2013 Ontario Budget
Chapter IV: Tax, Pension and Financial Services

Highlights

Tax Measures

  • The government is proposing to give the people of Ontario a choice to receive the Ontario Trillium Benefit in a single payment or monthly payments.
  • To provide greater Employer Health Tax (EHT) relief to small businesses, the Province is proposing to increase the amount of annual payroll that is exempt from the tax from $400,000 to $450,000 and index this amount for inflation. To better target EHT relief, the exemption would be eliminated for private-sector employers with payrolls over $5 million.
  • Ontario is serious about closing tax loopholes to ensure everyone pays their fair share of taxes. The government is working closely with the federal government to increase efforts to address this problem.
  • Ontario is addressing the problem of the underground economy through initiatives such as an enhanced compliance services agreement with the federal government that will improve the integrity of our tax system and generate incremental revenues from those who are avoiding their tax obligations.

Pension Reform

  • Ontario is committed to modernizing its employment pension framework, and improving the affordability and sustainability of plans.
  • The government will consult with interested parties to determine how pooled registered pension plans should be implemented as an optional retirement savings vehicle, before introducing legislation.
  • Ontario will also develop a framework for single-employer, target-benefit pension plans to provide employers and employees with an additional, more flexible retirement savings option.

Auto Insurance

  • The government is proposing a cost- and rate-reduction strategy that would reduce average auto insurance rates for consumers by 15 per cent.

Securities

  • The government will propose changes to update and strengthen securities laws and related legislation.

Section A: Tax Measures

Introduction

Reductions in Ontario's Corporate Income Tax rates together with the introduction of the Harmonized Sales Tax and elimination of the Capital Tax provide a strong incentive for businesses to invest and create jobs in Ontario.

Since 2009, the government has also cut Personal Income Tax and increased relief for people through tax credits, including:

  • lowering the tax rate on income in the first bracket from 6.05 per cent to 5.05 per cent;
  • enhancing property and sales tax credits; and
  • providing new relief for energy costs, children's activities, and home improvements to increase accessibility and safety for seniors.

These changes will deliver $2.5 billion of additional relief in 2013–14, primarily to low- to middle-income earners and seniors.

Eliminating the deficit is critical for long-term economic growth and prosperity. The government has introduced these measures to help meet that goal:

  • the 2012 Budget froze reductions in the general Corporate Income Tax rate and in Business Education Tax rates; and
  • a new income tax rate for people with incomes over $500,000 was introduced in 2012.

Fairness and Choice for People

Ontario Trillium Benefit

In the 2011 Budget, the government introduced the Ontario Trillium Benefit (OTB), which combined the Ontario Sales Tax Credit, Ontario Energy and Property Tax Credit and Northern Ontario Energy Credit into one payment. The 2013 OTB will provide an estimated $2.5 billion to low- to moderate-income people.

The OTB is paid in monthly instalments throughout the year to help people meet their expenses as bills arrive. People used to wait until after they filed their tax returns to get their tax credits for the previous year.

Other federal and provincial benefits delivered in regular payments throughout the year include the Ontario Child Benefit, Canada Child Tax Benefit, Universal Child Care Benefit and Goods and Services Tax/Harmonized Sales Tax Credit.

"The Ontario Child Benefit and the recent step by Ontario to consolidate tax initiatives through the Ontario Trillium Benefit establish a valuable platform for changes in the way low-income benefits are provided in Ontario."

Frances Lankin and Munir A. Sheikh, "Brighter Prospects: Transforming Social Assistance in Ontario," Commission for the Review of Social Assistance in Ontario, October 2012.

The OTB platform ensures that people start receiving assistance well in advance of when they used to receive it. It also ensures that when certain life events occur during the year (e.g., the birth of a child), payments are adjusted in a timely manner.

Many people welcome the monthly assistance they are getting through the OTB for their expenses. However, the government has heard from some people who would like to have the choice of receiving the OTB as a single payment.

Providing Choice for the Ontario Trillium Benefit

The government proposes to modify the OTB so that, beginning in 2014, each recipient would have the choice to receive their benefit in a single payment at the end of the benefit year. Making the single payment at that time would ensure that each recipient receives the same total benefit whether they choose single or monthly payments. In either case, payments would take into account events that can affect their benefit, such as the birth of a child, death or moving out of Ontario.

Diagram: Ontario Trillium Benefit. Click for an accessible full description.

How the Changes Could Affect You in 2014

If you want to receive monthly instalments of the 2014 OTB, you would apply for it on your 2013 tax return, and not check the box for the single payment. Monthly payments would begin in July 2014 and continue as long as you are eligible for the OTB.

If you choose to receive your 2014 OTB in a single payment (by checking the box on your 2013 tax return), then you would receive the full amount in June 2015. You should note that you would not receive any OTB payments from July 2014 to May 2015.

In the past, people received property and sales tax credits only once a year. By selecting to receive your OTB as a single payment, you would not receive monthly instalments for that year, and would return to getting the payment later, as you did in the past.

For example:

  • Jack's OTB for 2014 is $840. He likes receiving his OTB in monthly payments. Jack files his 2013 tax return in early 2014 and automatically gets payments of $70 per month from July 2014 to June 2015.
  • Ana wants to receive her 2014 OTB of $720 in a single payment, so she would check the box when she files her 2013 tax return in early 2014, and would receive her full OTB in June 2015, instead of payments of $60 per month.

Like Jack, Ana would receive the same total OTB whether she receives it as monthly payments through the year or chooses to receive a single payment.

If your total OTB for the year is $360 or less, you would not receive monthly payments, but would get the total amount in the first payment month, i.e., July.

  • Maria's OTB for 2014 is $225. She files her 2013 tax return in early 2014 and gets a single payment for the full amount in July 2014.

Note that your eligibility for OTB can change from year to year because of changes in income, age, where you live and your family status. You must apply for the OTB every year on your tax return.

Better Targeted Business Support

Employer Health Tax

The Employer Health Tax (EHT) is paid by employers on their Ontario payrolls. All private-sector employers, regardless of size, are exempt from paying the EHT on up to $400,000 of their Ontario payrolls each year. Groups of associated employers share the exemption. Payroll above the $400,000 threshold is taxed at a rate of 1.95 per cent. This exemption reduces the cost of hiring and the paperwork burden for small employers.

The government proposes to increase this exemption to provide greater EHT relief for small employers (including small businesses, charities and not-for-profit organizations). Beginning January 1, 2014, the exemption would be increased from $400,000 to $450,000 to provide greater EHT relief — up to $975 more per employer — to the small business sector. More than 60,000 employers would pay less EHT, including over 12,000 that would no longer pay this tax. With this proposal, 88 per cent of Ontario private-sector employers would not pay EHT nor incur the compliance costs of filing an EHT return. This exemption would be adjusted for inflation every five years using the Ontario Consumer Price Index. At projected inflation rates, the exemption is expected to rise to $500,000 in 2019.

To better target the EHT exemption, beginning January 1, 2014, the exemption would be eliminated for private-sector employers (including groups of associated employers) with annual Ontario payrolls over $5 million. Registered charities would continue to claim the exemption at all payroll sizes. Over 5,000 large employers would each pay up to $7,800 more per year.

The net result of these changes is that the cost of the additional EHT relief provided to smaller employers would be largely offset by additional EHT paid by larger employers.

Apprenticeship Training Tax Credit

The Apprenticeship Training Tax Credit (ATTC) was introduced in 2004 to encourage businesses to hire and train apprentices in the skilled trades. The ATTC provides businesses with a 35 to 45 per cent refundable tax credit on the salaries and wages paid to eligible apprentices in designated construction, industrial, motive power and service trades.

The ATTC, along with other provincial apprenticeship programs, supports the availability of skilled workers in key sectors of the economy. The 2012 Budget announced that the credit would be reviewed for effectiveness and efficiency to better support completions of apprenticeship programs. This Budget will better target the ATTC and help improve completion rates among ATTC-eligible trades. Effective for expenditures incurred after March 31, 2014, the following apprenticeship trades will not be eligible for the ATTC:

  • Information Technology – Contact Centre – Technical Support Agent (634a);
  • Information Technology – Contact Centre – Inside Sales Agent (634d); and
  • Information Technology – Contact Centre – Customer Care Agent (634e).

This measure will save $45 million in 2014–15, contributing to the government's savings target for business support. The ATTC bulletin will be updated to reflect this change.

Renewable Fuels and Elimination of Biodiesel Exemption

The government is committed to reducing greenhouse gas emissions in Ontario. In 2002, biodiesel was made exempt from the 14.3 cent per litre fuel tax under the Fuel Tax Act to encourage its use in Ontario. The federal government's renewable-content requirements in respect of diesel fuel came into effect on July 1, 2011. As a result, Ontario's fuel tax exemption for biodiesel no longer serves its purpose.

Ontario will take steps to update its green transportation-fuels policies by proposing to:

  • repeal the fuel tax exemption for biodiesel effective April 1, 2014; and
  • consult with stakeholders on a provincial mandate for greener diesel fuels, including discussions related to the amount of renewable fuel content as well as greenhouse gas requirements.

By supporting innovation and leveraging high-tech investment in the province, Ontario is supporting the next generation of bioproduct development and further industry investments in Ontario's growing bioeconomy.

Mining Tax System Review

The Mining Tax Act levies a 10 per cent tax (five per cent for remote mines) on profits earned from the extraction of minerals (other than diamonds) in Ontario. The Commission on the Reform of Ontario's Public Services noted that the mining tax system was designed to encourage investment at a time when Corporate Income Tax rates were high. A 2011 PwC study showed that Ontario had the lowest tax burden of any Canadian province or territory that had an active metallic mineral mine.

The 2012 Budget announced that the government would conduct a review to determine whether Ontario receives fair compensation for its non-renewable resources.

The government looks forward to working with stakeholders over the next several months to ensure that the Province is supporting the exploration and production of minerals while receiving a fair return on its resources.

Federal Tax Measures

Accelerated Capital Cost Allowance for Manufacturing and Processing Machinery and Equipment

Capital Cost Allowance (CCA) is the portion of the capital cost of depreciable assets such as machinery and equipment that can be deducted for income tax purposes. Ontario and the federal government currently provide a temporary 50 per cent accelerated CCA for manufacturing and processing machinery and equipment acquired after March 18, 2007, and before 2014.

Ontario will parallel the 2013 federal budget proposal to extend the accelerated CCA for manufacturing and processing machinery and equipment acquired in 2014 or 2015, subject to federal implementation. The accelerated CCA for machinery or equipment will be subject to the rule that limits the CCA deduction to one-half of the amount that would otherwise be permitted in the year the asset is acquired. This measure will cost $265 million over three years, beginning in 2013–14.

Dividend Tax Credit

Ontario's Dividend Tax Credit (DTC) improves the fairness of the income tax system by accounting for income tax paid by Canadian corporations when determining the tax payable by their Ontario resident shareholders. Without the DTC, this dividend income paid to shareholders would effectively be taxed twice.

Ontario monitors the tax treatment of dividends on an ongoing basis to ensure that Ontario's Personal Income Tax and Corporate Income Tax systems are properly integrated. The 2013 federal budget proposed changes to the tax treatment of dividends distributed from corporate income taxed at less than the general corporate tax rate, starting in 2014.

Ontario will parallel this measure, subject to federal implementation.

Other Federal Tax Measures

The 2013 federal budget proposed several other tax measures, including proposals related to:

  • the lifetime capital gains exemption on qualified small business shares and qualified farm or fishing property;
  • restricted farm losses;
  • the deduction for safety deposit boxes;
  • corporate and trust loss trading;
  • mining expenses;
  • accelerated CCA for clean energy generation equipment; and
  • character conversion transactions and leveraged life insurance arrangements.

Under the terms of the Canada–Ontario Tax Collection Agreement, Ontario will adopt these measures and their effective dates once federal legislative and regulatory changes have been approved.

Revenue Integrity and the Underground Economy

Closing Tax Loopholes

A key principle of a fair and effective tax system is that everyone pays their fair share of taxes. While most individuals and corporations respect this principle, some try to avoid paying their fair share of taxes. Reducing corporate tax avoidance is a priority of the Ontario government, as evidenced by the measures it has taken to close loopholes. Following the recommendations of the Commission on the Reform of Ontario's Public Services, the 2012 Budget committed to working closely with the federal government to increase efforts to address this issue.

In March 2013, the Ontario Minister of Finance wrote to the federal Minister of Finance and the Minister of National Revenue on the need to do more on closing tax loopholes and addressing the underground economy. The 2013 federal budget included additional measures in these two areas. The Ontario and federal governments have negotiated a new agreement for enhanced compliance activities focused on aggressive international tax planning, which will generate incremental tax revenues from companies that are not paying their fair share of taxes. This agreement builds on an existing agreement that has generated an additional $500 million in revenue for Ontario over the past several years, including more than $200 million in 2012–13.

In addition, the government will be proposing legislation to introduce new disclosure rules for aggressive tax avoidance transactions similar to the rules introduced by the federal government as part of Bill C-48 in November 2012. This new measure would require taxpayers to report aggressive tax avoidance transactions that attempt to avoid Ontario tax.

These measures demonstrate that Ontario is serious about closing tax loopholes and combating corporate tax avoidance. Ontario will continue to work with the federal government to explore further opportunities to strengthen the integrity of the tax system. Ontario calls on the federal government to ensure that corporations do not engage in transactions that attempt to avoid provincial tax through the shifting of profit or losses across provincial borders. The federal government should also provide the Province with sufficient and timely information with respect to these types of transactions.

Initiatives related to closing tax loopholes are expected to generate more than $300 million in incremental tax revenues over the next four years.

Underground Economy

Underground economies exist everywhere and Ontario is no exception. They create an unfair tax burden for taxpayers who comply with their tax obligations and make it difficult for legitimate businesses to remain competitive with those that do not comply. They expose vulnerable workers to unsafe working conditions and put consumers at risk in a cash environment.

With the federal government now collecting about 75 per cent of Ontario taxes, including income and sales taxes, tackling the underground economy requires close collaboration between the two governments. Consistent with the 2012 Budget commitment and a recommendation by the Commission on the Reform of Ontario's Public Services, Ontario and the federal government recently negotiated an agreement to enhance compliance activities that will improve the integrity of the tax system and generate incremental tax revenues from individuals and corporations who are not complying.

Despite the measures outlined in the 2013 federal budget to combat the underground economy, Ontario calls on the federal government to do more, including to release its strategy on the underground economy at the earliest opportunity. A national strategy would raise public awareness, provide a framework for improved sharing of information across provinces and territories, and support investment in identifying appropriate technology tools to deal with devices intended to tamper with the recording of sales and collection of taxes.

The underground economy initiatives are expected to generate an additional $400 million over the next four years.

Enhancing Audit

To ensure better compliance with Ontario tax statutes, the government will expand the use of its automated risk assessment system to identify tax accounts that pose the highest risk of tax loss. This initiative will generate an additional $65 million annually.

Clearance Certificates

Businesses are required to obtain a clearance certificate from the Minister of Finance under the Retail Sales Tax Act (RSTA) for sales to which the Bulk Sales Act applies. To enhance the effectiveness of clearance certificates, the 2011 Budget amended the RSTA to allow the minister to withhold clearance certificates until tax debts under the following additional statutes were 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 were made effective until June 30, 2013. The government is proposing to repeal the sunset date.

Tobacco Tax Strategy

Smoke-Free Ontario and Combating Illegal Tobacco

The government remains committed to the Smoke-Free Ontario Strategy aimed at promoting and protecting the health of Ontarians from tobacco use. Ontario is on track to have the lowest smoking rates in Canada and is determined to reduce the supply of low-cost, illegal tobacco available to young people.

Like many other places, Ontario faces significant challenges in addressing the issue of illegal tobacco. The exact size of the illegal market varies but it is generally acknowledged to be substantial. Building on the Smoke-Free Ontario Strategy and Bill 186, Supporting Smoke-Free Ontario by Reducing Contraband Tobacco Act, 2011, the government remains committed to protecting youth from illegal products, improving community safety and ensuring appropriate taxes, where applicable, are paid.

Ontario introduced a number of important compliance activities over the past year to curtail the availability of illegal tobacco. The government is moving forward with implementing the oversight of raw leaf tobacco that will require growers, importers, exporters, certain transporters, processors and dealers to be registered, effective January 1, 2014. Also effective January 1, 2014, in general, only cigarettes and fine-cut tobacco marked with a single integrated stamp (replacing the federal stamp) will be allowed for retail sale. The Ministry of Finance and the Alcohol and Gaming Commission of Ontario have signed an information-sharing agreement whereby retailers selling illegal tobacco could have their gaming registrations (lottery permits) suspended or revoked.

The government is also actively considering a number of other compliance initiatives including amendments to the Tobacco Tax Act to reduce illegal tobacco in Ontario.

These include:

  • increased fines for those convicted of offences related to illegal tobacco;
  • forfeiture of items seized as evidence of a contravention of the Tobacco Tax Act; and
  • strengthening other provisions to improve the effectiveness of the statute in meeting the government's commitments.

The Ministry of Finance continues to work closely with various law enforcement agencies to combat illegal tobacco. Since 2008, more than 223 million illegal cigarettes, 2.5 million untaxed cigars and 74 million grams of untaxed fine-cut or other tobacco products have been seized by ministry investigators and inspectors.

The government is concerned with the proposed move of the Cornwall border station to the U.S. side and its potential impact on community safety in general and on tobacco smuggling specifically. The Minister of Community Safety and Correctional Services has written to her federal counterpart, requesting that the government not move the border crossing to the U.S. side.

The government's enhanced enforcement measures are expected to generate an additional $350 million over the next four years.

New Relationship with First Nations on Tobacco

The government recognizes the importance of tobacco to the economies of First Nations and is committed to building a new partnership with First Nation communities. To that end, the government retained an expert facilitator to develop a report on ensuring a better understanding of First Nations' interests and concerns regarding on-reserve tobacco. The report, "Tobacco on Reserve: Perspectives Shared from First Nations," was prepared in January 2012 and its recommendations supported more active government engagement with First Nations on tobacco. The government is moving forward on the recommendations by supporting two pilot projects with the Chippewas of the Thames First Nation and the Mohawk Council of Akwesasne to consider approaches to modernize the current system for allocating unmarked tobacco products and to explore models for First Nations' self-regulation of tobacco on-reserve. These projects have provided a significant opportunity for conducting joint research, engaging in enhanced dialogue, and moving forward on a new relationship between First Nations in Ontario and the Province.

Summary of Measures

TABLE 4.1 2013 Budget Tax Measures
($ Millions)
    2013–14 2014–15 2015–16
Better Targeted Business Support
Employer Health Tax   0 (5) (5)
Apprenticeship Training Tax Credit (ATTC)1   15 45 50
Biodiesel Exemption   0 4 4
Paralleling Federal Tax Measures        
Accelerated Capital Cost Allowance for Manufacturing and Processing Machinery and Equipment   (15) (85) (165)
Dividend Tax Credit   15 65 70
Other Federal Tax Measures   25 65 60
Total   40 89 14
1 Annual savings from better targeting the ATTC, which is reported as an expense, are included in the government's savings target for business support.

Other Measures and Technical Amendments

The government plans to introduce amendments to clarify that the involuntary separation provisions for spouses and common-law partners who live apart for medical reasons would not apply for purposes of the Ontario Sales Tax Credit.

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:

  • Alcohol and Gaming Regulation and Public Protection Act, 1996
  • Assessment Act
  • Automobile Insurance Rate Stabilization Act, 2003
  • City of Toronto Act, 2006
  • Commodity Futures Act
  • 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
  • Electronic Commerce Act, 2000
  • Electricity Act, 1998
  • Employer Health Tax Act
  • Estate Administration Tax Act, 1998
  • Financial Administration Act
  • Financial Services Commission of Ontario Act, 1997
  • Fuel Tax Act
  • Gasoline Tax Act
  • Housing Services Act, 2011
  • Income Tax Act
  • Insurance Act
  • Land Transfer Tax Act
  • Legislation Act, 2006
  • Limitations Act, 2002
  • Liquor Control Act
  • Local Roads Boards Act
  • Marine Insurance Act
  • Mining Tax Act
  • Ministry of Revenue Act
  • Ministry of Training, Colleges and Universities Act
  • Motor Vehicle Accident Claims Act
  • Municipal Act, 2001
  • Municipal Property Assessment Corporation Act, 1997
  • Northern Services Boards Act
  • Not-For-Profit Corporations Act, 2010
  • Ontario Clean Energy Benefit Act, 2010
  • Pension Benefits Act
  • Prepaid Hospital and Medical Services Act
  • Provincial Land Tax Act, 2006
  • Race Tracks Tax Act
  • Registered Insurance Brokers Act
  • Regulatory Modernization Act, 2007
  • Retail Sales Tax Act
  • Securities Act
  • Smoke-Free Ontario Act
  • Taxation Act, 2007
  • Tax Increment Financing Act, 2006
  • Tobacco Tax Act

Section B: Pension Reform

Introduction

Ontario continues to update its employment pension framework, address the significant challenges facing many pension plans, and improve the affordability and sustainability of plans in the public sector. The government has introduced pension reform through two bills: Bill 236, the Pension Benefits Amendment Act, 2010, and Bill 120, the Securing Pension Benefits Now and for the Future Act, 2010. Both bills were unanimously approved by the legislature. Since the first of the two bills was passed in May 2010, the government has implemented more than 30 statutory or regulatory initiatives.

Progress to Date

The significant modernization of regulations covering pension plans for employees in Ontario has permitted many amendments in Bills 236 and 120 to be proclaimed over the last 12 months. The elimination of partial plan wind-ups will ease plan administration in many instances, while immediate vesting for all members and grow-in benefits for all eligible members affected by layoffs will help preserve member entitlements. "Retired members" are now explicitly recognized in all regulations under the Pension Benefits Act (PBA) and surplus distribution rules have been clarified. The power of the Superintendent of Financial Services to order the full wind-up of a pension plan has also been clarified and the thresholds for unlocking small benefit amounts have been increased.

The government has also taken steps to help plans manage funding obligations in the face of long-term interest rates that remain at historically low levels. By relieving cash-flow pressures for many plan sponsors, these changes are intended to foster economic growth, create jobs and preserve pensions for the people of this province.

Responding to comments from interested parties, the government has extended temporary solvency funding relief for specified Ontario multi-employer pension plans until 2017. This extension will provide time to allow for the development of a comprehensive regulatory system for multi-employer, target-benefit pension plans, including those that are multi-jurisdictional.

Temporary funding relief measures for private-sector defined-benefit pension plans have also been extended for a further three years. Almost 400 plans took advantage of relief offered in the period from 2009 to 2012; it is expected that at least as many plans will be able to benefit from the relief measures put in place in November 2012. Eligible single-employer pension plans in the broader public sector have also been provided temporary solvency funding relief, in exchange for taking steps to improve plan sustainability and affordability over the long term.

Related changes include permanent amendments to the regulations under the PBA that permit the amortization of new going-concern and solvency deficits, beginning up to one year following a valuation date. Amendments to the PBA and regulations now permit eligible private-sector employers to use irrevocable letters of credit in lieu of cash contributions to partially cover a significant portion of solvency deficiency payments.

Pension Reforms Underway

Comments received from stakeholders following postings on Ontario's Regulatory Registry are informing the development of proposed regulations intended to streamline the financial-hardship unlocking process for Ontario-regulated locked-in accounts, and implement the "split pension" provisions in Bill 236. The "split pension" regulations would be implemented along with related rules that would apply to asset and liability transfers when corporate pension plans are restructured in the future.

In addition, the government intends to:

  • review the Ontario Court of Appeal's recent ruling regarding spousal entitlements in the case of Carrigan v. Carrigan Estate, propose amendments to the PBA and, if necessary, amend the regulations under the PBA;
  • amend the regulations under the PBA and, if necessary, propose amendments to the PBA that would permit assets to be transferred from employer-sponsored, single-employer pension plans to jointly sponsored pension plans (JSPPs) and allow employer-sponsored, single-employer pension plans to be converted to JSPPs, if specified conditions are met;
  • implement a new "funding concerns" test that would determine when plans that are not obliged to satisfy solvency funding requirements are required to file annual valuations;
  • implement a framework for contribution holidays that specifies eligibility conditions and ensures affected pension parties are appropriately informed;
  • update regulatory requirements to reflect appropriate changes to standards issued by professional bodies; and
  • prescribe rules for plan documents and statements for former and retired members.

The 2012 Budget announced the government's intention to introduce a pooled asset management framework. The government appointed Bill Morneau as Pension Investment Advisor to consult with interested parties and develop recommendations for consideration. The government greatly appreciates Mr. Morneau's recommendations, which were made public in November 2012.

The government continues to consult on Mr. Morneau's findings. Acknowledging the complexity of this undertaking, the government intends to establish a technical working group to advise on the design, governance and transition issues associated with the implementation of a new pooled asset management entity.

Further Pension Innovation

Pension coverage has been declining in recent years and many defined-benefit pension plans for private-sector employees have been closed to new entrants. Increasingly there are calls for new, more flexible retirement savings options that would enhance coverage, improve retirement income security and enable plan sponsors to better manage plan costs.

Pooled registered pension plans (PRPPs) are intended to make it easier to save for retirement by providing employees and self-employed individuals with a new low-cost savings vehicle that is professionally managed and portable. The federal government recently implemented the federal legislative changes necessary to support the introduction of PRPPs. The Ontario government will now be consulting with interested parties to determine how PRPPs should be implemented, as a retirement savings option, before introducing legislation. It will be important to ensure, for example, that members are adequately protected and low-cost objectives are met.

Target benefit plans are another example of innovative pension arrangements. These plans provide a more flexible approach to save for retirement. They have fixed contributions that are intended to provide a specified pension. If experience demonstrates that contributions are not sufficient to fund the target benefit, the pension benefits of retirees and active members would be adjusted to ensure the plan remains sustainable.

Ontario will be moving ahead on regulatory changes related to target benefits in eligible multi-employer pension plans, announced in 2010. Assuming outstanding federal tax issues will be resolved and in consultation with interested parties, the government will also develop a framework for single-employer, target-benefit plans, including funding rules, plan governance, the timing of necessary benefit reductions, permitted benefit improvements, and notice to members and retired members.

Section C: Auto Insurance

Introduction

The government is building on its success in stabilizing the cost of auto insurance to the over nine million drivers in Ontario by proposing a cost- and rate-reduction strategy that would reduce average auto insurance rates by 15 per cent. As well, the government is continuing to propose amendments to modernize Ontario's other insurance legislation to ensure an efficient and competitive marketplace.

Need for Auto Insurance Reform

From 2006 to 2010, Ontario experienced a substantial increase in claims costs due to fraud in the system and overutilization of benefits. The significant increase in costs was primarily caused by increases in accident benefits claims costs (for example, exams and assessments, attendant care and housekeeping). While claims costs for repairs to physical damage to vehicles remained stable, claims costs for certain benefits more than doubled.

Chart 4.1: Accident Benefits Claims Costs Increased More Quickly than Physical Damage Claims Costs from 2006 to 2010. Click for an accessible full description.

Because of the generosity of Ontario's auto insurance system, accident benefits claims costs in 2006 were already much higher than in other provinces with similar privately delivered auto insurance systems, such as Alberta, New Brunswick, Nova Scotia, and Newfoundland and Labrador. And from 2006 to 2010, these costs in Ontario went up even higher, increasing by 91 per cent.

Chart 4.2: Accident Benefits Claims Costs Increased from 2006 to 2010. Click for an accessible full description.

Within Ontario, accident benefits claims costs grew especially quickly in the Greater Toronto Area (GTA) between 2006 and 2010.

  • of the $2.4 billion increase in accident benefits costs in Ontario between 2006 and 2010, $2 billion occurred in the GTA; and
  • in 2010, accident benefits claims costs per vehicle in the GTA were more than four times higher than in rural Ontario.[1]
Chart 4.3: Accident Benefits Claims Costs Increased in the GTA from 2006 to 2010. Click for an accessible full description.

Auto Insurance Reforms Reduce Costs

In September 2010, the government introduced major reforms to Ontario's auto insurance system to address the substantial increase in claims costs. The September 2010 reforms controlled costs, increased consumer choice and simplified processes in the auto insurance system. As a result of the reforms and ongoing government action, costs have been reduced and rates have stabilized, and are now starting to decline.

Chart 4.4: Auto Insurance Rates Have Started to Fall. Click for an accessible full description.

Ontario Rates Have Risen by Less Than Inflation

In Ontario from 2004 to 2012, auto insurance rates increased more slowly than the rate of inflation. From 1995 to 2003, the Consumer Price Index increased by 18.3 per cent, while auto insurance rates increased by 44.9 per cent. From 2004 to 2012, the Consumer Price Index increased by 18.1 per cent, while auto insurance rates increased by 11.4 per cent.

Chart 4.5: Auto Insurance Rates Held Below Inflation Since 2003. Click for an accessible full description.

Ontario's Strategy to Reduce Auto Insurance Costs and Rates

The government has pursued a successful strategy to stabilize and begin to reduce auto insurance rates by reducing claims costs with major changes to the auto insurance system, such as the September 2010 reforms. However, it is essential that further action be taken to ensure that reductions to rates can continue from these reforms. A number of critical issues still must be addressed. These issues continue to lead to cost uncertainties for insurers, and are preventing significant rate reductions for Ontario's over nine million drivers. Building on the success of the government's 2010 reforms, the government is continuing to take action.

In January 2013, the government approved regulatory amendments to address some of the reforms proposed by the final report of the Auto Insurance Anti-Fraud Task Force in late 2012 and build on actions the government has already taken to combat fraud and protect consumers. These amendments, effective June 1, 2013, will help prevent auto insurance fraud and protect consumers by:

  • requiring insurers to provide claimants with all reasons for denying a claim;
  • giving claimants the right to receive a bi-monthly, detailed statement of benefits paid out on their behalf;
  • increasing the role of claimants in fraud prevention by requiring them to confirm attendance at a health clinic; and
  • making providers subject to sanctions for overcharging insurers for goods and services and banning them from asking consumers to sign blank claim forms.

Reducing Rates by 15 Per Cent on Average

Building on these measures, the government is proposing an auto insurance cost- and rate-reduction strategy to reduce average auto insurance rates by 15 per cent. It would intensify the government's existing work to address the critical issues in the auto insurance system, and increase accountability and transparency to ensure that cost savings will result in lower rates for Ontario drivers.

To achieve the rate-reduction targets, the government will introduce legislative amendments that would, if passed:

  • commit to an average rate reduction of 15 per cent within a period of time to be prescribed by regulation;
  • provide the Superintendent of Financial Services with authority to require insurers to file for rates;
  • require insurers to offer lower rates for consumers with safe driving records;
  • make the Superintendent's Guidelines, incorporated by reference in the Statutory Accident Benefits Schedule, binding;
  • expand and modernize the Superintendent's investigation and enforcement authority, particularly in the area of fraud prevention;
  • give the Financial Services Commission of Ontario (FSCO) authority to license and oversee business practices of health clinics and practitioners who invoice auto insurers; and
  • consolidate statutory automobile insurance reviews.

The government will also create a transparency and accountability mechanism in the form of an independent annual report by outside experts on the impact of auto insurance reforms introduced to date on both costs and premiums. The report will review industry costs and changes to premiums paid by Ontario drivers, and make recommendations as to further actions that may be required to meet the government's reduction targets.

The government will intensify its existing auto insurance cost- and rate-reduction strategy by:

  • transforming the current auto insurance dispute resolution system by appointing an expert to review the system and propose legislative amendments in the fall of 2013;
  • basing auto insurance benefits on medical evidence by directing the regulator to provide an interim report this year on the progress of the Minor Injury Treatment Protocol project; and
  • investigating additional new measures to reward safe driving and reduce costs and premiums.

In addition, the government will call on the Financial Services Commission of Ontario to reduce the return on equity benchmark used in rate filings.

The government will also conduct further study and consultation on other initiatives to reduce costs, including provincial oversight of towing and amending the definition of catastrophic impairment in the Statutory Accident Benefits Schedule.

Modern Insurance Regulation

The 2012 Budget noted the government's initiative to review and update the Insurance Act. In June 2012 the government passed legislative amendments to modernize the life insurance and accident and sickness insurance parts of the Insurance Act. These amendments enhance consumer protection, reduce regulatory burden, and harmonize with other places in Canada. Also included in these amendments were measures to enhance the effectiveness of the FSCO's insurance regulation by giving the Superintendent of Financial Services the authority to impose administrative monetary penalties in the insurance sector. This authority was given to the Superintendent effective January 1, 2013.

Building on these modernization measures, in the fall of 2013 the government intends to propose amendments to relevant legislation to require all insurance companies doing business in Ontario, with the exception of the insurers that are members of the Fire Mutuals Guarantee Fund, to be incorporated in jurisdictions where solvency is regulated in accordance with modern international standards. There will be a transitional period for affected insurers. These amendments are important for Ontario to enhance its reputation as a modern marketplace with effective regulation.

Section D: Securities

Introduction

The government is continuing to update Ontario's securities laws to maintain a sound and effective regulatory framework and the efficient functioning of Ontario's capital markets. Well-regulated capital markets foster safe and attractive investment opportunities for investors, access to deep pools of capital for businesses and cost-effective regulation for the securities sector.

Toronto is the financial capital of Canada and a global financial centre. Increasingly, as capital markets remain dynamic and accelerate their global focus, Ontario must keep pace by being vigilant and building on that status by developing regulations aligned with international standards and which contribute to mitigating risks to the financial system, including systemic risks that arise from derivatives markets.

Securities Regulation

The government plans to propose changes to update and strengthen securities laws and related legislation. Proposed legislative amendments would include:

  • amendments to the Securities Act and Commodity Futures Act to strengthen enforcement and investor protection by clarifying the procedures for the Ontario Securities Commission (OSC) to share investigative information with other regulatory and law enforcement authorities, and adding new offences for attempted market manipulation and attempted fraud;
  • Securities Act changes to expand and clarify the Act's insider-trading provisions; and
  • changes to Ontario's personal property security legislation to make it easier for businesses and financial institutions to provide or obtain first-priority security interests in cash collateral. Significant progress has been made and consultations are planned to finalize key aspects of these proposals to ensure they appropriately balance relevant interests.

Following consultations in conjunction with the OSC, the government plans to propose further changes to update the Securities Act by:

  • updating the disclosure requirements for exchange traded funds to provide plain-language, concise and comparable disclosure to investors that is more consistent with the requirements that apply to mutual funds;
  • if needed, following current court cases that the government is monitoring closely, suspending the operation of the secondary market civil liability limitation period while leave to proceed is being sought;
  • updating the early-warning reporting and related requirements for take-over bids to provide more transparency to securities regulators and the public;
  • expanding the insider-trading and self-dealing provisions, including in relation to their application to investment funds;
  • broadening the definition of "market participant";
  • enhancing the OSC's toolkit for regulating Ontario's capital markets through changes to the Securities Act and Commodity Futures Act to:
    • expand the OSC's role in addressing financial stability and systemic risk;
    • give the OSC more discretion to impose requirements regarding the form in which information is provided to the Commission;
    • increase the scope of OSC compliance reviews; and
    • broaden the availability of freeze orders.

These changes would help strengthen Ontario's securities regulatory framework, and allow the OSC to become a more efficient and responsive regulator.

The government strongly supports broader gender diversity on the boards and in senior management of major businesses, not-for-profit firms and other large organizations. In conjunction with others, including the OSC, the government will consider the best way for firms to disclose their approaches to gender diversity, with a view to increasing the participation of women on boards and in senior management.

Ontario's Holding of General Motors Shares

With the successful recovery of the auto sector, Ontario will continue to monitor the value of its remaining shares in General Motors and assess the appropriate timing for share divestiture.

Endnotes:

[1] Ontario Automobile Insurance Anti-Fraud Task Force — December 2011 Interim Report.

Chart Descriptions

Providing Choice for the Ontario Trillium Benefit

The graphic shows a timeline for the delivery of the OTB in 2014 and 2015. In early 2014, tax returns for 2013 are filed. Then, starting in July, monthly payments of the OTB are made for eligible individuals, based on their tax return information, in each month from July 2014 to June 2015. However, tax filers would have the option of choosing a single payment in June 2015 instead of these monthly payments. Entitlements of $360 or less per year will be paid in a single payment in July 2014.

Return to Chart: Providing Choice for the Ontario Trillium Benefit

Chart 4.1: Accident Benefits Claims Costs Increased More Quickly than Physical Damage Claims Costs from 2006 to 2010

This bar chart shows that accident benefits claims costs increased at a much faster pace from 2006 to 2010 than physical damage costs.

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Chart 4.2: Accident Benefits Claims Costs Increased from 2006 to 2010

This bar chart shows that accident benefits claims costs from 2006 to 2010 were much higher in Ontario than in Alberta, New Brunswick, Nova Scotia, and Newfoundland and Labrador.

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Chart 4.3: Accident Benefits Claims Costs Increased in the GTA from 2006 to 2010

This bar chart shows that accident benefits claims costs grew rapidly in the Greater Toronto Area from 2006 to 2010, and grew much more quickly than claims costs in rural Ontario.

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Chart 4.4: Auto Insurance Rates Have Started to Fall

This bar chart shows average quarterly rate changes from 2004 to 1st Quarter, 2013. Rate changes have stabilized and started to decline as a result of ongoing government action, including significant reforms introduced in September 2010.

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Chart 4.5: Auto Insurance Rates Held Below Inflation Since 2003

This bar chart shows that in Ontario from 2004 to 2012, auto insurance rates increased more slowly than the rate of inflation. From 1995 to 2003, the consumer price index increased by 18.3 per cent, while auto insurance rates increased by 44.9 per cent. From 2004 to 2012, the consumer price index increased by 18.1 per cent, while auto insurance rates increased by 11.4 per cent.

Return to Chart 4.5