Tax Changes for a Stronger Ontario: What the changes mean to businesses

Ontario's Tax Changes for Jobs and Growth

In response to the biggest global economic downturn in 80 years, Ontario has introduced a comprehensive tax package that will create jobs and spur economic growth.

Savings for Business

Thanks to these tax changes, Ontario will have one of the most competitive environments in the industrialized world for business investment and that means a stronger Ontario for all.

Creating Jobs

A report by economist and tax expert Jack Mintz predicts that as a result of the HST and other tax changes, Ontario will, within 10 years, see:

• 591,000 net new jobs;
• Increased capital investment of $47 billion; and
• Increased annual incomes of up to 8.8%, or $29.4 billion

Implementation of a Harmonized Sales Tax (HST)

With the implementation of the HST on July 1, 2010:

• Most businesses will generally receive input tax credits for the provincial portion of the HST they pay on many business purchases and capital investments, moving towards annual savings of $4.6 billion when fully phased in.
• Administration of a single tax instead of two means one set of forms, one payment and one point of contact.
• Businesses will save over $500 million a year in compliance costs.

Small businesses will benefit substantially as their marginal effective tax rate on new business investment will fall by more than half due to the HST and the reduction in the corporate income tax rates.

Cutting Corporate Income Tax

When fully implemented, Ontario will be providing $2.4 billion a year in corporate income tax (CIT) cuts. Beginning July 1, 2010, CIT rates will be cut as follows:

• The general CIT rate will be lowered from 14% to 12%, then further reduced to 10% over the next three years.
• The small business CIT rate will be cut from 5.5% to 4.5%.
• The small business deduction surtax of 4.25% will be eliminated.
• The CIT rate on manufacturing and processing, mining, logging, farming and fishing income will be lowered from 12% to 10%.

Also, the Corporate Minimum Tax (CMT) rate will be cut from 4% to 2.7% effective July 1, 2010 and fewer small and medium-sized businesses will have to pay the CMT for taxation years ending June 30, 2010.

This is in addition to the existing plan to eliminate the capital tax by July 1, 2010, which will save businesses nearly $1.6 billion a year.

Eliminating a Hidden Tax

Ontario businesses will benefit from the removal of about $4.6 billion a year in hidden sales taxes by replacing the Provincial Sales Tax (PST) with the HST, once fully phased in.

Right now, the PST is paid by most businesses on various purchases throughout the supply chain. That hidden tax drives up costs to consumers and is a big competitive disadvantage to Ontario's businesses.

In general, under the HST, most taxes paid on business inputs will be refunded to businesses through input tax credits, generating savings by removing the current embedded sales tax — savings that can be passed along to consumers.

For more information

For more information on the tax package go to www.ontario.ca/taxchange.

Or call: 1 800 337-7222/Teletypewriter (TTY) 1 800 263-7776

For more information on the Ontario Budget, go to www.ontario.ca/budget.

Copies of Budget materials are available at:
ServiceOntario – Publications
777 Bay Street, Market Level
Toronto ON  M5G 2C8