2018-2019 Ontario Budget Summary

Ontario Minister of Finance Charles Sousa delivered the province’s 2018-2019 Budget speech on March 28, 2018. The following is a summary of the tax related highlights.

MEASURES AFFECTING INDIVIDUALS

Improving Fairness and Transparency of Ontario’s Personal Income Tax (PIT)

• Simplify PIT by eliminating surtax
• Replace surtax with new rates and brackets
• Ontario’s PIT becomes more progressive

The surtax prevents Ontario’s non-refundable tax credits from providing the same maximum tax relief to all eligible taxpayers.  The surtax is calculated after Ontario non-refundable tax credits have reduced the amount to which the surtax applies. This increases the tax relief provided by these credits, such as the Basic Personal Amount (BPA), for higher income individuals.

Before proposed changes:

• Five statutory PIT rates plus two surtax rates calculated separately

After proposed changes:

• Seven statutory PIT rates applied directly to taxable income

This measure is effective for the 2018 tax year.

Illustration of current and proposed PIT Rates and Brackets

Enhancing the Ontario Charitable Donations Tax Credit (OCDTC)

• Currently, an OCDTC rate of 5.05 per cent applies to the first $200 in donations and a rate of 11.16 per cent applies for donations that exceed $200.
• The effect of the surtax calculation described above means that, pre-budget, the OCDTC rate can climb up to 17.41 per cent for surtax payers.
• Ontario is proposing to increase the OCDTC rate to 17.5 per cent for all taxpayers for eligible donations exceeding $200. The first $200 of donations would continue to be eligible for an OCDTC rate of 5.05 per cent.

This measure is effective July 1, 2018.

MEASURES AFFECTING BUSINESSES

Research and Development

To increase the economic competitiveness of Ontario businesses, the budget proposes measures aimed to increase spending on Research and Development.

The budget proposes an enhancement to two credits; one to benefit large corporations and the other to benefit small to medium sized companies.

Enhancement of the Ontario Research and Development Tax Credit (ORDTC)

Currently, businesses are able to claim a non-refundable ORDTC of 3.5% on eligible R&D expenditures.  The budget proposes to increase the rate to 5.5% on eligible expenditures over $1 million to encourage large companies to invest.  In order to qualify for the enhanced credit, the R&D expenditures in the current taxation year must be more than 90% of the eligible expenditures in the previous year.  The enhanced credit only applies to expenditures incurred after March 28, 2018.

Provisions are included for companies that have amalgamated, wound up or whose year-end straddle March 28, 2018.

Enhancement of the Ontario Innovation Tax Credit (OITC)

Currently the OITC is an 8% refundable tax credit on eligible expenditures.  The budget proposes to increase the credit based on a ratio of R&D expenditures to Gross revenues.

Specifically, the rate will:

• Remain at 8% when the ratio is 10% or less,
• Increase from 8% to 12% on a straight-line basis when the ratio is between 10% – 20%
• Hit 12% when the ratio of R&D expenditures to gross revenue is 20% or above

This credit will apply to expenditures incurred after March 28, 2018 and will be prorated for tax years straddling the date.  This credit will apply only to Gross revenues and expenditures in Ontario operations.

Ontario Interactive Media Credit

The budget proposes to extend eligibility of this credit for websites that are embedded in broadcaster websites that host content related to film, television and internet productions.  This change will be effective for websites that have not received a certificate of eligibility or letter of ineligibility before November 1, 2017.

Easing Land Transfer Tax Reporting Requirements

Currently, for dispositions of a beneficial interest through certain partnerships and trusts, land transfer tax is payable within 30 days of disposition.  The budget proposes to change the deadline to 30 days after the end of the calendar quarter in which the disposition occurs.  An effective date for this measure has not yet been announced.

Paralleling Federal Measures

Ontario will follow the federal rules proposed on December 13, 2017 designed to broaden the Tax on Split Income (TOSI) rules.  This measure will be effective beginning with the 2018 taxation year.

In addition, Ontario will parallel the federal phase out of small business limit on CCPC’s and associated companies that earn between $50,000 and $150,000 of passive income in a taxation year.  This will be effective for taxation years beginning after 2018.

Employer Health Tax Exemption to Small Employers (EHT)

• The exemption is available to employers who would not be eligible for small business relief under the federal Income Tax Act (ITA) through the Small Business Deduction (SBD).
• Ontario proposes to follow the eligibility criteria for the SBD for the EHT exemption
• Exemption would only be available to individuals, charities, not-for-profit organizations, private trusts and partnerships, and Canadian-controlled private corporations.
• Ontario will implement federal anti-avoidance rules related to the multiplication of the SBD into the Employer Health Tax Act 

These measures are effective January 1, 2019.

OTHER MEASURES

• Ontario’s tobacco tax will increase from 16.475 cents to 18.475 cents per cigarette and per gram of tobacco products other than cigars, effective 12:01 a.m., March 29, 2018
• Free prescription drugs for seniors receiving drugs through the Ontario Drug Benefit Program starting in August 2019
• For individuals without extended health care plans a new Drug and Dental Program starting summer 2019
• Improvements to Ontario Student Assistance Program (OSAP) by making it easier to qualify and receive more assistance starting in fall 2018
• Modernize and change the definition of Microbrewer and change the Small Beer Manufacturers Tax Credit effective March 1, 2018