2014 Ontario Economic Outlook and Fiscal Review
Chapter V: A Fair and Efficient Tax System

Income Tax Changes for People

Personal Income Tax Rates

The 2014 Ontario Budget announced Personal Income Tax changes, beginning in 2014. The taxable income threshold for the 13.16 per cent tax rate was lowered from $514,090 to $220,000, and a new tax rate of 12.16 per cent was introduced on taxable income between $150,000 and $220,000. Amendments to the Taxation Act, 2007, received Royal Assent on July 24, 2014. Employers and pension administrators began adjusting withholdings in September 2014 to incorporate the new rate and income thresholds.

Dividend Tax Credits

The Province announced measures in the 2013 Ontario Economic Outlook and Fiscal Review to change the calculation of the Ontario surtax with respect to dividend tax credits, and to set the dividend tax credit rates for non-eligible dividends and eligible dividends at 4.5 per cent and 10 per cent, respectively, beginning in 2014. Legislative amendments received Royal Assent on July 24, 2014. These changes ensure that Ontario's dividend tax credits have the same value for all taxpayers, regardless of their incomes.

Tax Changes for Business

Review of the Ontario Interactive Digital Media Tax Credit

The interactive digital media industry plays an important role in building a highly skilled workforce and innovative business climate in Ontario. In recent years, as a result of rapid growth in the interactive digital media sector, tax support for the sector through the Ontario Interactive Digital Media Tax Credit (OIDMTC) has grown at an unsustainable rate. In 2003–04, the OIDMTC provided over $1 million in support, while in 2014–15 claims are estimated to be over $61 million, which represents average annual growth of 42 per cent.

As interactive digital media products become increasingly mainstream, the broad eligibility of the OIDMTC limits the ability of the credit to target innovative products. 

To better meet the needs of this growing and evolving industry, the Province will review the scope and parameters of this credit.

Gaming industry products represent one type of activity this credit is intended to support. Ontario's gaming industry is an important part of Ontario's interactive digital media sector, contributing $134 million in annual gross expenditures and employing over 1,850 Ontarians.1

Ontario's Gaming Industry — A Success Story

Ontario is one of the leading centres of independent gaming in the world. The success of a home-grown company, Capybara Games, highlights the level of innovation and excellence in Ontario's independent gaming sector.  The company's mega-hit game, Superbrothers: Sword and Sworcery EP, has sold over 1.5 million copies, picked up critical awards and accolades, was featured on the Time.com Top 10 of Everything list for 2011 and was one of only five "landmark" video games selected by Apple to celebrate five years of their App Store.  The company continues to grow, branching out to new mobile platforms and new console games. This growth creates new demand for highly skilled creative and technical talent and results in direct economic benefits for Ontario.

The government is continuing to review all of Ontario's business tax credits to ensure that they are effective, efficient and achieving clear outcomes.

Tax on Aviation Fuel — Relief for Vulnerable Communities

The 2014 Ontario Budget announced an increase in the tax rate on aviation fuel by one cent per litre each year for four years, beginning in 2014. The revenue generated by this change is supporting public transit, transportation infrastructure and other priority projects across the province.

The Budget also announced that the government would provide relief to vulnerable communities, especially those in remote and northern areas. The Ministry of Transportation is working with the Ministry of Finance to develop a program. Specific details will be provided at a later date.

Registration Requirements for Certain Road-Building Machines

The 2014 Ontario Budget announced that the Province will propose amendments to the Highway Traffic Act to modernize, by 2016, the treatment of unregistered road-building machines that use public roads and highways. These vehicles are currently exempt from Ontario fuel tax and many of the safety requirements tied to vehicle licensing.

The Ministry of Transportation is working with the Ministry of Finance to review the registration and licensing requirements of these vehicles. In addition to expected benefits with respect to road safety, the 2014 Ontario Budget estimated that the new registration requirements for certain road-building machines would result in an annual increase in fuel tax revenue of up to $25 million beginning in 2016–17. The revenue generated by this change would support public transit, transportation infrastructure and other priority areas across the province.

Small Business Deduction

Effective May 1, 2014, the small business deduction (SBD) was phased out for Canadian-controlled private corporations (CCPCs) operating in Ontario with over $10 million in taxable capital employed in Canada, and eliminated for CCPCs with taxable capital over $15 million. Ontario is now in line with every other province, and the federal government, to ensure that only small CCPCs qualify for the SBD. The revenue generated by this change is supporting public transit, transportation infrastructure and other priority projects across the province.

Other Measures

Enhanced Administration of the Estate Administration Tax

In 2011, the government amended the Estate Administration Tax Act, 1998, to enhance compliance by integrating the administration of the tax with the audit and verification functions at the Ministry of Finance. To ensure the effectiveness of this new administration, everyone who applies for a certificate of appointment of estate trustee after December 31, 2014, will be required, no more than 30 days after the certificate is issued, to submit an estate information return to the Ministry of Finance. Completed returns will have to contain an inventory of estate assets. The Ministry of Finance will make return forms, and an accompanying guide, available before January 1, 2015.

Tax Credit for Farmers Who Donate to Community Food Programs

The final regulation to complete the implementation of the community food program donation tax credit for farmers became effective on September 29, 2014. The credit will encourage farmers to donate agricultural products to community food organizations, including food banks. This will help increase the availability of fresh agricultural products for individuals who rely on these organizations to get the food they need.

Provincial Land Tax

The government is moving ahead with its commitment to review the Provincial Land Tax (PLT), the property tax applied in the unincorporated areas of northern Ontario that are outside municipal boundaries. 

To support the review, the Ministry of Finance held 21 consultation sessions across northern Ontario with representatives of local boards from unincorporated areas. A PLT working group of northern municipal representatives has also been established to provide input. Consultations with northern stakeholders will continue, and their concerns will be addressed in a fair and balanced way.

The government is committed to bringing forward proposals that can be implemented beginning in 2015, based on the results of the review. The intent of the proposals will be to increase fairness among northern property taxpayers and ensure that any changes are introduced in a manageable way.

Power Dam Special Payment

The 2014 Ontario Budget announced a plan to phase down the municipal Power Dam Special Payment Program to $14.3 million by 2017, ensuring that more than 75 per cent of the current funding level is maintained.

The Province committed to work with municipalities to explore ways to implement the phase-down, beginning in 2015, in a manner that is fair and manageable. To support these consultations, a working group has been formed with a representative group of municipalities. These consultations will also explore the option of reintroducing property taxation for power dams.

Evaluating the property tax option requires careful consideration and complex analysis. This work is already underway, along with plans to consult with municipalities and electricity sector representatives.

The Province recognizes that it may not be possible to complete the property tax aspect of this project in advance of the 2015 municipal budget year. Therefore, the planned reduction to the Power Dam Special Payment Program for 2015 will be deferred while this work is underway.

Implementation of the Special Purpose Business Property Assessment Review Recommendations

The Province is implementing improvements to Ontario's property assessment system recommended in the report on the Special Purpose Business Property Assessment Review (SPBPAR) in time for the 2016 province-wide reassessment in consultation with taxpayers, municipalities and professional organizations.

A key SPBPAR recommendation is the implementation of advance disclosure, which will enable business taxpayers and impacted municipalities to contribute to the assessment process in advance of roll return. The Municipal Property Assessment Corporation will introduce the advance disclosure process for special purpose business properties beginning in 2015 and has already initiated discussions on the underlying assessment methodologies.

Work is also underway across the assessment system on enhancements related to accountability, data integrity and assessment appeals, and on the implementation of property-specific assessment recommendations in the SPBPAR report.

[1] Entertainment Software Association of Canada, "Canada's Video Game Industry in 2013," p. 28.