, community centres and municipal housing project facilities; and
  • properties occupied by not-for-profit hospital service corporations for providing laundry and/or food services.

(2) Mandatory exemptions granted to special purpose/institutional properties include:

  • places of worship that are owned by a church or religious organization, including 50 per cent of the principal residence of the clergy;
  • cemeteries and burial sites;
  • land owned, used and occupied solely by a non-profit philanthropic, religious or educational seminary of learning;
  • land owned by a municipality (but not if occupied by a taxable tenant);
  • property owned, occupied and used solely by The Boy Scouts Association of Canada or The Canadian Girl Guides Association;
  • land owned, used and occupied by a non-profit philanthropic corporation for the purpose of a house of refuge;
  • land owned, used and occupied by the Canadian Red Cross, St. John Ambulance, or a charitable, non-profit philanthropic corporation organized for the relief of the poor that is supported in part by public funds;
  • the property of a children’s aid society if used exclusively for the purposes of and in connection with the society;
  • the property of scientific and literary institutions including public libraries and agricultural societies to the extent that it is occupied for the purposes of the society;
  • battle sites; and
  • exhibition sites (extent determined by municipal bylaw).

Relief from Property Taxes That Are Unduly Burdensome for Residential, Farm or Managed Forest Properties — Municipalities may reduce municipal property taxes where they are determined to be unduly burdensome to the owner of property in the residential, farm or managed forest property classes. Education taxes are reduced in the same proportion as municipal taxes.

Employer Health Tax — Description of Tax Provisions

$400,000 Exemption for Private-sector Employers — The Employer Health Tax is payable by all Ontario employers. Private-sector employers are exempt from tax on the first $400,000 of annual total Ontario remuneration.

Estate Administration Tax — Description of Tax Provisions

Exemption Where the Value of the Estate Does Not Exceed $1,000 — The Estate Administration Tax is payable by the estate of a deceased person immediately upon the issuance of an estate certificate. If the value of the estate does not exceed $1,000, the estate is exempt from tax.

Exemption for Portion of Estate in an Eligible Plan with a Designated Beneficiary — Eligible plans with a designated beneficiary, such as Tax-Free Savings Accounts (TFSAs), RRSPs and RRIFs, can pass to the designated beneficiary without being subject to the Estate Administration Tax.

Gross Revenue Charge — Description of Tax Provisions

Gross Revenue Charge (GRC) 10-year Holiday — The GRC is paid with respect to hydro-electric generating sites, replacing municipal and education property taxes and provincial water rental charges. A 10-year holiday from the GRC is provided for eligible new, expanded and redeveloped hydro-electric generating stations.

  • 1 The 2009 Budget proposed to reduce the small business CIT rate from 5.5 per cent to 4.5 per cent and eliminate the Small Business Deduction Surtax on July 1, 2010.
  • 2 The 2009 Budget proposed to reduce the M&P CIT rate to 10 per cent and the general CIT rate to 12 per cent, effective July 1, 2010. The general CIT rate would be further reduced to 10 per cent over the following three years.
  • 3 Ontario has legislated a plan to eliminate the Capital Tax effective July 1, 2010 and has already eliminated Capital Tax, effective January 1, 2007, for Ontario corporations primarily engaged in M&P and resource activities.