2012 Ontario Economic Outlook and Fiscal Review

Transparency in Taxation, 2012

Transparency in Taxation

Tax expenditure reporting is an important element of fiscal accountability. It increases fiscal transparency by providing a comprehensive picture of forgone revenue in the tax system.

Structure of the Report

This report provides the most current estimates of forgone revenue with respect to provisions in the following taxes:

  • Personal Income Tax;
  • Corporate Income Tax;
  • Sales and Commodity Tax;
  • Education Property Tax;
  • Employer Health Tax;
  • Mining Tax;
  • Estate Administration Tax; and
  • Gross Revenue Charge.

Scope

Given the absence of a universally accepted definition of a “tax expenditure,” this report continues the approach adopted in previous reports of listing estimates of forgone revenue that could potentially be included under a broad-based tax system.

This report includes provincial tax reductions and exemptions administered by the Province or Ontario’s municipalities.

Under a tax collection agreement between Ontario and Canada, the federal government determines the Personal Income Tax and Corporate Income Tax bases. Similarly, under the Comprehensive Integrated Tax Coordination Agreement between Ontario and Canada, the federal government determines the Harmonized Sales Tax base. As a result, Ontario is impacted by federal tax expenditures associated with these tax bases. This report also includes these tax expenditures that are shared with the federal government and Ontario-only tax expenditures that are administered by the federal government.

Not included in this report are measures that were repealed or phased out in the calendar year or are reported in the Public Accounts of Ontario. As announced in the 2012 Budget, Ontario changed the presentation of its tax expenditures, starting in 2012–13, to provide more transparency and accountability. This presentation is consistent with the new accounting standard for tax revenue set out by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. Tax expenditures that provide a financial benefit through the tax system and are not related to relief of taxes paid are reported as expenses in Volume I of the Public Accounts of Ontario.

Method

The estimates in this report were developed using the latest available taxation and economic data, forecast to the 2012 calendar year. The data used to estimate the values of the tax provisions come from a variety of sources. The estimated value of a tax provision may differ from the amount reported in a prior year for a variety of reasons including amendments to the provision, changes in economic factors, revisions to the underlying data and improvements to the estimation method. Some tax provision estimates are particularly sensitive to economic conditions or other variables and, therefore, can fluctuate significantly from year to year.

Each estimate is presented on a full-year basis, regardless of when a tax provision became effective within the year. This approach enables a better comparison of the revenue forgone from measures that come into effect at different times in the year. Tax expenditure reports prior to 2010 presented estimates only for the portion of the year that a tax provision was in place. Hence, care must be taken when comparing this report to earlier reports.

It is important to note that the estimates in this report are not intended to represent the potential change in revenue if the tax provisions were not in place. Each estimate has been determined separately and in isolation from other factors, such as the interactions between various tax provisions. As a result, the estimates cannot be added together to determine the total cost of a particular group of tax expenditures.

Tax expenditure estimates below $10 million are rounded to the nearest $1 million and estimates above $10 million are rounded to the nearest $5 million. Tax expenditure estimates of less than $1 million are denoted by the letter “s” (small). This report also includes tax provisions for which relevant data are not currently available.

Personal Income Tax

Table 1 provides estimates of tax provisions relating to the Ontario Personal Income Tax system. Business provisions listed here are for unincorporated businesses.

To qualify for the Ontario Energy and Property Tax Credit (OEPTC), Ontario Sales Tax Credit (OSTC) and Northern Ontario Energy Credit (NOEC), certain information must be reported on an individual’s personal income tax return. Beginning in July 2012, payments of the refundable OEPTC, OSTC and NOEC were combined and paid as the Ontario Trillium Benefit, which is being delivered monthly to qualifying individuals and families. Both the OSTC and the energy component of the OEPTC are netted against Sales Tax revenue, and therefore are reported as Sales Tax measures in Table 3. The property tax component of the OEPTC is netted against Education Property Tax revenue, and therefore is reported as an Education Property Tax measure in Table 6. The NOEC is reported in Volume I of the Public Accounts of Ontario.

The Ontario Senior Homeowners’ Property Tax Grant (OSHPTG) provides property tax relief to low- to moderate-income Ontario seniors, based on information reported on their personal income tax returns. The OSHPTG is netted against Education Property Tax revenue, and therefore is reported as an Education Property Tax measure in Table 6.

Personal Income Tax1Table 1
Tax Provisions 2012 Estimates2
($ Millions)
Ontario Non-refundable Tax Credits
Adoption Expense Credit s
Age Credit 275
Amounts Transferred from a Spouse or Common-law Partner 25
Basic Personal Credit 3,995
Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) Contributions Credit 505
Caregiver Credit 25
Charitable Donations Credit 600
Disability Credit 110
Eligible Dependant Credit 85
Employment Insurance (EI) Premiums Credit 175
Infirm Dependant Credit  1
Medical Expense Credit  155
Ontario Overseas Employment Tax Credit 8
Pension Income Credit 115
Spouse or Common-law Partner Credit 180
Student Loan Interest Credit 7
Tuition and Education Credits  335
Ontario Tax Reduction (OTR)
OTR — Basic Reduction 235
OTR — Reduction for Dependent Children Under 19 215
OTR — Reduction for Disabled or Infirm Dependants 15
OTR — Total 390
Exemptions, Deductions, Deferrals and Other Measures Shared with the Federal Government
Business
Items for Which an Estimate is not Available  
Assistance for Artists and Deduction for Canadian Art Purchased by Unincorporated Businesses  
Assistance for Prospectors and Grubstakers  
Deduction of Accelerated Capital Cost Allowance  
Deferral Through Use of Billed-basis Accounting by Professionals  
Employment
Deduction for Clergy Residence 15
Deduction of Home Relocation Loans s
Deduction for Military and Police Deployed to High-risk International Missions 10
Deduction of Other Employment Expenses 270
Deduction of Union and Professional Dues 160
Deduction for Employee Security Options 190
Moving Expense Deduction 15
Northern Residents Deductions 2
Items for Which an Estimate is not Available  
Deduction for Artists and Musicians  
Deduction for Tradespersons’ and Apprentice Vehicle Mechanics’ Tools  
Deduction for Tuition Assistance for Adult Basic Education  
Deferral of Salary Through Leave of Absence/Sabbatical Plans  
Employee Benefit Plans  
Non-taxation of Business-paid Health and Dental Benefits  
Non-taxation of Certain Non-monetary Employment Benefits  
Special Tax Computations for Certain Retroactive Lump-sum Payments  
Farming and Fishing
Items for Which an Estimate is not Available  
Cash-basis and Flexibility in Inventory Accounting  
Deferral of Income for Farmers  
Income Stabilization Account for Farmers  
Investment
$750,000 Lifetime Capital Gains Exemption for Farm or Fishing Property and Small Business Shares 180
Deduction of Allowable Business Investment Losses 10
Deduction of Carrying Charges Incurred to Earn Income 275
Deduction of Resource-related Expenditures 125
Partial Inclusion of Capital Gains 765
Tax-Free Savings Accounts (TFSAs) — Non-taxation of Investment Income 100
Items for Which an Estimate is not Available  
Capital Gains Exemptions — $1,000 on Personal-use Property and $200 on Foreign Exchange Transactions  
Deferral of Capital Gains Through Five-year Reserves  
Deferral of Capital Gains Through Rollovers  
Deferral of Capital Gains Through 10-year Reserves for Farm or Fishing Property and Small Business Shares  
Deferral of Capital Gains Through Transfers to a Spouse, Spousal Trust or Family Trust  
Exemption for Capital Gains Arising from Certain Donations  
Non-taxation of Capital Gains on Principal Residences  
Taxation of Capital Gains Upon Realization  
Non-taxable Income
Guaranteed Income Supplement and Allowance Benefits 30
Social Assistance Benefits and Provincial Supplements 30
Workers’ Compensation Benefits 150
Items for Which an Estimate is not Available  
Certain Service Pensions, Allowances, Compensation and Amounts, and Certain War Pensions  
Damages With Respect to Personal Injury or Death  
Death Benefits of Up to $10,000  
Employer-paid CPP/QPP Contributions and EI Premiums  
Gifts and Bequests  
Income from the Office of the Governor General and Allowances for Diplomats and Other Government Employees Posted Abroad  
Income of Status Indians and Indian Bands on Reserve  
Investment Income on Life Insurance Policies  
Lottery and Gambling Winnings  
Partial Inclusion of U.S. Social Security Benefits  
Strike Pay  
Special Circumstances
Child Care Expense Deduction 195
Pension Income Splitting 250
Treatment of Spousal and Child Support Payments 45
Items for Which an Estimate is not Available  
Deduction Related to Vows of Perpetual Poverty  
Disability Supports Deduction  
Exemption of Scholarship, Fellowship and Bursary Income  
Tax-free Amount for Emergency Service Volunteers  
Tax-deferred Savings
Registered Pension Plans (RPPs) — Deduction for Contributions 900
Registered Retirement Savings Plans (RRSPs) — Deduction for Contributions 2,100
Items for Which an Estimate is not Available  
Deferred Profit-sharing Plans  
Registered Disability Savings Plans (RDSPs) — Non-taxation of Investment Income and Federal Contributions  
Registered Education Savings Plans (RESPs) — Non-taxation of Investment Income and Federal Contributions  
RPPs — Non-taxation of Investment Income  
RRSPs and Registered Retirement Income Funds — Non-taxation of Investment Income  
  • 1 Estimates do not include the impact of revenue forgone from Personal Income Tax provisions for trusts, which are taxed as individuals under the Taxation Act, 2007.
  • 2 Estimates are based on 2009 tax filer data forecast to represent the 2012 taxation year.

Personal Income Tax — Description of Changes to Tax Provisions

The following Personal Income Tax provisions changed since the Transparency in Taxation, 2011 report.

Federal Changes

Changes introduced by the federal government to the Personal Income Tax base or shared tax credits are reflected in and have a small impact on Ontario’s tax expenditure estimates.

Indexation

Ontario Non-refundable Tax Credits (other than those based on amounts paid or incurred) and the Ontario Tax Reduction are based on amounts that are adjusted for inflation each year.

Corporate Income Tax

Estimates of tax provisions relating to the Ontario Corporate Income Tax system are presented in Table 2.

Corporate Income Tax Table 2
Tax Provisions 2012 Estimates1
($ Millions)
Ontario Deductions, Non-Refundable Tax Credits and Exemptions
Ontario Credit Union Tax Reduction 5
Ontario Political Contributions Tax Credit s
Ontario Research and Development (R&D) Tax Credit2 170
Ontario Resource Tax Credit 15
Ontario Small Business Deduction 1,515
Ontario Tax Credit for Manufacturing and Processing (M&P) 215
Ontario Tax Exemption for Commercialization s
Exemptions, Deductions, Deferrals and Other Measures Shared with the Federal Government
Allowable Business Investment Losses 4
Deductibility of Charitable Donations 85
Deductibility of Gifts of Cultural Property and Ecologically Sensitive Land 2
Deductibility of Gifts to the Crown s
Holdback on Progress Payments to Contractors 15
Non-taxation of Non-profit Organizations 110
Partial Inclusion of Capital Gains 785
Items for Which an Estimate is not Available  
Accelerated Write-off of Capital Assets and Resource-related Expenditures  
Cash-basis and Flexibility in Inventory Accounting  
Deductibility of Countervailing and Anti-dumping Duties
Deferral of Income for Farmers
 
Deferral Through Capital Gains Rollovers  
Deferral Through Use of Billed-basis Accounting by Professionals  
Donations of Medicine for the Developing World  
Exemption for Capital Gains Arising from Certain Donations  
Expensing of Advertising Costs  
Non-taxation of Provincial, Municipal and Federal Crown Corporations  
Non-taxation of Registered Charities  
Taxation of Capital Gains upon Realization  
Tax Exemption on Income of Foreign Affiliates of Canadian Corporations  
  • 1 Estimates are forecast to the 2012 calendar year based on preliminary 2011 tax administration data. Estimates do not include the revenue forgone from CIT provisions for mutual fund corporations.
  • 2 Estimate is net of any recapture of the Ontario R&D Tax Credit.

Sales and Commodity Tax

Sales Tax

Estimates of tax provisions relating to sales taxes, including the Harmonized Sales Tax and Retail Sales Tax, are presented in Tables 3 and 4.

Harmonized Sales TaxTable 3
Tax Provisions 2012 Estimates1
($ Millions)
Ontario-specific Items
Ontario Point-of-Sale Exemptions
Books 170
Children’s Car Seats/Car Booster Seats 6
Children’s Clothing 125
Children’s Footwear 20
Feminine Hygiene Products and Diapers 30
Prepared Foods and Beverages ($4 and under) 180
Print Newspapers 65
Qualifying Purchases by First Nations 25
Ontario Public Service Body Rebates
Hospitals 490
Municipalities 1,165
Public Colleges 75
Qualifying Non-profit Organizations 80
Registered Charities 340
School Authorities 355
Universities 190
Other Ontario Measures 
Ontario Energy and Property Tax Credit — Energy Component2 425
Ontario New Housing Rebate (including new residential rental property) 1,030
Ontario Sales Tax Credit3 1,140
Exemptions, Zero-rating and Other Measures Shared with the Federal Government4
Business
Exemption for Ferry, Road and Bridge Tolls 25
Exemption and Rebate for Legal Aid Services 15
Rebate for Foreign Conventions and Tour Packages 6
Rebate for Remembrance Day Poppies and Wreaths s
Small Suppliers’ Threshold 150
Zero-rating of Agricultural and Fish Products and Purchases s
Items for Which an Estimate is not Available  
Exemption for Domestic Financial Services  
Non-taxability of Certain Importations  
Charities and Non-Profit Organizations
Exemption for Certain Supplies Made by Charities and Non-profit Organizations 645
Education
Exemption for Education Services (Tuition) 405
Health Care
Exemption for Health Care Services 545
Zero-rating of Medical Devices 125
Zero-rating of Prescription Drugs 520
Households
Exemption for Child Care and Personal Services 105
Zero-rating of Basic Groceries 2,200
Housing
Exemption for Residential Rent (Long-Term) 875
Items for Which an Estimate is not Available  
Exemption for Sales of Used Residential Housing and Other Personal-use Real Property  
Municipalities
Exemption for Municipal Transit 155
Exemption for Water and Basic Garbage Collection Services 195
  • 1 Estimates are based on preliminary administrative data or data from Statistics Canada, unless otherwise noted.
  • 2 Estimate is based on entitlements data for 2010 forecast to represent entitlements for 2012.
  • 3 Estimate represents entitlements for 2012 and is based on entitlements data for the 2011–12 benefit year and 2008 tax filer data forecast to represent the 2012–13 benefit year.
  • 4 Estimates represent the forgone revenue associated with the provincial component of the Harmonized Sales Tax.
Retail Sales TaxTable 4
Tax Provisions 2012 Estimates
($ Millions)
Exemption for Automobile Insurance Premiums1  985
Exemption for Individual Life and Health Insurance Premiums2 560
Vendor Compensation3 3
  • 1 Based on industry data.
  • 2 Based on insurance premiums data published by the Canadian Life and Health Insurance Association Inc.
  • 3 Based on returns filed by registered tax collectors.

Sales Tax — Description of Changes to Tax Provisions

The following sales tax provisions have changed since the Transparency in Taxation, 2011 report.

The Ontario Energy and Property Tax Credit – Energy Component and the Ontario Sales Tax Credit are based on amounts that are adjusted for inflation each year.

Commodity Tax

Estimates of tax provisions relating to commodity taxes, including the Fuel Tax, Gasoline Tax, Land Transfer Tax, Tobacco Tax, and Beer and Wine Tax, are presented in Table 5.

Commodity TaxTable 5
Tax Provisions 2012 Estimates
($ Millions)
Fuel Tax
Exemptions/Reduced Rates
Exemption for Biodiesel1 4
Exemption for Coloured Fuel2 260
Reduced Rate for Railway Diesel3 60
Refunds
Auxiliary Power Take-off Equipment4 4
Gasoline Tax
Exemptions/Reduced Rates
Exemption for Methanol and Natural Gas5 10
Reduced Rate for Aviation Fuel6 335
Reduced Rate for Propane6 6
Refunds
Auxiliary Power Take-off Equipment4 s
Aviation Fuel4 s
Tax-exempt Use in Unlicensed Equipment4 3
Land Transfer Tax
Exemptions
Deferrals and Exemptions for Corporate Reorganizations4 20
Family Business Conveyances4 s
Family Farms2 9
Life Leases2 s
Items for Which an Estimate is not Available  
Hospital Restructuring  
Oil/Pipeline Easements and Mineral Lands  
Other Transfers and Dispositions  
Reorganization of Charities  
Refunds
First-time Home Buyers Rebate4 145
Tobacco Tax
Compensation for Tax Collectors7 s
Beer and Wine Tax8
Exemptions/Reduced Rates
Exemption for Promotional Distribution9 1
Reduced Rate for Beer Made by Ontario Microbrewers10 4
Reduced Rate for Beer Made and Sold at Ontario Brew Pubs11 s
Reduced Rate for Ontario Wine and Ontario Wine Coolers12 20
Reduced Rate for Wine Coolers13 s
  • 1 Based on estimated amount of biodiesel sold in Ontario.
  • 2 Based on tax administration data.
  • 3 Forgone revenue estimated as difference from the general fuel tax rate.
  • 4 Based on refunds filed or rebates/deferrals claimed.
  • 5 Forecast for the 2012 calendar year is based on 2008 provincial Input–Output tables from Statistics Canada.
  • 6 Forgone revenue estimated as difference from the general gasoline tax rate.
  • 7 Based on returns filed by registered tax collectors.
  • 8 Beer and wine taxes apply on sales of domestic beer in The Beer Store, on-site manufacturers’ stores and licensed establishments, and on wine sales in winery retail stores. Does not include sales in LCBO stores or licensed establishments where the purchase is from the LCBO.
  • 9 Based on estimated manufacturers’ promotional distribution.
  • 10 Forgone revenue estimated as difference from the basic tax on beer made by a beer manufacturer.
  • 11 Forgone revenue estimated as difference from the basic tax and volume tax on beer made by a beer manufacturer.
  • 12 Forgone revenue estimated as difference from the basic tax on wine or wine coolers that is not Ontario wine or Ontario wine coolers.
  • 13 Forgone revenue estimated as difference from the volume tax on wine.

Education Property Tax

Table 6 provides estimates of tax provisions relating to the Education Property Tax system.

Education Property Tax1Table 6
Tax Provisions 2012 Estimates2
($ Millions)
Brownfields Financial Tax Incentive Program3 s
Charity Rebate 9
Conservation Land Property Tax Exemption Program 3
Eligible Convention Centres Exemption s
Eligible Live Performance Theatres Exemption and Professional Sports Facility Tax Rate Reduction 10
Farm Property Class Tax Rate Reduction 65
Farmlands Awaiting Development Sub-class Tax Rate Reduction s
Heritage Property Tax Rebate s
Managed Forest Tax Incentive Program 4
Ontario Energy and Property Tax Credit (OEPTC) — Property Tax Component4 825
Ontario Senior Homeowners’ Property Tax Grant5 210
Seniors and Persons with Disabilities Property Tax Relief6 s
Tax Exemptions Under Private Statutes 5
Vacant Commercial and Industrial Unit Rebate 40
Vacant Land and Excess Land Sub-class Tax Rate Reduction 50
Items for Which an Estimate is not Available  
Other Tax Exemptions Under Public Statutes  
Discretionary exemptions granted by municipalities to special purpose properties (e.g., legions, navy leagues, public–private capital facilities)  
Mandatory exemptions granted to special purpose/institutional properties (e.g., places of worship, cemeteries, Boy Scouts Association of Canada and Canadian Girl Guides Association, charitable institutions including Canadian Red Cross, St. John Ambulance and charitable, non-profit philanthropic corporations organized for the relief of the poor)  
Relief from Property Taxes that are unduly burdensome for Residential, Farm or Managed Forest Properties  
  • 1 Expenditures related to provincial land taxes or payments made in lieu of taxes have not been included.
  • 2 Estimates based on 2012 education tax rates, 2012 Assessment Roll, 2010 Municipal Financial Information Returns and municipal tax policies, unless otherwise noted.
  • 3 Effective October 1, 2004, municipalities may pass bylaws cancelling municipal property taxes on eligible brownfields properties. The Province may match the municipal reduction with an education property tax reduction.
  • 4 Estimate is based on entitlements data for 2010 forecast to represent entitlements for 2012.
  • 5 Estimate is based on entitlements data for 2012.
  • 6 Estimate does not include expenditures due to the exemption from taxation on 10 per cent of the assessment of improvements to accommodate seniors and persons with disabilities in newly built homes or the expenditure on such improvements in existing homes.

Education Property Tax — Description of Changes to Tax Provisions

The following Education Property Tax provision has changed since the Transparency in Taxation, 2011 report.

The Ontario Energy and Property Tax Credit – Property Tax Component is based on amounts that are adjusted for inflation each year.

Employer Health Tax

Table 7 provides an estimate of the tax exemption for private-sector employers under the Employer Health Tax.

 
Employer Health TaxTable 7
Tax Provision 2012 Estimate
($ Millions)
$400,000 Exemption for Private-sector Employers1 720
  • 1 Estimate is based on 2010 remuneration data forecast to represent the 2012 taxation year.

Mining Tax

Estimates of tax provisions relating to the Ontario Mining Tax system are presented in Table 8.

Mining TaxTable 8
Tax Provisions 2012 Estimates1
($ Millions)
Mining Tax Exemption s
Mining Tax Holiday for New Mines (other than remote mines)                2
Mining Tax Holiday for New Remote Mines s
Mining Tax Rate for Remote Mines 5
Processing Allowance 60
Item for Which an Estimate is not Available  
Fast Write-off of Exploration Costs  
  • 1 Estimates are forecast to the 2012 calendar year based on 2011 Ontario Mining Tax administration data.

Estate Administration Tax

Table 9 provides an estimate of the tax exemption for small estates under the Estate Administration Tax.

Estate Administration TaxTable 9
Tax Provision 2012 Estimate
($ Millions)
Exemption Where the Value of the Estate Does Not Exceed $1,000 s

Gross Revenue Charge

Table 10 provides an estimate of the tax holiday under the Gross Revenue Charge.

Gross Revenue Charge (GRC)Table 10
Tax Provision 2012 Estimate
($ Millions)
Gross Revenue Charge 10-year Holiday1 1
  • 1 Consistent with this report’s intent to provide an estimate of forgone tax revenue, the expenditure only includes the property tax portion of the GRC.