2014-2015 Ontario budget highlights
Canadian tax alert
May 1, 2014
Minister of Finance Charles Sousa presented his 2014 budget this afternoon. Among the initiatives contained in the province’s 10-Year Plan is infrastructure investment (including dedicated funding for transportation infrastructure projects), a focus on job creation and a mandatory retirement savings program. The following is a summary of the tax highlights contained in the budget.
- The 2013-14 deficit is estimated to be $11.3 billion, $0.4 billion lower than originally forecasted.
- The deficit is projected to be $12.5 billion in 2014-15, $8.9 billion in 2015-16 and $5.3 billion in 2016-17.
- The government has committed to a balanced budget in 2017-18.
- The government noted moderate gains in employment, with unemployment at 7.5% in 2013.
- Employment is expected to increase by 1.1% in 2014 and by an average of 1.5% per year in 2015-2017, with unemployment down to 6.2% in 2017.
- Real GDP growth is predicted to be 2.1% in 2014, and 2.5% in each of 2015 and 2016.
The Ontario Retirement Pension Plan
- Following up on concerns expressed regarding the adequacy of Canada’s retirement income system, the government announced a new mandatory provincial pension plan, the Ontario Retirement Pension Plan (ORPP).
- The ORPP would be introduced in 2017 - enrolment of employers and employees would occur in stages, starting with the largest employers, and contribution rates would be phased in over two years.
- While separate from the Canada Pension Plan (CPP), the ORPP would build on the key features of the CPP and could be integrated with the CPP in the future if agreement with the federal government is reached.
- Key elements of the ORPP are:
- Equal employer and employee contributions, not to exceed 1.9% each, on earnings of a maximum of $90,000 (this maximum earnings threshold would increase annually, consistent with increases to the CPP maximum earnings threshold)
- The intention is to provide a replacement rate of 15% of earnings (up to the maximum earnings threshold)
- Employees already participating in a comparable workplace pension plan would not be required to participate in the ORPP
- Earnings below a certain threshold – possibly $3,500 as is the case with the CPP, but subject to consultation – would be exempt from contributions
- Longevity and investment risk would be pooled, resulting in a predictable stream of investment income
- Benefits would be indexed to inflation
- Benefits would be earned as contributions are made
- The government intends to consult with the public on a number of issues, including how best to assist self-employed individuals to ensure adequate retirement savings.
Additional measures concerning business
- The small business deduction, which provides for a 4.5% tax rate on the first $500,000 of active business income for Canadian-controlled private corporations (CCPCs), is proposed to be phased out for CCPCs with more than $10 million in taxable capital employed in Canada in the previous year, with full elimination of the deduction where taxable capital exceeds $15 million. This measure is effective for taxation years ending after May 1, 2014 and will be prorated for taxation years that straddle May 1, 2014.
- The government continues to review options to restructure tax support for research and development (R&D), such as considering an enhanced credit for incremental investments coupled with a reduced credit where R&D investment is decreased. The government plans to consult with stakeholders.
- Training tax credits – the apprenticeship training tax credit and the co-operative education tax credit – will be reviewed for large businesses with the aim of limiting the amount of the credit to income tax paid.
- The Employer Health Tax exemption is proposed to be increased to $450,000 from $400,000 of annual Ontario payroll.
- Legislation will be introduced that would require corporations in Ontario to report what are referred to as “aggressive tax avoidance transactions” to the federal Ministry of National Revenue, as it administers Ontario corporate taxes.
- In order to address aggressive international tax planning, the government intends to introduce measures to parallel federal initiatives in the areas of captive insurance and offshore banks.
Additional measures concerning individuals
- Effective for taxation years ending after December 31, 2013, tax rates and thresholds will be adjusted as follows:
- The taxable income threshold for the top rate of 13.16% will be lowered from $514,090 to $220,000
- A new tax rate of 12.16% will be introduced for income between $150,000 and $220,000
- These two thresholds would not be adjusted for inflation
- The charitable donations tax credit for donations over $200 will remain at 11.16%.
- In light of the 2013 changes to the federal dividend tax credit (DTC), legislation will be introduced to change the Ontario surtax calculation in respect of the Ontario DTC to maintain the integrity of the credit to Ontario taxpayers whether or not they are subject to Ontario surtax. Absent the proposed changes, the Ontario DTC would have different values to taxpayers with different incomes.
- In addition to the ORPP initiative discussed above, the government intends to support retirement funding through a number of programs, including the introduction of legislation in respect of pooled registered pension plans, creation of a regulatory framework for target benefit pension plans, review of the regulation of financial advisors and enhancement of the security of benefits under defined benefit pension plans.
Other tax measures
- A general anti-avoidance measure is proposed to be added to the Land Transfer Tax Act, applicable to transactions that are completed after May 1, 2014, and transactions that are part of a series of transactions that is completed after May 1, 2014.
- The tax on aviation fuel is proposed to be increased by one cent per lire for four years beginning in 2014.
- Tobacco taxes are proposed to be increased, as of 12:01 a.m. May 2, 2014, from 12.350 cents to 13.975 cents per cigarette.
- The government will introduce measures to parallel federal changes announced in the 2014 federal budget, including measures relating to medical expenses, farmers and fishers, amateur athletic trusts, estate donations, non-resident trusts, pension transfer limits, limitations on shifting income to a minor child, donations of ecologically sensitive land and certified cultural property, clean energy generation equipment and tax on insurance swaps and offshore regulated foreign financial institutions.
- The government is reviewing the federal proposal to change the taxation of estates and trusts that pay tax at graduated rates.
- Technical amendments will be proposed to various statutes, including: Financial Administration Act, Income Tax Act, Taxation Act, 2007, Taxpayer Protection Act, 1999, Land Transfer Tax Act, and the Tobacco Tax Act.
For further details, we refer you to the Ministry of Finance website.
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