2016 Ontario Budget
Chapter V: A Fair and Sustainable Tax System

Section A: Tax Measures

As part of the Program Review, Renewal and Transformation (PRRT) process, the government reviewed tax credits to determine more effective ways of achieving desired outcomes. In addition, changes to tobacco tax rates and alcohol charges are being proposed to support key government initiatives.

Personal Income Tax Credits

Tuition and Education Tax Credits

The government is making changes to student financial assistance to ensure that financial support is transparent, timely and better targeted. See Chapter I, Section C: Investing in People's Talents and Skills for further details. As part of this reform, the government proposes to discontinue the Ontario tuition and education tax credits, beginning in fall 2017. All of the additional revenue from eliminating these tax credits would be reinvested to support the new Ontario Student Grant or other postsecondary, education, training and youth jobs programs. Grants are more effective than tax credits at targeting financial support to students with the greatest needs and providing support upfront.

Ontario’s Tuition Tax Credit is calculated based on eligible tuition and ancillary fees, as well as fees for certain occupational, trade or professional examinations. The Education Tax Credit provides set amounts in recognition of non-tuition expenses for each month of full-time or part-time postsecondary studies. Students who cannot use all their tuition and education tax credits for a particular year may transfer them to a parent, grandparent, spouse or common-law partner, up to an annual maximum. Credits that are not used or transferred are carried forward to future tax years.

The timing of the proposed elimination of the tuition and education tax credits would correspond to the introduction of the Ontario Student Grant. Ontario students would be able to claim the Tuition Tax Credit for eligible tuition fees paid in respect of studies up to and including September 4, 2017, and would be able to claim the Education Tax Credit for months of study before September 2017. The eligible portion of 2017 tax credits would be transferable to a qualifying family member.

Tax filers who are resident in Ontario on December 31, 2017, and have unused tuition and education tax credits available for carry-forward, would be able to claim them in future years. Tax filers who move to Ontario from other provinces after December 31, 2017, would no longer be able to claim their accumulated tuition and education tax credits in Ontario.

Children’s Activity Tax Credit

The government introduced the Children’s Activity Tax Credit (CATC) in 2010 to help parents with the cost of enrolling their children in various extracurricular activities, including sports, arts and cultural programs. Because non-refundable tax credits only benefit people who pay Personal Income Tax (PIT), the CATC was made refundable so that low-income people who pay little or no Ontario PIT could fully benefit from the credit. About 675,000 parents who enrolled their children in eligible activities in 2015 are expected to receive a CATC of about $70 on average.

Although the credit is refundable, it largely goes to higher-income families, who are less likely to need it to help pay for their children’s activities. Of families expected to benefit from the credit for 2015, about 50 per cent have incomes above $100,000, while only five per cent have incomes below $20,000. By comparison, about 15 per cent of tax-filing families with children are estimated to have incomes below $20,000.

Ontario proposes to end the CATC as of January 1, 2017, and will focus on developing other programs to encourage physical activity and healthy eating for Ontario’s children, including those in lower-income families. The Province also provides several children’s physical activity and healthy eating programs through the Healthy Kids Strategy. See Chapter I, Section D: Transforming Health Care for further details.

Healthy Homes Renovation Tax Credit

Ontario’s Healthy Homes Renovation Tax Credit (HHRTC) was announced in 2011 to help seniors live independently in their homes by increasing the affordability of renovations that improve safety and accessibility.

Ontario proposes to end the HHRTC as of January 1, 2017. The credit has had significantly lower take-up than projected and provides little support to lower-income seniors. About 2.3 million seniors are expected to file tax returns for 2015. By comparison, only an estimated 25,000 HHRTC claims are expected to be made by seniors or their family members for 2015, with only 10 per cent of the credit expected to go to claimants with net family incomes below $30,000.

The government understands the challenges faced by seniors with mobility issues and provides assistance through other programs that assess needs more effectively. For example, people with mobility-related disabilities or impairments may access funds to help with the cost of home modifications through the Ontario Home and Vehicle Modification Program.

Paralleling Federal Personal Income Tax Measures

Under the terms of the Canada–Ontario Tax Collection Agreement, Ontario parallels federal changes to the definition of taxable income and certain applicable tax rates.

Small Business Dividend Tax Credit and Gross-Up

In its 2015 budget, the federal government announced reductions in the federal small business corporate income tax rate over four years. The corresponding changes to the gross-up rate for non-eligible dividends (generally issued by companies taxed at the small business rate) will be paralleled by Ontario. As a result, Ontario’s non-eligible dividend tax credit rate will decline from 4.5 per cent for 2015 to 4.2863 per cent for 2016.

Ontario will review its non-eligible dividend tax credit rate for 2017 and subsequent years.

Tax-Free Savings Accounts

The federal government recently announced a reduction in the annual contribution limit for Tax-Free Savings Accounts, from $10,000 in 2015 to $5,500 for 2016. Indexation of the contribution limit will resume. This change will increase Ontario’s tax revenue.

Tax on Split Income

The Ontario government proposes to change the way it taxes income that is split with certain related children, by paralleling the federal approach of applying its top marginal PIT rate to all such income. Similar to the recent change in Ontario’s tax treatment of trusts, this approach would close a tax planning loophole. The measure is not designed to generate a net increase in revenue.

Starting January 1, 2016, such split income would be taxed at Ontario’s top marginal PIT rate of 20.53 per cent, and no surtax would be payable on that income.

A Simpler Personal Income Tax

Ontario has a complex Personal Income Tax (PIT) system where tax brackets and other components result in effective tax rates that are not easily understood by tax filers. The government will examine ways to simplify the PIT calculation, including the Ontario surtax and Ontario Tax Reduction, so that Ontarians can better understand their effective tax rates.

Business Tax Credits

Research and Development Tax Credits

The government provides the following corporate tax credits to support research and development (R&D) activities in Ontario:

  • Ontario Research and Development Tax Credit (ORDTC) — A 4.5 per cent non-refundable tax credit on eligible R&D expenditures;
  • Ontario Innovation Tax Credit (OITC) — A 10 per cent refundable tax credit for small to medium-sized companies on eligible R&D expenditures; and
  • Ontario Business Research Institute Tax Credit (OBRITC) — A 20 per cent refundable tax credit on eligible R&D expenditures incurred under contract with eligible research institutes.

Despite total Ontario R&D support of approximately $400 million delivered annually through the tax system, in addition to federal programs, business spending on R&D in Ontario has declined over the last decade and continues to lag the United States as a share of the economy.

As part of the PRRT process outlined in Chapter II, Section B: Transforming Government and Managing Costs, the government proposes to reduce the level of support provided through the ORDTC and the OITC. In this Budget, the government proposes the following changes, effective for eligible R&D expenditures incurred in taxation years that end on or after June 1, 2016:

  • Decreasing the ORDTC rate from 4.5 per cent to 3.5 per cent; and
  • Decreasing the OITC rate from 10 per cent to eight per cent.

The rate reductions would be prorated for taxation years straddling June 1, 2016.

Research and development remains a key priority for the government. That is why the Province will reinvest savings from the proposed tax credit changes into new targeted investments across key sectors of Ontario’s economy. The government is:

  • Investing $35 million over five years towards establishing the Advanced Manufacturing Consortium;
  • Investing $20 million over three years to partner with colleges to tackle industry challenges through innovation projects; and
  • Investing $50 million over five years in world-leading research at the Perimeter Institute.

See Chapter I, Section A: Fostering a More Innovative and Dynamic Business Environment for further details.

The Province will continue to examine ways to encourage R&D investment in Ontario, increase the commercialization of research, and better support export activity, in line with its Business Growth Initiative.

Apprenticeship Training Tax Credit

The Apprenticeship Training Tax Credit (ATTC) is a refundable tax credit available to businesses that hire and train eligible apprentices. As committed in the 2015 Budget, the Province is reviewing the ATTC to ensure it encourages businesses to help apprentices gain the certifications and skills they need.

The government remains committed to the continuation of employer support for apprenticeship training, and is examining ways to improve completion rates of apprenticeships and increase opportunities for apprentices in underrepresented groups, including newcomers, Indigenous peoples, women, apprentices with disabilities and apprentices from francophone communities. The Ministry of Training, Colleges and Universities is undertaking an engagement process with stakeholders and partners and will announce further details in 2016.

Other Measures

Ontario’s Tobacco Strategy

Tobacco taxes are a proven method of supporting smoking cessation and prevention efforts according to experts such as the World Health Organization, and are a key tool that support the Smoke-Free Ontario Strategy and its goal of reducing the incidence of smoking in the province.

This is why, effective 12:01 a.m. the day after February 25, 2016, Ontario’s tobacco tax will increase from 13.975 cents to 15.475 cents per cigarette and per gram of tobacco products other than cigars. This increase will help support smoking cessation efforts under the strategy, contributing to the Province’s goal of having the lowest smoking rate in Canada. Wholesalers of tobacco products that are not collectors of tobacco tax are required to take an inventory of all tobacco products (except cigars) they hold at the end of February 25, 2016, and remit the additional tax on the inventory to the Ministry of Finance.

The government will propose further amendments to the Tobacco Tax Act to clarify the obligations of retail dealers as they relate to the remittance of additional tax following a tobacco tax rate change.

Moving forward, to ensure tobacco tax rates retain their real value over time, the government is increasing tobacco tax rates based on inflation over each of the next five years, beginning in 2017. Regular tobacco tax rate increases will help support the objectives of the Smoke-Free Ontario Strategy, while also supporting government efforts to address the underground economy and prevent expansion of the contraband tobacco market.

Tobacco strategy initiatives are outlined in Chapter II, Section C: Addressing the Underground Economy and Maintaining Tax Fairness.

To further support the Smoke-Free Ontario Strategy, the Province will use a portion of increased revenues from the tobacco tax to support a new $5 million investment this year that will enhance priority populations’ access to smoking cessation services, no matter where they live across Ontario.

Smoke-Free Ontario Strategy initiatives are outlined in Chapter I, Section D: Transforming Health Care.

Alcohol Charges

The following changes are proposed to complement the beer initiative introduced last year:

  • The Liquor Control Board of Ontario (LCBO) would increase the ad valorem mark-up for wine products by two percentage points, effective June 2016.
    • The wine mark-up will be further increased by two percentage points in April 2017, two percentage points in April 2018 and one percentage point in April 2019.
  • Establish a definition of authorized grocery store and provide for the collection of tax in those stores.
  • The basic tax on non-Ontario wine purchased at winery retail stores would be increased by one percentage point in each of June 2016, April 2017, April 2018 and April 2019.

The government will change the minimum price for wine to be consistent with spirits and beer. The minimum retail price for table wine will increase to $7.95, including deposit, for a 750 mL bottle, phased in over three years.

  • The minimum retail prices for cider, fortified wine and low-alcohol wine will also be phased in over three years.

The government proposes to introduce legislation in the future to:

  • Establish higher basic wine tax rates for sales at winery retail outlets that operate their stores inside grocery stores; and
  • Replace the current mark-up and commission structure at on-site distillery retail stores with a tax on purchases of spirits.

Summary of Measures

TABLE 5.1 2016 Budget Tax Measures
($ Millions)
  2016–17 2017–18 2018–19
Personal Income Tax Credits - Tuition and Education Tax Credits 20 145 335
Personal Income Tax Credits - Children’s Activity Tax Credit 15 50 55
Personal Income Tax Credits - Healthy Homes Renovation Tax Credit 4 15 15
Paralleling Federal Personal Income Tax Measures - Small Business Dividend Tax Credit and Gross-Up 20 20 20
Paralleling Federal Personal Income Tax Measures - Tax-Free Savings Accounts 10 10 10
Business Tax Credits - Ontario Research and Development Tax Credit 15 25 25
Business Tax Credits - Ontario Innovation Tax Credit 20 40 40
Other Measures - Tobacco Tax 100 95 90
Other Measures - Alcohol Charges 15 45 75
Total 220 445 665
Notes: Numbers indicate increases in government revenue, except for the Children’s Activity Tax Credit, the Healthy Homes Renovation Tax Credit and the Ontario Innovation Tax Credit, which represent reductions in government expenditures.
Numbers may not add due to rounding.

Some of the additional revenue raised through proposed tax measures would be reinvested in programs and services, such as student financial assistance.

Technical Amendments

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

  • Alcohol and Gaming Regulation and Public Protection Act, 1996
  • Assessment Act
  • Automobile Insurance Rate Stabilization Act, 2003
  • City of Toronto Act, 2006
  • Co-operative Corporations Act
  • Commodity Futures Act
  • Compulsory Automobile Insurance Act
  • Corporations Act
  • Credit Unions and Caisses Populaires Act, 1994
  • Electricity Act, 1998
  • Employer Health Tax Act
  • Estate Administration Tax Act
  • Financial Administration Act
  • Financial Services Commission of Ontario Act, 1997
  • Income Tax Act
  • Insurance Act
  • Investment Management Corporation of Ontario Act, 2015
  • Land Transfer Tax Act
  • Liquor Control Act
  • Liquor Licence Act
  • Loan and Trust Corporations Act
  • Local Roads Boards Act
  • Mortgage Brokerages, Lenders and Administrators Act, 2006
  • Motor Vehicle Accident Claims Act
  • Municipal Act, 2001
  • Municipal Property Assessment Corporation Act, 1997
  • Northern Services Boards Act
  • Pension Benefits Act
  • Pooled Registered Pension Plans Act, 2015
  • Provincial Land Tax Act, 2006
  • Retail Sales Tax Act
  • Registered Insurance Brokers Act
  • Securities Act
  • Taxation Act, 2007
  • Tobacco Tax Act

Additional proposed legislative amendments will include:

  • Amendments to the Highway Traffic Act to implement the 2014 Budget announcement that the Province would modernize the treatment of certain unregistered road-building machines. Implementation of this measure is expected to occur on January 1, 2017. Complementary amendments to that Act will also be proposed.
  • Amendments to the Courts of Justice Act to implement certain recommendations of the eighth Provincial Judges Remuneration Commission.
  • Amendments to statutes governing four Ontario universities to eliminate requirements that members of their boards of governors be Canadian citizens.