The budget increases taxation rates for top income earners, large Canadian-Controlled Private Corporations (CCPC), users of aviation fuel and smokers. If you would like to discuss the effects on your personal and/or company’s taxes please contact us.
On May 1, 2014 Finance Minister Charles Sousa tabled his second Budget.
The deficit for the 2013-14 fiscal year is projected to be $11.3 billion, which is $400 million less than the amount estimated when the 2013 Budget was tabled. The deficit for the 2014-15 year is projected to be $12.5 billion and the longer-term forecast continues to call for a return to a surplus by 2016-17. Net public debt to GDP is projected to continue to increase until 201516, from which time it will to start to decrease.
Top income earners, large Canadian controlled private corporations (CCPC), users of aviation fuel and tax-exempt diesel fuel, and smokers will all face increases in the taxes they pay.
The Budget proposes to increase the rate at which tax is paid by top income-earning individuals, now defined as those who have taxable income greater than $150,000. Two changes are proposed:
Unlike the current threshold limits, these new thresholds will not be adjusted for inflation in the future.
Taxpayers in these brackets will also be subject to both Ontario surtaxes, with the result that the marginal rates of Ontario tax will be 19.0% in the intermediate bracket and 20.5% in the top bracket.
Notably, Ontario’s credit for charitable donations over $200 will be calculated at 11.16%, and not at the top rate of 13.16%.
The combined federal and Ontario marginal rates for these newly defined tax brackets are set out in the following table:
|Type of Income||$150,000 – $220,000||Over $220,000|
In the November 2013 Economic Outlook, for 2014 the Ontario dividend tax credit on non-eligible dividends is increased from 4.5% of the taxable dividend to 10%. As was also announced, surtaxes for 2014 will be applied to Ontario tax payable before the dividend tax credit is claimed.
From July 1, 2014 this benefit will increase to $1,310 per child, an increase of about $60. The benefit amount will be indexed to Ontario inflation from July 1, 2015.
Starting after 2015 it is proposed that the debt retirement charge will be removed from residential electricity bills. The charge will be maintained on other bills until such time as the hydro debt it is servicing is retired, anticipated to be the end of 2018.
The Budget proposes no changes to corporate income tax rates which remain:
Note that the income to which the lower small business rate applies may be reduced for larger corporations, as discussed below.
The Budget proposes the amount on which the Ontario small business tax credit is claimed will be reduced where a CCPC has taxable capital in excess of $10 million and will be eliminated where taxable capital is $15 million or more. This change will parallel the federal reduction of the $500,000 annual business limit. Accordingly it will be calculated on taxable capital for the prior year, as determined for the (now repealed) federal Large Corporation Tax and will take into account the taxable capital of all associated corporations.
This change applies to taxation years which end after May 1, 2014 and, as is customary, it will be pro-rated for taxation years that straddle this date.
The minimum wage will increase to $11.00 per hour on June 1, 2014 and will be indexed to Ontario inflation from October 2015.
Under the Fuel Tax Act, tax-exempt diesel fuel may be purchased for use in unregistered vehicles used in construction. The Budget proposes that by 2016 such vehicles that use public roadways will be required to be registered and, consequently, fuel for such vehicles will be subject to the normal excise tax currently 14.3 cents per litre. The Budget papers mention mobile cranes, concrete pumpers and hydrovacs as examples of vehicles that will be affected. Consultations with the Department of Transportation are promised to review how such vehicles are to be registered.
Aviation fuel is currently subject to an excise tax of 2.7 cents per litre under the Gasoline Tax Act. It is proposed to increase this by 1.0 cent per litre in 2014 and by a similar amount in each of the next three calendar years, so that in 2017 the tax will be 6.7 cents per litre. The 2014 change will apply from the date the amendments to the Act receive Royal Assent, and measures will be introduced to require an accounting for inventories of such fuel on hand at that date.
Relief is promised to users of such fuel who service remote communities, after consultations with the Department of Transportation.
Regulations are to be introduced governing the non-refundable 25% tax credit available to farmers who donate food to community food programs. This credit was included in the 2013 Local Food Act and applies to gifts made after 2013.
Effective May 2, 2014 the tax on a cigarette or a gram of tobacco increases from 12.350 cents to 13.975 cents. There is no change to the tax on cigars. Wholesalers of such products are required to take an inventory of such goods on hand at the end of May 1, 2014 and remit the additional tax.
The Budget acknowledges several continuing concerns in maintaining a sound tax base. Of particular concern are the underground economy, corporate tax avoidance and trading in contraband tobacco.
Legislation will be introduced requiring Ontario corporations to disclose aggressive tax plans to the Minister of National Revenue, in the same manner that is now called for under the federal law.
In addition, a specific anti-avoidance rule will be introduced in the Land Transfer Tax Act, to take effect from May 1, 2014.
As is required under the Canada-Ontario tax collection agreement, Ontario will parallel the changes to the federal Income Tax Act included in the 2014 federal Budget: medical expenses, farmers and fishers, amateur athletic trusts, donations made through a will, non-resident trusts, pension transfer limits, tax on split income, donations of ecologically sensitive land, clean energy generation equipment, taxation of insurance swap transactions, and the application of HST to health services.
The Budget includes several new programs to take effect over a period of several years.
The Budget proposes to introduce a mandatory defined benefit pension plan, to take effect in 2017, to be funded by Ontario employers and employees. While it is clear that much of the detail remains to be worked out, the Budget outlines a plan which is similar to the Canada Pension Plan (CPP) and, indeed, anticipates that the ORPP might be rolled into the CPP should future negotiations be successful.
Specific provisions in the Budget include:
PRPPs were introduced by the federal government as a mechanism for pooling retirement savings and thereby reducing administration costs. Ontario is proposing to introduce legislation which will establish PRPP’s in Ontario.
Legislation is anticipated in the fall of 2014. The Budget suggests that key design features will include:
$2.5 billion is earmarked for a 10-year program to attract significant business investments.
The Moving Ontario Forward program will provide $29 billion over the next 10 years for infrastructure investment. $15 billion is to be targeted to the Greater Toronto and Hamilton Area and $14 billion to the remainder of the province.
The Budget suggests that some of these amounts are to be funded from dedicated sources, including:
The balance of the funding is to be borrowed or, it is suggested, provided by the federal government under the Building Canada Plan.