2011 Ontario Economic Outlook and Fiscal Review

Chapter V: Taxation and Pensions

HIGHLIGHTS

  • Ontario’s Tax Plan for Jobs and Growth is providing $12 billion in tax relief for people and more than $4.8 billion in business tax relief over three years, beginning in 2010–11.
  • The proposed Healthy Homes Renovation Tax Credit would allow seniors or family members who are sharing a home with a senior to claim a refundable tax credit for permanent modifications that improve accessibility or help a senior be more functional or mobile at home.

Creating Jobs and Helping Ontarians

Ontario’s Tax Plan for Jobs and Growth, announced in 2009, provides Ontario with a strong foundation to help manage global economic uncertainty. Tax relief measures for people and businesses are helping to make Ontario’s tax system fairer and more competitive.

Tax Relief for People
  • A permanent cut to Personal Income Tax (PIT) for 93 per cent of income tax payers, including elimination of Ontario PIT for about 90,000 lower-income taxpayers.
  • Permanent refundable credits providing a total of $2.4 billion in annual assistance to millions of low- to moderate-income people:
    • Ontario Sales Tax Credit — for 2011, people can get up to $265 in sales tax relief for each adult and child in a family.
    • Ontario Energy and Property Tax Credit — for 2011, single people and families can get up to $917 in relief for the sales tax on energy and for property taxes. Seniors can get up to $1,044.
    • Northern Ontario Energy Credit — for 2011, residents of northern Ontario can get up to $132 for a single person or up to $204 for a family to help with the higher energy costs they face.
    • These credits are paid in four instalments. Beginning in July 2012, these credits will be combined and delivered on a monthly basis as the Ontario Trillium Benefit.
  • The Ontario Senior Homeowners’ Property Tax Grant, introduced in 2009, is providing grants of up to $500 a year to help low- to moderate-income senior homeowners pay their property taxes. Over five years, the grant is expected to provide about $1 billion in property tax relief to over 600,000 seniors.
  • Children’s Activity Tax Credit — for 2011, parents who have children enrolled in extracurricular activities can get up to $51 for each child under age 16. They can receive up to $102 for each child with a disability who is under age 18. This credit is expected to provide about $75 million in assistance to Ontario families each year.

Healthy Homes Renovation Tax Credit

The government is proposing a new Healthy Homes Renovation Tax Credit. If passed, this tax credit could stimulate economic growth through home renovation activity, and would also support around 10,500 jobs throughout the Ontario economy annually. Helping seniors stay in their homes, or in their families’ homes, frees up health resources for patients occupying costly beds in hospitals but who could be best cared for in a long-term care home.

Effective October 1, 2011, senior homeowners and tenants, and people who share a home with a senior relative, would be allowed to claim a refundable tax credit of up to $1,500 for expenses related to permanent modifications to the home.

Expenses would be eligible only to the extent that they improve accessibility or help a senior be more functional or mobile at home.

Expenses would not be eligible if their primary purpose is to increase the value of a home (for example, repairs to a roof, redecorating, new windows, new flooring, landscaping, general plumbing or electrical repairs, heating/air conditioning systems or insulation).

Expenses that would be eligible are illustrated by the list below.

To claim the tax credit, seniors or their family members would have to get receipts from suppliers and contractors, helping to ensure that these amounts are reported by vendors for tax purposes.

The credit would be calculated as 15 per cent of up to $10,000 in total eligible expenses for a senior’s principal residence in Ontario for a calendar year, for a maximum credit of $1,500 each year. The credit would be claimed on the Personal Income Tax return.

For the 2012 tax year only, the $10,000 maximum would apply to expenses paid or payable from October 1, 2011 to December 31, 2012.

Examples of Eligible Expenses*
  • Certain renovations to permit first-floor occupancy or secondary suites (“granny flats” or “in-law suites”)
  • Grab bars and related reinforcements around the toilet, bathtub and shower
  • Hand rails in corridors
  • Wheelchair ramps, stair/wheelchair lifts and elevators
  • Bath lifts, walk-in bathtubs and wheel-in showers
  • Widening passage doors
  • Lowering existing counters/cupboards or installing adjustable counters/cupboards
  • Light switches and electrical outlets placed in accessible locations
  • Door locks that are easy to operate
  • Lever handles on doors and taps instead of knobs
  • Pull-out shelves under counter to enable work from a seated position
  • Non-slip bathroom flooring
  • A hand-held shower on adjustable rod or high-low mounting brackets
  • Additional light fixtures throughout the home and exterior entrances
  • Swing-clear hinges on doors to widen doorways
  • Creation of knee space under the basin to enable use from a seated position (and insulation of any hot-water pipes)
  • Relocation of tap to front or side of a sink for easier access
  • Hands-free taps
  • Motion-activated lighting
  • Touch-and-release drawers and cupboards and drawers that pull out fully
  • Modular or removable versions of a permanent fixture, such as modular ramps and non-fixed bath lifts

* Rules for eligibility would be set out in legislation. This list is not complete.

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.

Tax Relief for Businesses

Ontario’s Tax Plan for Jobs and Growth supports job creation and economic growth.

Tax Competitiveness

Ontario will reduce the general statutory Corporate Income Tax (CIT) rate to 10 per cent in 2013.

  • The general CIT rate was reduced to 11.5 per cent effective July 1, 2011 and will be further reduced 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, farming and fishing has been reduced to 10 per cent.
  • The small business CIT rate has been reduced to 4.5 per cent.
  • The small business deduction surtax has been eliminated.
  • The Corporate Minimum Tax (CMT) rate has been reduced to 2.7 per cent and more small and medium-sized business have been exempted from the CMT.

The CIT rate reductions, along with other measures described below, will increase Ontario’s competitiveness within Canada, with the province’s largest trading partner, the United States, and with other jurisdictions around the world. In 2009, prior to the plan, Ontario’s general statutory CIT rate of 14 per cent was the second-highest provincial CIT rate in Canada. When Ontario’s general CIT rate reaches 10 per cent in 2013, it will be among the lowest provincial rates in the country. Ontario’s tax advantage over the average combined federal–state rate in the United States will widen from just over six percentage points in 2009 to over 14 percentage points when the CIT rate reductions are fully implemented. Ontario’s CIT rate reductions will put Ontario in line with the average CIT rate of Organisation for Economic Co-operation and Development (OECD) member countries.

In addition to the CIT rate reductions in the Tax Plan, the Province has:

  • introduced the Harmonized Sales Tax (HST), which, when fully implemented, removes about $4.5 billion of embedded sales tax paid by business each year, allowing businesses to lower prices;
  • eliminated the Capital Tax on July 1, 2010, providing more than $1.6 billion of tax relief annually;
  • moved to a single HST administration and a single corporate tax administration, providing compliance cost savings to business of more than $635 million per year; and
  • reduced Business Education Tax (BET) rates, saving businesses $540 million per year when fully implemented in 2014.

Strengthening Accountability and Transparency of Tax Expenditures

Public Sector Accounting Standard for Tax Revenue Reporting

The Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants published a standard for tax revenue after consultation with federal, provincial and territorial governments.

The PSAB standard for tax revenue distinguishes between tax expenditures that provide:

  • relief to taxpayers of taxes paid or owing to the government (i.e., tax concessions), such as non-refundable tax credits; and
  • financial benefits regardless of whether a recipient has paid or owes taxes, such as certain refundable tax credits.

Tax concessions would be netted against related tax revenue. Transfers made through a tax system would be reported as expenses, and appropriations approved by the legislature would be required.

As part of its continuing efforts to strengthen financial management, transparency and accountability for the spending of taxpayer dollars, the government will adopt the PSAB standard for tax revenue and begin to treat transfers made through the tax system as expenses.

Reviewing Business Tax Expenditures

Ontario’s tax plan has significantly enhanced tax competitiveness for businesses. Ontario will review business tax expenditures for effectiveness and administrative efficiency.

Since 2005, the Ontario government has been reporting tax expenditures as part of its fall economic updates. The Fiscal Transparency and Accountability Act, 2004, stipulates that the mid-year review of the fiscal plan must include information about the estimated cost of expenditures made through the tax system. The Transparency in Taxation, 2011 report, which provides the most current estimates of revenue forgone with respect to tax expenditures, can be found at: www.fin.gov.on.ca/en/budget/fallstatement/2011/transparency.html

Strengthening the Integrity of the Tax System

Ontario’s ability to maintain a competitive tax system depends on the integrity and overall fairness of its business tax base. Ontario will continue to work with the federal government and other provinces to address tax loopholes and aggressive tax planning.

In addition, Ontario is calling on the federal government to strengthen the integrity of the corporate tax system by ensuring that tax losses are applied in a fair and reasonable manner and do not distort the principles of inter-provincial income allocation. Ontario continues to support the federal government’s review of corporate group taxation in Canada. As stated in the 2011 Ontario Budget, “Provincial governments have responsibility for key programs such as health and education, and are entitled to tax the economic activity taking place within their jurisdictions. The focus of any changes should be to increase the efficiency and competitiveness of the Canadian corporate tax system and ensure that provinces receive the revenues to which they are entitled.”

Federal Support for Research and Development

The federally appointed panel leading the Review of Federal Support for Research and Development (R&D) submitted its final report to the federal government in October 2011. The report makes a series of recommendations relating to federal direct spending and the Scientific Research and Experimental Development (SR&ED) tax incentive program.

Ontario shares the federal government’s interest in enhancing business innovation and welcomes efforts to improve the effectiveness and administration of federal programs. Ontario parallels the base of the federal SR&ED tax incentives and will be reviewing any federal changes that would impact R&D tax support for businesses in Ontario.

Ontario’s innovative businesses benefit from federal direct spending and the SR&ED tax incentive program. Any changes to federal R&D assistance should focus on greater effectiveness and fairness and should be done in consultation with the provinces.

Securing Our Retirement Future

Ontario is modernizing its pension legislation and actively representing Ontarians in national discussions about improving Canada’s retirement income system. This comprehensive approach includes:

  • reforming Ontario’s employment pension system while balancing the interests of active pension plan members, pensioners and plan sponsors;
  • protecting members and pensioners by responding to the effects of economic uncertainty on pensions;
  • further enhancing the sustainability of the Pension Benefits Guarantee Fund; and
  • strengthening Canada’s retirement income system by supporting a modest, phased-in, fully funded enhancement to the Canada Pension Plan (CPP) as well as innovative ideas to improve employment pension coverage in a cost-effective manner.

In 2010, the Ontario legislature unanimously approved the Pension Benefits Amendment Act, 2010 and the Securing Pension Benefits Now and for the Future Act, 2010. These two bills marked the most significant reform of the Pension Benefits Act in more than 20 years. The government is now working on the regulatory amendments required to implement many of these new provisions and other proposed amendments announced by the minister.

Since the release of the Province’s discussion paper, ‘Securing Our Retirement Future: Consulting with Ontarians on Canada’s Retirement Income System” in October 2010, the government has received over 1,000 responses from business, labour groups and individual stakeholders. In the paper, CPP expansion and Pooled Registered Pension Plans (PRPPs) are presented as options for improving retirement income security for Ontarians. The government is working with its federal, provincial and territorial partners to assess approaches to CPP expansion and consider the framework for PRPPs.