Chapter 5: Tax and Pension Modernization
HIGHLIGHTS
- Tax relief of $12 billion for people over three years, including sales tax relief to about 3.1 million individuals and families through the Ontario Sales Tax Credit, which provides up to $260 per person in annual relief.
- Tax relief of more than $4.8 billion to businesses over three years.
- Point-of-sale exemptions for the provincial component of the Harmonized Sales Tax (HST) for books, children's clothing and footwear, children's car seats and car booster seats, diapers, feminine hygiene products, print newspapers, qualifying prepared food and beverages sold for a total of $4.00 or less, and eligible purchases by First Nations.
ONTARIO'S TAX PLAN FOR JOBS AND GROWTH
As part of the government's Open Ontario plan, Ontario's Tax Plan for Jobs and Growth, introduced in the 2009 Budget, positions the province to attract investment and create jobs. This plan is delivering both permanent and temporary tax relief, including tax credits that target those who need help most by putting money back into people's pockets. Over three years, the plan and additional tax measures for people announced since the 2009 Budget would provide tax relief of $12 billion for people and more than $4.8 billion for businesses.
Ontario's Tax Plan for Jobs and Growth includes the following tax relief for people and businesses:
- permanent cuts to personal income taxes mean that, for the 2010 tax year, taxes will be reduced by $200, on average, for 93 per cent of Ontario income tax payers.
- the elimination of Ontario Personal Income Tax for about 90,000 lower-income taxpayers;
- sales tax relief for about 3.1 million individuals and families through the Ontario Sales Tax Credit. This credit, which began to be paid quarterly in August 2010, provides up to $260 in relief per person per year (up to $1,040 for a family of four);
- relief for the sales tax on energy and for property taxes of up to $900 annually for non-seniors and $1,025 for seniors, for about 2.8 million low- to middle-income individuals and families through the proposed Ontario Energy and Property Tax Credit. This credit would be provided after a 2010 tax return is filed and, beginning in July 2011, it would be paid in four instalments per year;
- direct payments totalling up to $1,000 for a family or $300 for a single person to assist in the transition to the HST. People may receive up to three payments, with the first in June 2010 and the second and third payments in December 2010 and June 2011, respectively;
- payments of $300 to $1,000 per small business to assist in the transition to the HST; and
- reduced Corporate Income Tax (CIT) rates for large and small businesses and the elimination of the small business deduction surtax.
A study by tax expert Jack Mintz shows that the HST and Ontario CIT cuts, together with other recent tax changes, will lead to substantial benefits for Ontarians. He estimates that, within 10 years, the lower tax burden on business investment will lead to increased capital investment of $47 billion, almost 600,000 net new jobs and higher annual incomes of up to 8.8 per cent.
To view Professor Mintz's report, visit www.rev.gov.on.ca/en/taxchange/pdf/mintz.pdf
The government is also providing point-of-sale exemptions for the provincial component of the HST for books, children's clothing and footwear, children's car seats and car booster seats, children's diapers and feminine hygiene products. Additional point-of-sale exemptions have been announced since the 2009 Budget. See the Additional HST Relief for People section.
SUPPORTING PEOPLE
Since the 2009 Budget, the government has announced other tax measures to help people:
- A new Northern Ontario Energy Credit in 2010 will help people in northern Ontario with the higher energy costs they face. This credit provides up to $130 for a single person and up to $200 for a family (including single parents). For the first year, this credit is being paid in two instalments, in November 2010 and February 2011. Starting in July 2011, the Northern Ontario Energy Credit and the proposed Ontario Energy and Property Tax Credit would be paid in four instalments per year.
- A new Children's Activity Tax Credit has been proposed to help parents with the cost of enrolling their children in activities that encourage them to be healthy and active. This would be the only tax credit in Canada provided for a comprehensive range of children's activities. Parents would receive up to $50 per child per year (up to $100 per child with a disability) towards the cost of these activities. The federal children's fitness tax credit is a non-refundable tax credit — it reduces the amount of income tax a person pays. People who do not earn enough to pay income tax do not benefit from non-refundable tax credits such as the federal children's fitness tax credit. Ontario's proposed credit would be refundable so people would get the credit even if they pay no income tax. This would allow more lower-income families to benefit.
| Activities Eligible for the Federal Children's Fitness Tax Credit and Ontario's Children's Activity Tax Credit | Additional Organized or Instructional Activities Eligible for Ontario's Children's Activity Tax Credit |
|---|---|
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- *Subject to legislative approval. To be eligible, programs would have to meet the same rules regarding duration and the proportion of eligible activities that must be offered as for the federal children's fitness tax credit. These rules can be found at www.cra.gc.ca. The Canada Revenue Agency would make final determinations regarding the eligibility of particular activities, programs and expenses. The list of examples presented above is not exhaustive.
Additional HST Relief for People
With the implementation of the HST, the sales tax status for about 83 per cent of total consumer purchases has not changed. Only an estimated 17 per cent of consumer spending is affected by the HST.
Since the 2009 Budget, Ontario has announced other measures to provide HST relief for people.
As announced on June 18, 2009, the government enhanced the rebate for new housing under the HST so that new homes purchased as primary residences across all price ranges qualify for a 75 per cent rebate of the provincial portion of the HST, up to a maximum rebate of $24,000. The rebate ensures that, on average, new homes priced up to $400,000 are not subject to additional tax under the HST compared to the Retail Sales Tax (RST) previously embedded in the price of new homes.
Ontario is providing further targeted sales tax relief with point-of-sale exemptions for the provincial component of the HST, which are available for print newspapers and qualifying prepared food and beverages sold for a total of $4.00 or less.
In addition, on June 17, 2010, Ontario announced that, effective September 1, 2010, the exemption under the RST for First Nations will continue for qualifying property and services for the provincial component of the HST. Refunds were also available for eligible purchases made during the interim period from July 1, 2010 to August 31, 2010.
The following chart sets out Ontario HST relief to people and key public service bodies through point-of-sale exemptions and rebates.
The government has also proposed to provide additional relief for the sales tax on energy and for property taxes through the enhanced Ontario Energy and Property Tax Credit (OEPTC). In September, the government introduced legislation that would increase the amount seniors can earn and still be eligible for the OEPTC, making 50,000 more seniors eligible for this credit, and providing increased relief to about 690,000 seniors. The proposed enhanced credit would provide up to $1,025 for an eligible single senior or senior couple to help them with the sales tax on energy and with their property tax. The OEPTC would deliver almost $1.3 billion in annual support. This represents an increase of $525 million compared to the property tax credit provided in 2009.
FEDERAL GOVERNMENT INCENTIVES SUPPORT HARMONIZATION
The federal government has played a crucial role in supporting Ontario's move to a harmonized sales tax system. To encourage provinces to harmonize with the Goods and Services Tax (GST), the federal government has provided very generous incentives, such as:
- providing Ontario with $4.3 billion in transitional support;
- assuming all Canada Revenue Agency information system costs in administering Ontario's portion of the HST;
- agreeing to administer the HST for no charge; and
- agreeing to make comparable job offers to all Ontario Public Service employees affected by harmonization, reducing the number of positions by 1,253.
Federal administration of Ontario's HST will save the Province approximately $100 million annually in compensation and overhead by 2014–15.
FEDERAL SUPPORT FOR THE HST
“Provincial retail sales taxes RSTs) are outdated and inefficient. They impose a significant tax burden on new business investment and increase the day-to-day operating costs of Canadian businesses. Unlike the Goods and Services Tax (GST), under which businesses receive a credit for the sales tax they pay on their inputs, these costs are subsequently embedded in the prices consumers pay for goods and services. Ultimately, this makes our businesses less competitive, reduces employment and lowers the standard of living for Canadians. Modernizing these harmful taxes by implementing a value-added tax structure harmonized with the GST is the single most important step that provinces with RSTs could take to stimulate new business investment, create jobs and improve Canada's overall tax competitiveness.”
Federal 2009 Budget: Canada's Economic Action Plan, January 27, 2009, page 262.
ONTARIO'S TAX PLAN FOR JOBS AND GROWTH
The Tax Plan for Jobs and Growth includes the HST and tax relief for both people and businesses. The impact of the sales tax base conversion on the Province is shown in the first line of the following table. In 2012–13, one percentage point of the HST base is estimated at $2.8 billion (compared to $2.5 billion for one percentage point of the RST base had that tax remained in effect).
| 2010–11 | 2011–12 | 2012–13 | |
|---|---|---|---|
| Conversion of RST Base to HST Base2 | 1,580 | 2,270 | 2,345 |
| 2009 Tax Measures for People | |||
| Personal Income Tax Cut | (1,140) | (1,205) | (1,270) |
| Ontario Sales Tax Credit3 | (560) | (870) | (925) |
| Ontario Energy and Property Tax Credit3 | (440) | (430) | (600) |
| Ontario Sales Tax Transition Benefit | (2,785) | (1,460) | – |
| (4,925) | (3,965) | (2,795) | |
| Additional Tax Measures for People | |||
| Northern Ontario Energy Credit | (35) | (30) | (45) |
| Children's Activity Tax Credit | (95)4 | (75) | (80) |
| (130) | (105) | (125) | |
| Tax Measures for Business | |||
| CIT and Corporate Minimum Tax Cuts | (520) | (1,455) | (1,845) |
| Small Business CIT Rate Cut | (55) | (180) | (190) |
| Small Business Surtax Elimination | (20) | (90) | (95) |
| Small Business Transition Support | (400) | – | – |
| (995) | (1,725) | (2,130) | |
| Temporary Input Tax Credit Restrictions for Business | 690 | 975 | 1,015 |
| Total Tax Reform and Other Measures | (3,780) | (2,550) | (1,690) |
- 1 Includes temporary transitional support for people and businesses primarily funded from federal government payments totalling $4.3 billion over two years.
- 2 The sales tax base conversion includes point-of-sale exemptions, a rebate for new housing and maintaining sales tax on premiums of certain types of insurance and private transfers of used vehicles.
- 3 Represents 2009 Ontario Budget and subsequent enhancements.
- 4 The 2010–11 cost includes $20 million incurred in 2009–10.
OTHER MEASURES
AMENDMENTS RELATING TO THE ALCOHOL AND GAMING REGULATION AND PUBLIC PROTECTION ACT, 1996
A number of technical amendments will be proposed that would:
- ensure consistency of provisions within the Alcohol and Gaming Regulation and Public Protection Act, and consistency with other commodity tax statutes;
- remove obsolete provisions; and
- clarify the future rules regarding product in inventory.
To recognize changes in the operation and structure of charges for beer due to the replacement of fees on manufacturers with taxes, the government will introduce a one-time transition grant for Ontario beer manufacturers.
The government proposes to amend the definition of a microbrewer to clarify that production by a microbrewer for a large brewer does not qualify for a lower rate. This change would ensure that preferential microbrewery rates are targeted to the small businesses they are intended to assist.
MODERNIZING CORPORATE GROUP TAXATION
In recent years, Ontario has implemented a number of initiatives to improve and modernize the tax system. Ontario is consistently looking for ways to strengthen the competitiveness of the Ontario economy through improvements to the tax system. Ontario businesses are saving up to $100 million annually in compliance costs from harmonized corporate tax collection.
The 2010 federal budget committed to reviewing the taxation of corporate groups to determine whether a new approach could improve the functioning of the Canadian tax system. Ontario is interested in working collaboratively with the business community, the federal government and the other provinces in developing a more efficient and competitive system of corporate group taxation.
Canada has a system for sharing the Corporate Income Tax base under which each province is entitled to tax the economic activity taking place within its jurisdiction. Any new approach to corporate group taxation must consider the impact on provincial revenues when losses are transferred from one province to offset income from economic activity in another province. The taxation of corporate groups must not distort the principles of interprovincial income allocation and should treat losses in a fair and reasonable manner.
While a new approach is being explored, Ontario calls upon the federal government to strengthen the integrity of the Canadian tax system by immediately taking action to prohibit transactions that result in the transfer of losses within corporate groups and across provincial borders.
AMENDMENTS RELATING TO THE TAXATION OF BENEFIT PLANS
Ontario recognizes the importance of employer-sponsored benefit plans to employees, retirees and their families. Benefit plans that hold sufficient funds to pay benefits over a longer period offer greater security for the recipients. Proposed amendments to the Retail Sales Tax Act and the Corporations Tax Act would allow planholders that provide significant pre-funding to a qualifying trust to pay tax as benefits are paid, rather than on contributions. A qualifying trust must meet prescribed conditions and have sufficient contributions to provide more than three years of benefits to its members.
MODERNIZING ONTARIO'S PENSION SYSTEM
The government is committed to improving retirement income security and is consulting on different ideas to make it easier and less costly to save for retirement. A discussion paper entitled “Securing Our Retirement Future” was released on October 29, 2010.
The paper described possible changes, which would involve, among other things, innovative types of pension or retirement savings plan arrangements. These changes would require amendments to the federal Income Tax Act and pension legislation across Canada.
Currently, pension plans are based on the existence of an employer-employee relationship and require participation by an employer. Allowing financial institutions to administer defined contribution plans with participation from multiple employers and making these plans accessible to the self-employed could extend pension coverage to Canadians who currently lack access to pension plans.
In addition, pooling assets would increase the potential for economies of scale and lower costs to members. There are governance, regulatory and supervisory plan design issues that need to be resolved, in order to protect the interests of plan members.
The government is also considering the establishment of jointly governed, single-employer “target benefit plans” for employees who are represented by unions or “union-like organizations.” This initiative, proposed by Harry Arthurs in his report on behalf of the Ontario Expert Commission on Pensions, would help to address the issue of declining single-employer pension plan coverage. As the discussion paper indicates, Ontario has committed to consulting with interested stakeholders, including Finance Canada, on the feasibility, design and implementation of these plans.
In 2009, the government amended legislation that expanded the mandate of the Ontario Teachers' Pension Plan Board and Ontario Municipal Employees Retirement System (OMERS) Administration Corporation. They were allowed to compete with other financial institutions to provide pension administration and investment services to other pension plans and institutional investors in the public sector on a for-profit basis.
This change permitted large pension plans to offer their services to smaller pension plans to improve investment returns and/or lower the cost of plan administration for Ontario pension plans and others. The amendment was consistent with the recommendations of the Expert Commission on Pensions.
The OMERS Administration Corporation and OMERS Sponsors Corporation have requested an amendment to the OMERS Act, 2006 that would change the eligibility rules to extend OMERS membership to employees of existing and future OMERS investment entities (e.g., authorized subsidiaries). The government will seek the approval of the legislature to implement this change. Changes to the federal Income Tax Act may also be required to fully implement this proposal.