2011 Ontario Budget: Chapter III: Tax and Pension Systems for Ontario’s Future

Highlights

Ontario’s Tax Plan for Jobs and Growth

  • Ontario’s Tax Plan for Jobs and Growth will help increase capital investment by $47 billion and create nearly 600,000 net new jobs by 2020.
  • Ontario’s Tax Plan for Jobs and Growth will provide tax relief of $12 billion for people over three years.
  • By December 2010, an estimated two-thirds of business savings from the Harmonized Sales Tax had already been passed on to consumers through lower prices.
  • The proposed Ontario Trillium Benefit would combine payments of refundable tax credits and deliver them on a monthly basis, starting in July 2012, to help low- to moderate-income families and single people better manage their household budgets.
  • Ontario is taking steps to improve the administration and enforcement of Ontario’s tax system.

Securing Our Retirement Future: Reform of the Pension and Retirement Income Systems

  • The government has undertaken ambitious, balanced reforms to modernize Ontario’s employment pension system.
  • The government has taken action to protect Ontario pension beneficiaries.
  • Ontario supports a modest, phased-in and fully funded enhancement to the Canada Pension Plan.
  • Ontario is exploring innovative types of pension plans to improve workforce coverage.

Section A: Ontario's Tax Plan for Jobs and Growth

As Ontario’s economy emerges from the global recession, Ontario’s Tax Plan for Jobs and Growth will help ensure sustained economic growth and job creation by significantly improving Ontario’s tax competitiveness. A more competitive tax system allows Ontario businesses to better compete in export markets and enhances Ontario’s attractiveness as a location for businesses to invest, leading to more jobs and higher incomes for Ontarians.

“Coming out of this global recession, it is the government’s responsibility to take action to get people back to work and get more businesses investing in Ontario. To do nothing is simply not a good option and I commend the McGuinty government for taking this bold step forward.”

Maritime-Ontario Freight Lines Ltd., July 29, 2010.

“We want to bring on more quality staff and create more quality jobs, and the HST is one thing that will help us get there a little bit sooner.”

Jas Brar, Owner and Chief Executive Officer, Entripy Custom Clothing, May 18, 2010.

“Ontario has made great strides in recent years to substantially improve competitiveness of the business tax system: from the elimination of capital tax, corporate income tax cuts, reduction of Corporate Minimum Tax, elimination of the small business claw-back, accelerated Capital Cost Allowance for manufacturing and process equipment, elimination of the PST, to the harmonization of sales tax, these measures collectively lower the after tax cost of capital investment in Ontario significantly. I am not sure how many jurisdictions can boast such a nice score card.

The recent tax measures put in place by the Ontario government have significantly benefited our business in terms of helping manufacturing companies become more competitive in the global market place. At our Tiercon facilities we’ve been able to actually triple the employment levels from just over 80 in 2005, to almost 300 people in 2011. These tax measures help improve productivity by incentivizing companies to invest in new process, technology and innovations, in addition to freeing up cash flow for operations.”

AGS Automotive Systems & Tiercon, March 9, 2011.


The plan also provides significant direct benefits to Ontarians. To further assist Ontario households, this Budget proposes to combine payments of three tax credits provided under the plan into the Ontario Trillium Benefit and deliver it monthly to help low- to moderate-income families and single people better manage their household expenses.

During the first full year of the Harmonized Sales Tax (HST), Ontario households will have a total net saving of $2.5 billion under the plan and the Ontario Clean Energy Benefit. During the third full year, when the Ontario Sales Tax Transition Benefit is no longer available, the total net saving will amount to $530 million.

A strong and competitive tax system also needs enhanced enforcement and compliance. This Budget proposes a number of measures to ensure that those owing taxes pay their fair share and that Ontario’s tax system yields the revenue necessary to support public services.

Ontario’s Tax Plan for Jobs and Growth1

The three pillars of Ontario’s Tax Plan for Jobs and Growth build a strong foundation for job creation, long-term economic growth and preservation of public services.

Relief for People Sales Tax Reform Competitive Business Taxes
  • $12 billion in tax relief over three years, including:
    • Personal Income Tax cuts for 93 per cent of Ontario taxpayers
    • Personal Income Tax eliminated for 90,000 lower-income taxpayers
    • Ontario Sales Tax Credit
    • Children’s Activity Tax Credit
    • Ontario Energy and Property Tax Credit
    • Ontario Sales Tax Transition Benefit
    • Northern Ontario Energy Credit
  • Ontario Clean Energy Benefit for consumers
  • $4.5 billion per year in embedded taxes removed
  • $400 million in HST transition payments for small businesses
  • No tax change for 83 per cent of consumer spending
  • Point-of-sale exemptions on items such as books and children’s clothing
  • New housing rebate
  • Over $500 million per year reduction in business compliance costs from single administration
  • $100 million per year in administrative savings to Ontario government
  • Reducing the number of Ontario Public Service positions by 1,253 through federal administration
  • Over $4.8 billion in relief over three years
    • Corporate Income Tax rate cuts for large and small businesses
    • Eliminated small business deduction surtax
  • Over $1.6 billion per year from Capital Tax elimination
  • $540 million per year from Business Education Tax rate cuts
  • Ontario Clean Energy Benefit for small businesses and farms
  • Over $135 million per year in business compliance cost savings* from a single corporate tax administration
  • $50 million per year in administrative savings to Ontario government
1 All estimates are based on full implementation. Estimates are as of the 2010 Ontario Economic Outlook and Fiscal Review, except where otherwise noted with an asterisk (*).

How the Tax Plan Helps People

Ontario’s Tax Plan for Jobs and Growth provides tax relief of $12 billion to people over three years.

The plan permanently reduced Ontario’s first Personal Income Tax (PIT) bracket rate from 6.05 per cent to 5.05 per cent on January 1, 2010, which means that Ontarians currently pay the lowest provincial PIT rate on their first $37,774 of taxable income.

“Coming into this budget we had serious concerns that tax harmonization would mean low-income families paying more for their basic needs such as children’s shoes and meals. The Sales Tax Credit is a sensible, forward-looking way to deal with that, and could become an important long-term piece of the economic security puzzle for poor people in the future. We applaud the government’s plan.”

Michael Oliphant, Director of Research and Communications,
Daily Bread Food Bank, March 26, 2009.


For families receiving provincial sales tax credits, the Ontario Sales Tax Credit (OSTC) provides, on average, the most generous provincial sales tax relief in Canada.

The government has delivered on its 2010 Budget commitment to create a new web portal to improve access to program information. The new web portal was launched in March 2011. A calculator to help people estimate how much money they can receive from a number of Ontario tax credits and benefits by filing an income tax return is now available online.

Helping Ontarians

Ontario Sales Tax Transition Benefit — Families can get three payments totalling up to $1,000. Single people can get three payments totalling up to $300.

Ontario Sales Tax Credit (OSTC) — Ontario families can get up to $260 per year for each adult and child. Seniors and single people can also qualify.

Helping Families with Children

Children’s Activity Tax Credit (CATC) — Parents who have children enrolled in extracurricular activities can get up to $50 per year for each child under 16. They can receive up to $100 for each child with a disability who is under 18.

Ontario Child Benefit — Parents can get up to $1,100 per year for each dependent child under 18.

Helping Seniors

Ontario Senior Homeowners’ Property Tax Grant — Seniors who own a home can qualify to get up to $500 per year to help with their property taxes.

Guaranteed Annual Income System — Ontarians who are 65 or older can qualify for up to $996 per year to guarantee a minimum level of income. Payments are issued monthly on top of federal Old Age Security pension and Guaranteed Income Supplement payments.

Helping Those Who Own, Rent or Pay Energy Costs

Ontario Energy and Property Tax Credit (OEPTC) — Ontarians can get up to $900 per year to help with the sales tax on energy and with property taxes. Qualifying seniors can get up to $1,025 back.

Northern Ontario Energy Credit (NOEC) — Residents of northern Ontario can get up to $130 for a single person or up to $200 for a family per year.

Note: These credits and benefits are reduced or eliminated for higher-income people, except for the CATC. Amounts shown are for benefit years beginning in 2010. The amounts for OSTC, CATC, OEPTC and NOEC are adjusted each year for inflation.

Ontario Trillium Benefit

Refundable tax credits play an important role in providing low- to moderate-income Ontarians with relief for taxes and energy costs. As part of Ontario’s Tax Plan for Jobs and Growth, the government is providing $1.4 billion annually in enhancements to assistance provided through the refundable Ontario Sales Tax Credit (OSTC), Ontario Energy and Property Tax Credit (OEPTC) and Northern Ontario Energy Credit (NOEC), for a total of $2.4 billion each year.

The government has introduced changes to better match the payment of these credits to when people incur expenses by paying these credits earlier and on a quarterly basis, instead of paying them in a lump sum after people file their income tax returns.

The Province proposes to take the next step in transforming refundable tax credits by introducing the Ontario Trillium Benefit (OTB) in July 2012. To better align the timing of the assistance with the expenses that people face, the payments of these three credits would be combined and delivered on a monthly basis. More frequent and predictable benefit payments would help low- to moderate-income families and single people better manage their household budgets.

OTB

Ontario Trillium Benefit:
Illustrative Examples (Using 2011 Credit Amounts)

Example 1:

A single parent with one child and adjusted net income of $20,000 paying $629 per month in rent would receive a total of $936 from the OSTC and OEPTC over eight payments. Under the proposed OTB, the single parent would receive 12 equal monthly payments.

   2012 2013   
  Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Total
Current ($) 133 101 133 101 133 101 133 101 936
OTB ($) 78 78 78 78 78 78 78 78 78 78 78 78 936

Example 2:

A senior couple with adjusted family net income of $35,000 paying $1,200 per month in rent would receive a total of $984 from the OSTC and OEPTC over eight payments. Under the proposed OTB, the couple would receive 12 equal monthly payments.

   2012  2013  
  Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Total
Current ($) 37 209 37 209 37 209 37 209 984
OTB ($) 82 82 82 82 82 82 82 82 82 82 82 82 984

Example 3:

A family of four with adjusted family net income of $25,000 paying $920 per month in rent would receive a total of $1,536 from the OSTC and OEPTC over eight payments. Under the proposed OTB, the family would receive 12 equal monthly payments.

  2012  2013   
  Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Total
Current ($) 265 119 265 119 265 119 265 119 1,536
OTB ($) 128 128 128 128 128 128 128 128 128 128 128 128 1,536

Passing on Business Savings to Consumers

Under the old Retail Sales Tax, most businesses paid sales tax on their purchases, which raised production costs and consumer prices. The HST refunds the sales tax paid by most businesses. These refunds (or input tax credits) provide a cost saving to businesses that can be passed on to consumers through lower prices. Also, for items that are newly taxed under Ontario’s portion of the HST, businesses might absorb part of the tax increase due to competitive pressures. In both situations, the impact of the HST on consumers is reduced.

“We’re saving this year thousands of dollars from the demise of the PST and the introduction of the HST and our customers are already saving… the HST is a win-win for my company and our clients.”

Brent Kobayashi, President, Kobayashi Online, July 2, 2010.


A recent study by Professor Michael Smart of the University of Toronto examined the impact of the HST on consumer prices in Ontario during the first six months of the HST.1 The study found that, over this period, the impact of the HST on consumers did indeed decline as businesses either passed through savings or absorbed part of the tax increase. Professor Smart estimated that by December 2010, an amount equal to about two-thirds of the saving to businesses from input tax credits had already been passed on to consumers through lower prices.

A study by Professor Michael Smart on the impact of the HST on Ontario consumers found that:

  • “The effect of harmonization was to raise consumer prices in Ontario by an estimated 0.9 per cent in July 2010.
  • By December, the effect of harmonization had fallen to an estimated 0.6 per cent, as sellers increasingly adjusted prices to absorb some of the consumer tax increase.
  • The gradual decline in price impact over time reflects how input tax credits are passed on to consumers by businesses, or how the new taxes are otherwise being absorbed by sellers. These estimates suggest that about two-thirds of new input tax credits are already reflected in lower consumer prices.”

To view Professor Smart’s report, visit http://policyschool.ucalgary.ca/publications.

Tax Plan Savings to Households 

Ontario’s Tax Plan for Jobs and Growth and the Ontario Clean Energy Benefit will result in an overall saving to households. During the first full year of the HST, when two of the three Ontario Sales Tax Transition Benefit payments are made, Ontario households have a total net saving of $2.5 billion. During the third year when the transitional benefit is no longer available, the net saving is $530 million (see Table 1).

TABLE 1. Total Annual (Saving)/Cost to Households (Full-Year)1
$ Millions
  Year 1 Year 32
Tax Shift to Consumer Base3 4,230 4,670
Personal Income Tax Cut (1,130) (1,130)
Ontario Sales Tax Credit Enhancement (825) (825)
Ontario Energy and Property Tax Credit Enhancement (525) (525)
Ontario Sales Tax Transition Benefit (2,785)
Northern Ontario Energy Credit (35) (35)
Children's Activity Tax Credit (75) (75)
Ontario Clean Energy Benefit (305) (685)
Total Relief for Households (5,680) (3,275)
Pass-Through of Business Savings (1,075) (1,925)
Total Savings to Households (2,525) (530)
1 Updated from January 19, 2011 to include the pass-through of two-thirds of business input tax credit savings in year 1 as estimated in Professor Smart's study "The Impact of Sales Tax Reform on Ontario Consumers: A First Look at the Evidence" (2011).
2 Year 3 figures use the same income tax and credit parameters as year 1 and do not take into account the expected income growth resulting from the plan. The HST estimates include additional home purchases and renovations from year 1 to year 3, while the number of households is held constant.
3 New home purchases are amortized to reflect a 10 per cent down payment, 25-year mortgage term and 5.15 per cent mortgage rate. Major renovations (> $5,000) are amortized over five years using a 5.15 per cent borrowing rate.

Table 2 presents the average saving or cost to Ontario households by income range. In the first full year of the HST, households with income up to $300,000 will, on average, have an overall net saving. In the third year, when the transitional benefit is no longer available, households with income under $90,000 — representing over two-thirds of the households — will, on average, have a net saving. In both years, the net saving generally declines as income rises.

TABLE 2. Average Annual (Saving)/Cost by Household Income1
 Annual Income3 Per Cent of
Households
(%)
Year 1 Year 32
HST4
($)
Total
Relief5
($)
Net
(Saving)/
Cost
($)
HST4
($)
Total
Relief6
($)
Net
(Saving)/
Cost
($)
$4,000–$20,000 12 225 (730) (510) 195 (455) (260)
$20,000–$30,000 10 290 (970) (680) 250 (620) (370)
$30,000–$40,000 10 360 (1,115) (755) 320 (690) (370)
$40,000–$50,000 9 420 (1,135) (715) 380 (680) (300)
$50,000–$60,000 8 480 (1,130) (650) 435 (640) (205)
$60,000–$70,000 7 530 (1,130) (595) 480 (605) (125)
$70,000–$80,000 6 580 (1,160) (580) 530 (605) (80)
$80,000–$90,000 6 630 (1,170) (545) 570 (605) (35)
$90,000–$100,000 5 685 (1,210) (520) 640 (625) 15
$100,000–$125,000 10 760 (1,290) (530) 715 (670) 45
$125,000–$150,000 7 855 (1,375) (520) 800 (715) 85
$150,000–$300,000 10 1,040 (1,220) (180) 985 (755) 230
1 Updated from January 19, 2011 to include the pass-through of two-thirds of business input tax credit savings in year 1 as estimated in Professor Smart's study "The Impact of Sales Tax Reform on Ontario Consumers: A First Look at the Evidence" (2011).
2 Year 3 figures use the same income tax and credit parameters as year 1 and do not take into account the expected income growth resulting from the plan. The HST estimates include additional home purchases and renovations from year 1 to year 3, while the number of households is held constant.
3 Household income is the sum of pre-tax market income and includes provincial and federal transfers. Households with income below $4,000 or above $300,000 are not included due to sampling limitations.
4 HST is net of pass-through of business savings.
5 Includes the Personal Income Tax cut, Ontario Sales Tax Credit enhancement, Ontario Energy and Property Tax Credit enhancement, two of the three Ontario Sales Tax Transition Benefit payments, Northern Ontario Energy Credit, Children's Activity Tax Credit, and six months of the Ontario Clean Energy Benefit.
6 Includes the Personal Income Tax cut, Ontario Sales Tax Credit enhancement, Ontario Energy and Property Tax Credit enhancement, Northern Ontario Energy Credit, Children's Activity Tax Credit, and a full year of the Ontario Clean Energy Benefit.
Note: Totals may not add due to rounding.

Competitive Business Taxes

Ontario’s Tax Plan for Jobs and Growth provides more than $4.8 billion of business tax relief over three years, including reducing the statutory Corporate Income Tax (CIT) rate2 for large and small businesses and eliminating the small business deduction surtax. This is in addition to HST input tax credits, Capital Tax elimination, Business Education Tax (BET) rate reductions and savings from a single corporate tax administration.

These comprehensive tax reforms, when fully implemented, will position Ontario as one of the most attractive jurisdictions in the industrialized world for new investment. Increased business investment will lead to more jobs and higher incomes for Ontarians.

Reducing Corporate Income Tax Rates

Ontario’s Tax Plan for Jobs and Growth reduces Ontario’s general statutory CIT rate to 10 per cent by 2013. The first step of the plan was implemented on July 1, 2010:

  • the general CIT rate was reduced to 12 per cent;
  • the CIT rate on taxable income from manufacturing and processing, mining, logging, farming and fishing was reduced to 10 per cent;
  • the small business CIT rate was reduced to 4.5 per cent; and 
  • the small business deduction surtax was eliminated.

The CIT rate reductions will increase Ontario’s competitiveness within Canada and with the province’s largest trading partner, the United States. In 2009, prior to the plan, Ontario’s general statutory CIT rate of 14 per cent was the second highest provincial CIT rate in Canada. When Ontario’s general CIT rate reaches 10 per cent in 2013, it will be among the lowest provincial rates in the country. Ontario’s tax advantage over the average combined federal–state rate in the United States will widen from just over six percentage points in 2009 to almost 15 percentage points when the CIT rate reductions are fully implemented.

Chart 1: Bar Graph: CIT Rates in North America

Ontario needs to be competitive not only within North America, but also with other countries around the world. Ontario’s CIT rate reductions will put Ontario in line with the average CIT rate of Organisation for Economic Co-operation and Development (OECD) member countries. Ontario’s gap with the average CIT rate in the European Union and in other advanced economies such as Hong Kong, Singapore, South Korea and Taiwan will also be narrowed.

Chart 2: Line Graph: Competing in a Global Economy

Ontario’s CIT rate reductions will also make the business tax structure fairer and more efficient. The current tax system provides a preferential CIT rate for income from manufacturing and resource activities. Gradually moving to a single CIT rate of 10 per cent will make the tax system more neutral across sectors, recognizing the service sector as a key source of new technology and high-paying jobs.

Competitive CIT rates are also important in reducing the revenue loss from companies shifting income to lower-tax jurisdictions. With competitive CIT rates, Ontario will benefit from higher levels of investment and economic activity.

Other Tax Measures for Business

In addition to the CIT rate reductions in the plan, the Province has:

  • introduced the HST which, when fully implemented, removes about $4.5 billion of embedded sales tax paid by business each year, allowing businesses to lower prices;
  • eliminated the Capital Tax, widely recognized as a barrier to investment and job creation, providing more than $1.6 billion of tax relief per year; and
  • reduced high BET rates, to address the property tax burden of Ontario’s businesses and the wide variation in BET rates, saving businesses $540 million per year when fully implemented.

The government has also streamlined the tax system to make it work more efficiently and effectively. This complements Ontario’s Open for Business initiative, which is aimed at making government faster, smarter and more streamlined for families and business.

Moving to a single federal corporate tax administration saves businesses over $135 million per year in compliance costs. The HST also reduces compliance costs for businesses, providing additional savings of more than $500 million per year. These savings can be passed through to consumers and reflected in lower prices.

“The administrative savings will be significant.”

Phil Deck, Executive Chairman, MKS Inc, October 14, 2009.

“The government’s tax package will help us greatly reduce our sales tax compliance costs, allowing us to redeploy those funds into the areas of our business that will drive long-term value creation.”

John Baker, President and Chief Executive Officer, Desire2Learn Incorporated, June 9, 2010.

“After a bit of an adjustment period we have found the amount of paper work, the fact we don’t have to chase after customers’ PST exempt certificates, and the savings on non-PST exempt purchases, to be an enormous benefit.”

Clearmount Ltd., October 26, 2010.

“Ontario’s adoption of a harmonized sales tax is helping to drive investment… (and) consumer confidence is also on the rise.”

RBC, Provincial Forecast, February 2011.

“The HST is crucial to both the short-term recovery and the long-term prosperity of Ontario’s manufacturing sector.”

Chemistry Industry Association of Canada, June 29, 2010.

“Moving to a harmonized sales tax is very good for the economy and it’s certainly going to help with our business competitiveness. It’s in the best interests of the economy in the long term.”

Janet Ecker, President, Toronto Financial Services Alliance, October 10, 2009.

Marginal Effective Tax Rates

In order to assess the impact of business taxes on capital investment, it is important to consider not only statutory CIT rates but also other elements of the tax system.

The marginal effective tax rate (METR) provides a comprehensive measure of the tax burden on new business investment. It takes into account federal and provincial/state CIT, capital taxes and sales taxes.

The HST and Ontario CIT rate cuts, together with the elimination of Ontario’s Capital Tax and federal CIT rate reductions, will lower Ontario’s METR on new business investment from 32.8 per cent in 2009 to 16.2 per cent in 2018. The sharp reduction in Ontario’s METR to 18.6 per cent in 2010 places Ontario below the average rates in 2012 for the United States and OECD member countries.

This significant improvement in Ontario’s tax competitiveness for new business investment will encourage businesses to locate or expand operations in the province, leading to more jobs and higher incomes for Ontarians. It is estimated that, by 2020, the reduction in the tax burden on new business investment in Ontario will lead to $47 billion in capital investment, almost 600,000 net new jobs and higher annual incomes of up to 8.8 per cent.3

Chart 3: Bar Graph: Cutting Ontario's METR on New Business Investment in Half

Tax Support for Innovation

A federally appointed panel is reviewing the effectiveness of federal support for business innovation, including direct spending programs and the Scientific Research and Experimental Development (SR&ED) tax incentive program.

Ontario shares the federal government’s interest in enhancing business innovation, a key driver in productivity and competitiveness that helps to ensure long-term economic prosperity.

The SR&ED program is the federal government’s most significant research and development (R&D) incentive, providing stable and reliable tax support to businesses of all sizes and across all sectors and regions of the country. The SR&ED program is designed to be driven by market needs, leaving it to businesses rather than government to determine how and where to conduct R&D.

The Province looks forward to working with the federal government to improve the effectiveness of federal R&D tax support through such measures as strengthening administration, enhancing support for collaboration between the business and education sectors, and levelling the playing field for small businesses that perform R&D.

While the federal review is an opportunity to enhance the program’s effectiveness, the fairness and impartiality provided through tax support should be maintained.

Taxation of Corporate Groups

In November 2010, the federal government released a public consultation paper on whether a formal system for the taxation of corporate groups should be implemented in Canada. Many countries have a formal system for taxation of corporate groups.

The Canadian corporate tax system has unique features that must be respected. Provincial governments have responsibility for key programs such as health and education, and are entitled to tax the economic activity taking place within their jurisdictions. The focus of any changes should be to increase the efficiency and competitiveness of the Canadian corporate tax system and ensure that provinces receive the revenues to which they are entitled.

Improved Administration of the Tax System

Estate Administration Tax

The Estate Administration Tax is applied to the value of an estate when the estate’s representative applies to the court for a certificate of appointment of estate trustee. Currently, court staff of the Ministry of the Attorney General administer the tax. The government will propose amendments to the Estate Administration Tax Act, 1998 to enhance compliance by integrating the administration of this tax with audit and verification functions at the Ministry of Revenue, starting January 1, 2013.

Set-Off and Garnishment

In 2010, Ontario passed legislative amendments to improve the ability of the Canada Revenue Agency (CRA) to collect family support and Crown debts. Ontario is committed to continuing to ensure that debts to family dependants and to the Crown are collected efficiently and effectively through the coordinated efforts of the Ministry of Revenue, program ministries and the CRA.

Tax Collection Agreement

The Tax Collection Agreement (TCA) is subject to a mandatory review every six years. Ontario will work with the federal government to facilitate the review of the TCA in 2011, to ensure consistency with current needs, best practices, new technology and the evolving nature of the federal–provincial partnership.

More Efficient Tax Collection

The government is committed to ensuring that it collects tax debts owed to the Province and that it receives tax revenues on a timely basis.

To enhance the effectiveness of Retail Sales Tax Act (RSTA) clearance certificates that are required for sales under the Bulk Sales Act, amendments will be proposed to the RSTA to allow the Minister to withhold the issuance of a clearance certificate until tax debts under the following statutes are paid or secured: the Alcohol and Gaming Regulation and Public Protection Act, 1996; Fuel Tax Act; Gasoline Tax Act; Race Tracks Tax Act; and Tobacco Tax Act.

These amendments would generally apply to bulk sales completed on or after July 1, 2011. However, bulk sales under written agreements entered into on or before March 29, 2011 would not be subject to the amendments, even if the bulk sale is completed on or after July 1, 2011. These proposed amendments would be made to the RSTA with effect until June 30, 2013 and, pending a review, would be included in successor legislation for the period on or after June 30, 2013.

In addition, amendments will be proposed to various provincial tax statutes to:

  • allow the Province to recover reasonable third-party costs incurred in the course of collection activities;
  • extend the period of garnishment for monies to be loaned or advanced from 90 days to 365 days;
  • standardize provisions concerning director liability and the issuance of warrants in certain circumstances;
  • set out deeming rules concerning the receipt of notices of demand and requirement sent by registered mail; and
  • allow an appeal to be dismissed if the person appealing has failed to set the appeal down for trial within seven years of it being instituted, and allow a notice of appeal to be struck down when it does not meet legislative requirements.

Technical Measures and Amendments

Alcohol and Gaming Regulation and Public Protection Act, 1996

Promotional Product

To complement the marketing initiatives of the Ontario Wine Strategy and Ontario Craft Brewers Strategy, the government proposes to amend Part II, Beer and Wine Taxes of the Alcohol and Gaming Regulation and Public Protection Act, 1996 to introduce an annual exemption of up to 10,000 litres of wine, wine coolers or beer distributed without charge. The proposed exemption would be retroactive to July 1, 2010, pro-rated based on the manufacturers’ sales year. Beer distributed without charge would not qualify for the small beer manufacturers’ tax credit under the Taxation Act, 2007. Promotional distribution of beer and wine by Ontario manufacturers helps increase awareness of Ontario products and encourages tourism.

Taxation Act, 2007

Ontario Book Publishing Tax Credit

The Ontario Book Publishing Tax Credit is a 30 per cent refundable tax credit available to Ontario book publishing corporations for qualifying expenditures related to publishing and promoting a book by a Canadian author in an eligible category of writing. Eligible categories of writing are adult or children’s fiction, non-fiction, poetry or biography.

For expenditures incurred after March 29, 2011, the Budget proposes to change the 12-month period for qualifying marketing expenditures to a period beginning one year before and ending one year after the date of publication.

Income Tax Act

Ontario Child Care Supplement for Working Families

To help low-income working families with young children, the government proposes to consolidate Ontario Child Care Supplement for Working Families (OCCS) payments with Ontario Child Benefit (OCB) payments on a per-child basis. If a family’s OCCS entitlement with respect to a child is higher than its OCB payment for that child, the family would receive the extra OCCS benefit. This means that all families would keep the extra OCCS benefit for each eligible child under age seven.

Mining Tax Act

Functional Currency

Ontario mine operators are generally subject to a tax on mining profits under the Mining Tax Act. Amendments to the Mining Tax Act will be proposed to allow mine operators who are reporting in a functional currency under the Income Tax Act (Canada) to elect to file their Ontario mining tax returns in the same functional currency. This election would apply until such time as the mine operator revokes its functional currency election under the Income Tax Act (Canada) or ceases to meet the conditions for functional currency reporting under either the Income Tax Act (Canada) or the Mining Tax Act.

As a result of these amendments, mine operators who follow functional currency for CIT purposes would no longer have to prepare a separate set of Canadian-dollar financial statements solely for the purposes of filing the Ontario mining tax return. The amendments would be based on the functional currency rules in the Income Tax Act (Canada) and would apply for taxation years beginning after December 31, 2010.

Non-Tax Measures

The government is proposing amendments to the following legislation:

  • the Ontario Lottery and Gaming Corporation Act, 1999 to enhance transparency and clarity and align with a comprehensive risk-based regulatory framework under the Gaming Control Act, 1992;
  • the Gaming Control Act, 1992 to support introduction of a comprehensive, risk-based regulatory framework for gaming;
  • the Election Act requirements governing the format of write-in special ballots, to enable Elections Ontario to administer voting by such ballots more effectively; and
  • the Liquor Control Act to clarify the LCBO’s role in the Ontario Deposit Return Program and update language in the act.

Classified Agency Review

The Province will exceed the five per cent target for the reduction of the number of classified agencies. A number of agencies that have overlapping functions or whose functions could either cease to exist or be performed more efficiently by other means would be eliminated or merged.

In addition, where required, the government will propose legislative and regulatory amendments in connection with merging or dissolving the following agencies:

  • Biopharmaceutical Investment Program Marketing Advisory Committee
  • Commodity Futures Advisory Board
  • Crown Timber Board of Examiners
  • Healing Arts Radiation Protection Commission
  • Northern Ontario Grow Bonds Corporation
  • North Pickering Development Corporation
  • Ontario, Eastern Ontario and Northern Ontario Development Corporations
  • Ontario Mortgage Corporation
  • Ontario Mortgage and Housing Corporation
  • Ontario Network of Excellence Advisory Committee
  • ORTECH Corporation
  • Social Assistance Review Board
  • Toronto Area Transit Operating Authority

Other Measures and Technical Amendments

To improve administrative effectiveness and enforcement, and maintain the integrity and equity of Ontario’s tax and revenue collection system, as well as enhance legislative clarity and regulatory flexibility to preserve policy intent, amendments will be proposed to various tax statutes and other technical amendments are proposed to various other statutes, including amendments to the following:

  • Agricultural and Horticultural Organizations Act
  • Alcohol and Gaming Regulation and Public Protection Act, 1996
  • Assessment Act
  • Business Corporations Act
  • City of Toronto Act, 2006
  • Commodity Futures Act
  • Community Care Access Corporations Act, 2001
  • Community Small Business Investment Funds Act, 1992
  • Compulsory Automobile Insurance Act
  • Corporations Act
  • Corporations Tax Act
  • Credit Unions and Caisses Populaires Act, 1994
  • Education Act
  • Election Act
  • Electricity Act, 1998
  • Employer Health Tax Act
  • Estate Administration Tax Act, 1998
  • Financial Services Commission of Ontario Act, 1997
  • Freedom of Information and Protection of Privacy Act
  • Fuel Tax Act
  • Gaming Control Act, 1992
  • Gasoline Tax Act
  • Healing Arts Radiation Protection Act
  • Income Tax Act
  • Insurance Act
  • Land Transfer Tax Act
  • Liquor Control Act
  • Local Roads Boards Act
  • Management Board of Cabinet Act
  • Marine Insurance Act
  • Mining Tax Act
  • Ministry of Government Services Act
  • Ministry of Revenue Act
  • Motor Vehicle Accident Claims Act
  • Municipal Act, 2001
  • North Pickering Development Corporation Act, 1974
  • Northern Services Boards Act
  • Ontario Clean Energy Benefit Act, 2010
  • Ontario Lottery and Gaming Corporation Act, 1999
  • Pension Benefits Act
  • Prepaid Hospital and Medical Services Act
  • Provincial Land Tax Act, 2006
  • Race Tracks Tax Act
  • Registered Insurance Brokers Act
  • Retail Sales Tax Act
  • Taxation Act, 2007
  • Tax Increment Financing Act, 2006
  • Tobacco Tax Act
  • Toronto Area Transit Operating Authority Act

Section B: Securing Our Retirement Future: Reform of the Pension and Retirement Income Systems

Overview

Ontario is undertaking major reforms to modernize its pension policy framework and is playing a leading role in national discussions on improving the retirement income system.

Until these changes, Ontario’s pension legislation had not seen significant reform in decades, and there had been little discussion of the retirement income system as a whole at the national level. The government has responded to this lack of reform, and the impact of the recession on pension plans and plan members, with short- and long-term initiatives designed to improve retirement income security for Ontarians.

This comprehensive approach includes:

  • reforming Ontario’s employment pension system in a manner that balances the interests of pensioners, pension plan members and plan sponsors;
  • responding creatively to private-sector pension challenges in light of the economic downturn;
  • supporting a modest, phased-in, fully funded enhancement to the Canada Pension Plan (CPP); and
  • exploring innovative types of pension plans to improve workforce coverage cost effectively.

Continuing Pension Reform

Balanced, Modern Pension Legislation

In 2010, the Ontario legislature unanimously approved two bills that together mark the most significant reform of the Pension Benefits Act (PBA) in more than 20 years. Both bills reflect broad input from Ontarians and recommendations of the Expert Commission on Pensions.

The Pension Benefits Amendment Act, 2010 received Royal Assent on May 18, 2010 and the Securing Pension Benefits Now and for the Future Act, 2010 received Royal Assent on December 8, 2010. Key reforms include:

  • modernizing funding rules;
  • clarifying surplus rules and providing a dispute resolution process to resolve surplus entitlement issues;
  • making it easier to restructure pension plans affected by corporate reorganizations, including those in the public sector, that resulted in split pensions, while protecting benefit security;
  • extending the benefits of plan members affected by layoffs;
  • eliminating the uncertainty and administrative burden of partial plan wind-ups;
  • strengthening regulatory oversight, improving plan administration and reducing compliance costs;
  • increasing transparency and access to information for plan members and pensioners; and
  • providing for a more sustainable Pension Benefits Guarantee Fund.

Regulatory amendments will be required to implement many of these new provisions. Regulations emerging from the reform process will be posted on Ontario’s Regulatory Registry for review by stakeholders.

Expert Commission Recommendations

The Expert Commission on Pensions made a number of wide-ranging recommendations. Most of these are already being addressed, but the Commission also made suggestions about regulatory institutions and target benefit plans that remain under consideration.

The Financial Services Commission of Ontario (FSCO) regulates Ontario-registered pension plans. Steps have been taken in recent years to improve FSCO’s regulatory capacity, including additional funding and legislative amendments that will enable the regulator, in specified circumstances, to take proactive action to protect pension plan beneficiaries.

The Expert Commission noted that an opportunity exists to further improve and modernize FSCO so it would be more responsive to the needs of its stakeholders and better able to monitor the plans it regulates. FSCO has made important changes such as improving stakeholder outreach and enhancing its risk-based, proactive approach to regulation. The government acknowledges these changes but continues to welcome feedback from stakeholders regarding regulatory institutions and how they could be improved to ensure efficient and effective operation.

For example, Ontario pension legislation permits partial “unlocking” of locked-in accounts for Ontarians facing financial hardship. To support FSCO’s efforts to improve and modernize its processes, the government will review the administration of financial-hardship unlocking. During this review, the government will extend the current application fee waiver to provide continued support to those facing financial hardship as the economy recovers.

The Expert Commission also endorsed the idea of a new type of pension plan: the jointly governed target benefit plan. This type of plan would clearly acknowledge that target pension promises involve risk, and attempt to mitigate that risk through joint governance.

Consistent with the Expert Commission’s recommendation, the government proposed in 2010 that target benefit multi-employer pension plans (MEPPs) that meet certain criteria — including an ability to reduce accrued benefits under the terms of the plan — would be exempted from solvency funding requirements. The PBA has recently been amended to provide for target benefits.

Changes to federal tax rules are needed to facilitate the introduction of single-employer target benefit plans. Ontario is currently discussing these changes with Finance Canada and other interested stakeholders.

Implementing Other Pension Reforms

The government also remains committed to:

  • providing a permanent solvency funding exemption for certain jointly sponsored pension plans (JSPPs) and implementing related measures, such as enhanced disclosure to plan members and retirees, and prescribing a uniform solvency funding threshold of 85 per cent to identify plans required to file annual valuations;
  • implementing the provisions for pension division on marriage breakdown set out in the Family Statute Law Amendment Act, 2009. Proposed regulations were posted for public consultation on March 3, 2011;
  • updating Ontario’s pension investment rules to reflect recent and future federal changes;
  • reviewing the funding requirements for target benefit MEPPs with members outside Ontario to address issues raised by stakeholders; and
  • signing the multilateral agreement on the regulation of multijurisdictional pension plans.

In addition, the government proposes to:

  • require plans to file Statements of Investment Policies and Procedures (SIPPs) with the regulator and disclose whether or not their SIPPs address environmental, social or governance factors;
  • permit terminating plan members to initiate a direct transfer of their lump-sum pension entitlement towards the purchase of a life annuity, if allowed under the terms of their plan;
  • explore options to handle the benefits of unlocated members of plans that are wound up, in whole or in part, so that full and partial wind-ups may be completed; and
  • update regulatory requirements to reflect recent changes to standards issued by professional bodies. For example, regulations would be changed to reflect new actuarial standards of practice and the recent adoption of International Financial Reporting Standards by Canada’s Accounting Standards Board.

Protecting Ontario Pensioners and Workers

Negative investment returns in 2008 and persistently low long-term interest rates are making it very challenging to fund many defined benefit pension plans. Although equity markets recovered somewhat in 2009 and 2010, significant losses remain.

The government responded in 2009 with a temporary solvency funding relief program designed to protect Ontario jobs. In 2010, Ontario announced its intention to provide a permanent solvency funding exemption for certain JSPPs and MEPPs that meet specified criteria. In addition, the government is moving forward to clarify and strengthen rules regarding contribution holidays and benefit improvements to improve plan funding.

Pension Benefits Guarantee Fund (PBGF)

The PBGF provides significant assistance to pension plan members when their plans are wound up and plan assets are insufficient to cover promised benefits. In light of the recent financial difficulties the PBGF has faced, in 2010 the government provided a $500 million grant to stabilize the PBGF in the near term.

The first actuarial projection study of PBGF premiums and benefits was completed in early 2010, confirming that changes were required to make it more sustainable.

Given the assistance that the PBGF provides to plan beneficiaries, the government, on August 24, 2010, announced a four-part strategy to mitigate risks and enhance the sustainability of the PBGF:

  • build reserves through the $500 million grant, provided in March 2010;
  • raise future PBGF revenues by increasing PBGF assessments in 2012;
  • reduce risk to the PBGF by extending the eligibility period for covering new plans and benefit improvements from three to five years; and
  • reduce PBGF exposure by strengthening pension funding rules.

The government is committed to fully implementing this strategy as it moves forward with pension reform.

Nortel Pension Plans

Pensioners affected by the bankruptcy of Nortel and the termination of the Nortel plans have asked the government to provide them with additional choice for receiving their benefits. Acknowledging their request, the government is moving forward with a solution that respects pensioner choice, coupled with appropriate information and disclosure.

Amendments to the PBA are proposed that would allow Nortel pensioners to opt out of the current wind-up process and transfer the lump-sum value of their pensions to a life income fund (LIF), consistent with what is currently available to plan members who are not yet in receipt of a pension.

Those who choose to transfer their pensions to a LIF will be able to select their own investment strategy, subject to the limits on eligible investments under the federal Income Tax Act.

AbitibiBowater Pension Plans

Helping AbitibiBowater restructure and return to financial viability protects pensioners, jobs and communities in Ontario and across Canada. The Ontario government therefore has agreed to join the Quebec government in providing restructuring support to the company. The pension funding relief being provided to the AbitibiBowater plans in Ontario is consistent with the funding relief measures agreed to by Quebec.

This pension restructuring was critical to the company’s broader restructuring and allowed AbitibiBowater to emerge from bankruptcy protection in December 2010 as a stronger company. The proposed funding relief would provide AbitibiBowater with a 10-year transition period to return to the full funding requirements that apply under the PBA.

Strengthening Canada’s Retirement Income System

Canadians are concerned about their ability to secure a steady and predictable income in their retirement years.

While the existing system is sound, recent research indicates that many future retirees could have inadequate retirement incomes due to such factors as growing longevity, lower personal savings rates and decreasing employment pension plan coverage. The trend towards lower earnings replacement for future retirees has been documented by various researchers, including Jonathan R. Kesselman, Professor and Canada Research Chair in Public Finance at Simon Fraser University; Bob Baldwin, pension policy expert; and Jack Mintz, Palmer Chair in Public Policy at the University of Calgary.

In October 2010, Ontario released the discussion paper “Securing Our Retirement Future: Consulting with Ontarians on Canada’s Retirement Income System,” which outlined the strengths and weaknesses in the current system, and measures that might be taken to improve it. In the paper, Ontario proposed a two-track approach to strengthening the system: a modest, phased-in and fully funded enhancement to the Canada Pension Plan (CPP) and pension innovation.

Canada Pension Plan Enhancement

Ontario has made significant progress in strengthening the retirement income system, but more remains to be done. The CPP provides a secure, fully indexed, defined benefit pension to virtually all working Canadians and it is fully portable across Canada. Because of these unique attributes, Ontario remains committed to a modest, phased-in and fully funded expansion of the CPP.

Federal, provincial and territorial Ministers of Finance met in December 2010 to continue their ongoing discussion of these important issues. A decision regarding the modest enhancement to the CPP was deferred until the summer of 2011, when ministers will review specific options.

Pension Innovation

Together with a modest expansion of the CPP, the government supports the creation of innovative pension options as an effective approach to help Ontarians save adequately for their retirement. It believes that both these complementary measures must be implemented to ensure that retirement savings are adequate for all Canadians.

The federal government released a framework for an innovative pension option, the Pooled Registered Pension Plan (PRPP), in December 2010. A PRPP has the potential to expand retirement plan coverage, particularly to small business employees and the self-employed. To be successful, it is critical that this plan provide a low-cost option that is simple for smaller employers and the self-employed to access. It is also critical that plan members’ interests be appropriately protected.

Ontario will continue to work closely with other provinces and territories and the federal government to design implementation details based on this framework. Joint federal, provincial and territorial stakeholder consultations are currently underway and will inform upcoming policy development and discussions.

In addition, Ontario is exploring the feasibility, design and implementation of jointly governed, single-employer target benefit plans with interested stakeholders, including Finance Canada.

Conclusion

The government remains committed to ongoing reforms that will modernize Ontario’s employment pension standards. It is also committed to working with its partners in other jurisdictions on national initiatives that will expand coverage, promote innovation and enhance retirement savings opportunities for all Ontarians.

1 Michael Smart, “The Impact of Sales Tax Reform on Ontario Consumers: A First Look at the Evidence,” University of Calgary, School of Public Policy, March 2011.
2 The statutory income tax rate is the rate set out in legislation and applies to taxable income.
3 Jack M. Mintz, “Ontario’s Bold Move to Create Jobs and Growth,” University of Calgary, School of Public Policy, November 2009.