The government has taken significant steps to make Ontario's tax system more competitive and create the conditions for long-term economic growth. The Tax Plan for Jobs and Growth, along with other tax changes, has positioned Ontario as one of the most attractive locations in the industrialized world for new business investment. In a recent analysis of 134 countries, Forbes magazine ranked Canada as the best country for business, crediting a reformed tax structure in Ontario as one of the key factors for the country's ranking.
Corporate Income Tax (CIT) rates have been reduced for large and small businesses. Capital Tax was levied on companies even if they were not profitable. It was a barrier to new investment so the McGuinty government eliminated it. The Harmonized Sales Tax (HST) removes embedded sales taxes, providing savings to businesses that can be used to help them grow, hire people and lower prices.
In addition to major business tax reductions, Ontario has made significant improvements in tax administration that have reduced compliance costs for businesses. The move to a single, federally administered CIT is saving Ontario businesses more than $135 million per year in compliance costs. The HST has further streamlined administration and eliminated duplication. Moving to the HST eliminated outdated rules, regulations and procedures, and is saving businesses more than $500 million per year in compliance costs. In total, businesses benefit from compliance cost savings of over $635 million per year. In a 2012 study by PwC, the World Bank and the International Finance Corporation, Canada's business tax system ranked in eleventh place among 183 countries, better than any other G8 country, in ease of paying taxes.
Under the Tax Plan for Jobs and Growth, Ontario's general CIT rate has fallen from 14 per cent in 2009 to 11.5 per cent, and is scheduled to fall to 11 per cent on July 1, 2012 and to 10 per cent on July 1, 2013. The CIT rate on income from manufacturing and processing, mining, logging, fishing or farming is 10 per cent, down from 12 per cent in 2009. The small business CIT rate has been reduced to 4.5 per cent from 5.5 per cent, and the small business deduction surtax has been eliminated, which extends this lower CIT rate to growing small businesses.
In the current fiscal environment, responsible fiscal management requires the government to take measures to protect revenues. These measures would help the Province meet its fiscal targets, reduce the deficit over the medium term and balance the budget by 2017–18.
This Budget proposes to freeze the general CIT rate at 11.5 per cent until Ontario's budget is balanced. This measure will save the Province almost $1.5 billion over the next three years, while maintaining improvements made to the business tax climate that support jobs and investment in the province.
The government will propose an amendment that would exclude the proposed CIT rate freeze from the provisions of the Taxpayer Protection Act, 1999, similar to the amendment enacted in 2004.
|Rates (Per Cent)|
|July 1, 2010||12||10||4.5||0|
|July 1, 2011||11.5||10||4.5||0|
|Proposed 2012 Freeze||11.5||10||4.5||0|
1Income from manufacturing and processing, mining, logging, fishing or farming.
2Applies to Canadian-controlled private corporations (CCPCs) on the first $500,000 of active business income.
3Applicable to CCPCs on taxable income between $500,000 and $1.5 million.
Ontario is scheduled to return to a balanced budget in 2017–18. At that time, CIT rate reductions would resume and the general CIT rate would continue to fall.
Ontario's CIT rate reductions have increased the province's attractiveness as a place to invest and have improved the competitiveness of the tax system within Canada and among its trading partners.
Ontario has moved from having one of the highest provincial CIT rates to the fourth lowest in Canada.
Internationally, Ontario's combined general federal–provincial CIT rate of 26.5 per cent is lower than the average federal–state CIT rate in the United States, one of the Province's main competitors for jobs and investment. Ontario's combined CIT rate has also fallen from one of the highest among industrialized economies to be just above the current average CIT rate of Organisation for Economic Co-operation and Development (OECD) member countries.
Table 4.2 shows business savings of more than $8 billion per year from measures to improve the competitiveness of Ontario's tax system.
|Capital Tax 3||Total|
|Forestry, Fishing and Hunting||20||s||s||20|
|Mining, Utilities, and Oil and Gas||125||25||110||260|
|Transportation and Warehousing||575||35||60||670|
|Information and Cultural Industries||605||75||110||790|
|Financial Services (except Insurance)||(930)||435||830||335|
|Rental and Leasing||95||40||30||165|
|Professional, Scientific and Technical
|Other Services (except Public
1Represents the annual savings based on a proposed CIT rate freeze at 11.5 per cent, Capital Tax elimination and the full phase-in of HST input tax credits, in 2012 dollars. Savings do not include annual compliance cost savings of more than $635 million from both a single HST administration and a single corporate tax administration.
2Annual savings of less than $5 million are denoted by the letter "s" (small).
3Capital Tax savings compared to the Capital Tax structure before the 2004 Budget measures.
Source: Ontario Ministry of Finance.
A large corporation with income subject to the general CIT rate would still benefit from the rate cuts to date even with the proposed 11.5 per cent CIT rate freeze. A small business with income fully eligible for the small business CIT rate would not be affected by the rate freeze.
In addition to the CIT savings, businesses also benefit significantly from the HST and the elimination of the Capital Tax. A telecommunications provider, for example, could see a reduction of over 90 per cent in combined sales tax, CIT and Capital Tax. The taxes paid by a small manufacturer could fall by more than 85 per cent.
Ontario and federal CIT reductions to date, along with the introduction of the HST and elimination of the Capital Tax, have cut Ontario's marginal effective tax rate (METR) on new business investment in half since 2009. This reduction in the METR has significantly improved Ontario's attractiveness as a location for business investment.
As part of Ontario's plan to maintain a tax system that promotes investment and encourages economic growth, the government has taken significant steps to address the property tax burden on Ontario businesses and significantly reduce the wide variation in Business Education Tax (BET) rates.
In 2007, the government announced it would cut high BET rates over a seven-year period. Since then, the Province has made significant progress in lowering high BET rates.
High BET rates have been cut significantly, resulting in annual savings of over $200 million for Ontario businesses. In fact, the highest BET rates have already been cut by more than 50 per cent, while average BET rates have been cut by 28 per cent. These rate reductions have enhanced the competitive position of Ontario businesses and strengthened the provincial economy.
Table 4.3 shows examples of BET reductions that have already been implemented. For example, businesses in London have already benefited from a $27.9 million BET reduction, which has resulted in over $100,000 in annual BET savings for a business owning an industrial property valued at $10 million. Businesses in Toronto have already benefited from an $18.1 million BET reduction, which saves the owner of a $1 million commercial property over $200 per year and the owner of a $10 million industrial property over $2,000 per year.
|Sault Ste Marie||6.1||5,020||182,621|
|Lennox and Addington County||1.4||1,623||136,173|
|Notes: Reduction Implemented reflects annual decreases through to 2012, and includes the total for all business property classes (including commercial and industrial). Estimated Savings on example properties assume an assessed value of $1 million for a commercial property and an assessed value of $10 million for an industrial property. Actual property level savings will vary based on actual property assessments and reassessment impacts.|
Business Education Tax reductions have been accelerated and fully implemented for northern Ontario businesses, as announced in the 2008 Budget. The accelerated BET reduction plan recognizes the unique challenges faced by northern businesses. As shown in Table 4.3, the benefits to northern businesses have been significant. For example, businesses in Thunder Bay have benefited from a BET reduction of $16.8 million, which has resulted in nearly $300,000 in annual BET savings for the owner of an industrial property valued at $10 million.
Business Education Tax reductions have also been fully implemented for eligible new construction. This has maximized the economic benefits of the initiative in terms of addressing tax inequities and distortions and levelling the playing field for businesses facing decisions about where to build new manufacturing facilities or other business complexes.
Since 1998, when the Province took over responsibility for funding education, education tax rate decisions have resulted in a 17 per cent decrease in education property tax revenues in real terms, while funding for education has increased. As a result, over the same period, property tax revenues as a share of education expenditures have decreased from 44 per cent to 28 per cent currently.
This Budget proposes to temporarily freeze the BET reduction plan, beginning in 2013. This measure will avoid revenue decreases, providing fiscal savings growing to over $300 million annually by 2014–15. Business Education Tax rates will continue to be reduced to offset reassessment increases.
The BET rate reductions already implemented will not be reversed. The progress made in improving the business tax climate to support jobs and investment in the province will be preserved.
The government will also maintain a level playing field for businesses facing decisions about where to build new facilities, by ensuring eligible new construction continues to benefit from full implementation of the BET reductions.
Ontario plans to return to a balanced budget in 2017–18. In recognition of the importance of continuing to lower business taxes, the government is committed to resuming the BET rate reductions at that time.
Ontario has the highest value of mineral production of any province or territory in Canada. In 2011, the value of metallic and non-metallic mineral production in the province was estimated to be almost $10.7 billion.
The Mining Tax Act levies a tax on profits from the extraction of minerals (except diamonds) in Ontario. The primary purpose of the mining tax is to ensure that Ontario receives fair compensation for its non-renewable resources. Ontario collected approximately $140 million in mining tax in 2010–11.
Ontario has introduced several mining tax incentives over the years that were designed to encourage investment at a time when Corporate Income Tax rates were high. Since Ontario mining operations have benefited from the recent steps taken by the Province to create an internationally competitive tax regime, the government is proposing to work with stakeholders in reviewing the current system to ensure Ontario receives fair compensation for its non-renewable resources.
The government is committed to maximizing value for money and improving the transparency of expenditures made through the tax system. Starting with this Budget, the presentation of certain tax expenditures will change. Tax expenditures that provide a financial benefit through the tax system for purposes other than the relief of taxes will be shown as an expense. This change recognizes that these tax expenditures are, in substance, transfers or grants made through the tax system.
(See Chapter II, Section F: Accountability, Transparency and Financial Management for more details.)
Business tax expenditures will be reviewed to maximize the value of public investment in the economy's long-term prosperity and make tax support more effective, more administratively efficient, and better aligned with other direct and indirect business support programs.
Business research and development (R&D) and innovation are important to increasing productivity and prosperity in Ontario. Between 1981 and 2009, the amount of business R&D performed annually in Ontario increased by more than 180 per cent in constant dollars. However, business R&D in Ontario as a percentage of gross domestic product (GDP) is well below the OECD average, despite tax incentives for R&D available to businesses in Ontario that are among the most generous in the world.
The federal government recently received a report on federal support for innovation that included recommendations that would reduce federal tax support, simplify the Scientific Research and Experimental Development (SR&ED) tax credit and address high compliance costs associated with the SR&ED program. Any changes to the SR&ED program would have an impact on businesses in Ontario, as well as the provincial tax system. Ontario agrees with the federal panel that there is a need for greater federal–provincial collaboration regarding R&D tax support.
The Province will continue to review the effectiveness of tax credits for R&D in supporting innovation and the overall framework of provincial and federal direct and indirect business supports. The government will seek advice from the Jobs and Prosperity Council on improvements to R&D tax support that would increase R&D expenditures in the province and simplify compliance and administration under the tax system.
The Ontario Apprenticeship Training Tax Credit (ATTC), along with other provincial apprenticeship program measures, have helped to increase the availability of skilled workers in Ontario's economy. Today, there are more than 120,000 apprentices learning a trade in Ontario, nearly twice the number in 2002–03. Annual apprenticeship enrolment is up from 17,000 in 2002–03 to nearly 30,000 in 2010–11.
Ontario recognizes that the strength of the apprenticeship system depends not only on growth in the number of new registrations, but also on the proportion of apprentices who complete their programs and obtain certification. While there are significant differences in rates of completion across different types of trades, independent studies have found completion rates averaging about 50 per cent among Ontario apprentices. The Province will review the effectiveness and efficiency of the ATTC in promoting apprenticeship completions. Linking support to the completion of apprenticeships would further strengthen the apprenticeship system in Ontario.
In the 2011 Budget, the government introduced the Ontario Trillium Benefit (OTB) to better match the payment of refundable tax credits to when people incur expenses. The OTB includes payments of the Ontario Sales Tax Credit, Ontario Energy and Property Tax Credit, and Northern Ontario Energy Credit.
Ontarians used to wait until after they filed their tax returns to get their tax credits for the year. People across the province told the government that predictable and regular payments of tax credits would help them better meet their monthly expenses as the bills come in.
Ontarians are already receiving their 2011 tax credits sooner and more frequently than before. After people file their 2011 tax returns, their 2012 tax credits will arrive every month, starting in July 2012. Therefore, they will receive their tax credits sooner than if these credits were paid as part of their tax refund in early 2013.
Ontarians are now receiving their refundable tax credits earlier and more frequently than if they were paid as a lump sum when people file their tax returns.
Making payments more than once a year is the same approach used for other benefits that are delivered to Ontarians, such as the Ontario Child Benefit.
In previous years, some tax credit recipients have gone to tax preparation services to get an immediate refund. These immediate refunds are usually reduced by a service fee of up to 15 per cent. The OTB means that people do not have to pay to get their money sooner.
People can file their tax returns at no charge over the phone with the Canada Revenue Agency. Also, many online tax software providers allow people to file simple returns by using their software for free. The Community Volunteer Income Tax Program is a partnership between the Canada Revenue Agency and community organizations that assists many low-income Ontarians in preparing their returns every year free of charge.
The government has heard from many people who would like to have the choice of receiving these refundable tax credits either as monthly payments throughout the year or as a single payment after the year has ended. In the coming year, the government will look at options for giving people that choice starting next year.
The OTB is providing an estimated $1.4 billion more each year compared to property and sales tax relief provided for 2009 — for a total of $2.4 billion in assistance every year to an estimated 3.5 million Ontarians.
The government has proposed a new Healthy Homes Renovation Tax Credit for renovations that improve accessibility or help seniors with their mobility at home. The credit would help seniors stay in their homes, support the government's focus on jobs and the economy, and benefit taxpayers by relieving pressures on health care costs.
The tax credit is projected to cost the Province $60 million in 2011–12, which would be offset by savings in business support programs and tax-related expenditures.
Ontario is proposing several measures to enhance revenue integrity that would raise $440 million over the next three years.
As a result of recent changes to Ontario's tax collection agreements, the federal government now collects about 75 per cent of Ontario's taxation revenues. Businesses in Ontario benefit from over $635 million annually in compliance cost savings from a single HST administration and a single corporate tax administration.
As with other provincial programs and services, Ontario is looking to its delivery agents to ensure greater value for money. In this regard, Ontario will continue to work with the federal government to ensure that federal administration of Ontario taxes is conducted in the most efficient and effective manner, with demonstrated accountability to Ontario taxpayers.
Ontario and the federal government must also work together to strengthen the integrity and effectiveness of the tax system. Ontario will continue to collaborate with the federal government on measures to combat corporate tax avoidance and underground economy activities. These activities erode the common tax base and provide an unfair competitive advantage for businesses that engage in these activities, compared to other Ontario-based businesses that comply with the tax system.
Like other governments, Ontario experiences tax losses from businesses that engage in underground economy activities. These activities could be curtailed through improved enforcement measures, enhanced information sharing and increased disclosure by Ontario businesses. Quebec has adopted several such measures to address the underground economy in that province.
The government proposes to adopt similar measures in Ontario and is actively exploring:
To improve the effectiveness of joint efforts on the underground economy, Ontario will continue to work with the federal government on additional compliance activities.
The federal government administers Ontario's CIT and works with the Province to ensure that Ontario-based corporations are paying their fair share of income taxes. Tax avoidance transactions, such as arrangements that shift income or losses across international or provincial borders, can have a permanent impact on the Province's revenue and undermine the integrity of the Province's tax base.
To help mitigate the impact of these arrangements, Ontario will consider implementing various measures used by Quebec to fight aggressive tax planning in the province. Ontario will work with the federal government, and with Ontario businesses and stakeholder groups on this initiative.
Ontario will also remain diligent in ensuring that income and losses are allocated to the province where the underlying economic activity has occurred. Ontario proposes to work with the federal government to explore the extent to which the CRA can address this under the tax collection agreement, and to implement supplementary Ontario measures if required to achieve this result. The proposed measures would ensure Ontario has the information and processes necessary to evaluate and address inappropriate provincial income-allocation adjustments and incidents of interprovincial profit and loss shifting involving Ontario-based corporations.
To ensure that employers pay their fair share of the Employer Health Tax (EHT), Ontario will strengthen its administrative practice in the determination of an employer-employee relationship. Ontario will continue to use federal rulings to assist in determining whether an employer-employee relationship exists but will not necessarily be bound by these rulings for EHT purposes. This change in administrative practice will apply to EHT assessments issued after March 27, 2012.
Tobacco use continues to be the leading cause of preventable disease and premature death in Ontario. The government's Smoke-Free Ontario Strategy has made the province a leader in tobacco control. Ontario remains committed to reducing smoking among youth and other vulnerable persons, and to achieving the lowest smoking rate in Canada.
As part of this commitment, the government intends to take the necessary steps to increase fines on those convicted of selling tobacco to youth and to impose stronger sanctions for repeat offenders of Ontario's tobacco-related laws. These sanctions would include prohibiting a retailer from selling tobacco products or lottery tickets and would be implemented by the fall.
The availability of cheap, illegal tobacco makes it easier for non-smokers, especially youth, to start smoking, and removes an incentive for smokers to quit, undermining the government's policies to reduce smoking.
The government will work with key partners to further educate the public about health and social problems associated with tobacco and will undertake research to help measure the impact of its tobacco strategies on smoking levels in the province.
Ontario has also committed to doubling enforcement efforts to address the supply of cheap, illegal tobacco. As part of this commitment, the government will focus on the implementation of additional regulatory, enforcement and other provisions in Bill 186, which was enacted in 2011.
With the goal of enhancing oversight over the distribution of raw leaf tobacco in the province, Bill 186 provides for the regulation of raw leaf tobacco under the Tobacco Tax Act, effective October 1, 2012. In this context, raw leaf tobacco includes flue-cured tobacco as well as black and burley tobacco, and it also includes fully or partially processed tobacco. Tobacco growers, dealers, processors, importers, exporters and certain transporters will be required to register and report with the Ministry of Finance in order that this key component in the manufacture of tobacco products can be tracked throughout the supply chain. As the regulations are drafted, the Ministry of Finance will consult with key stakeholders including First Nations leadership.
Ontario also proposes to introduce amendments to the Tobacco Tax Act in the fall to provide additional enforcement and compliance tools. As part of this process, the government is actively exploring a number of measures, including:
Consultation and discussions with stakeholders and key partners, including First Nations communities and organizations, will take place as part of this process.
Ontario will continue its ongoing dialogue with First Nations communities and organizations, band councils, and on-reserve tobacco manufacturers with the goal of expanding its understanding of tobacco issues on reserves. The government will also work with First Nations to explore ways to modernize the system for allocating untaxed tobacco products as well as options related to First Nations self-regulation of tobacco on reserve.
The availability of cheap, illegal tobacco is a significantly complex issue and requires the active involvement of governments of neighbouring provinces; the federal government; First Nations leadership; and numerous policing and enforcement agencies including the Ontario Provincial Police, Royal Canadian Mounted Police, First Nations policing services, municipal public health units and municipal police services. The ministry will continue to actively build relationships with other ministries, governments, First Nations leadership, and various enforcement agencies to work together on common goals and share best practices.
Ontario is working collaboratively with the federal government and other provinces to enhance tobacco enforcement. To effectively address illegal tobacco, joint tobacco enforcement and administration agreements are needed between Ontario, other provinces and jurisdictions, and various federal agencies. Ontario is particularly concerned about the impact of the proposed relocation of the Canada–U.S. border crossing currently located in Cornwall.
Over the next three years, the implementation of Bill 186 measures as well as the proposed measures to address illegal tobacco would raise revenues of $375 million. By 2014–15, additional annual revenue would be $175 million, with additional annual enforcement costs of $34 million.
Like most other provincial and territorial governments, Ontario has harmonized its personal and corporate income tax bases with the federal government. In a harmonized system, federal changes to these common tax bases can significantly reduce provincial income tax revenue necessary to deliver vital services such as education and health care.
As set out in the recent federal–provincial–territorial review of income tax collection agreements, the federal government and other jurisdictions agreed to work collaboratively to review the implications of shared tax bases. Through this work, Ontario will explore ways to protect its fiscal interest from unilateral federal changes to the common tax bases. Under the Comprehensive Integrated Tax Coordination Agreement, which governs the HST, the federal government is required to compensate a province where any federal change to the common HST base results in a provincial HST revenue loss of more than one per cent, unless the province has provided prior written agreement.
Under Canada's corporate income tax system, each corporation within a corporate group is taxed separately and files a separate tax return. Despite this, the federal government has an administrative practice that facilitates an informal loss transfer system between corporate group members. This can have a permanent impact on a province's revenue when losses are transferred between corporations within a corporate group and across provincial borders. These transactions only result in a timing difference for the federal government.
Ontario will continue to work with the federal government and other provinces to strengthen the integrity of the Canadian tax system by ensuring that corporations apply losses in a manner that is fair and reasonable and that upholds the long-standing principles that underlie the interprovincial allocation of income.
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.
The government will propose amendments to various tax statutes to enhance its ability to collect tax revenue in a more efficient manner, including amendments to standardize the availability of a garnishment power for monies to be loaned or advanced and technical amendments to ensure that the deemed trust and enhanced garnishment provisions align with federal bankruptcy and insolvency laws. The government will continue to review its tax collection abilities and consider additional measures where appropriate.
Ontario businesses that receive government funding or obtain government contracts should be compliant with their tax obligations.
Ontario proposes to implement measures that would require recipients of government grants and other forms of direct government assistance to be compliant with their tax obligations. As well, Ontario will expand the government's existing procurement requirements to ensure that businesses are compliant with their tax obligations before bidding on projects and contracts where provincial funding is involved. Ontario will work with other levels of government and key stakeholders on the development of this initiative.
In order to continue to facilitate the wind-down of Retail Sales Tax (RST), the government is proposing to shorten the RST refund and rebate periods.
Currently, a taxpayer may apply for refunds and rebates of RST until the time limits for claiming them have expired, or June 30, 2014, whichever is earlier. Proposed amendments would require such applications to be made on or before December 31, 2012.
The current refund and rebate application periods will continue for RST paid in respect of insurance premiums or private transfers of used vehicles.
|Freezing the Corporate Income Tax Rate
|Freezing Business Education Tax Reductions||75||200||300|
|Enhancing Revenue Integrity||30||130||280|
|Centralizing Collections and Enhancing Audit1||30||75||75|
1Improvements to these functions are discussed in Chapter I: Transforming Public Services.
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: