March 1, 2016

Ontario Budget 2016 – Summary

Tax highlights from the 2016 Ontario budget

Finance Minister Charles Sousa tabled the 2016 Ontario provincial budget on February 25, 2016. The minister confirmed that the government is projecting a deficit of $5.7 billion in 2015-16 − an improvement of $2.8 billion compared with the 2015 budget forecast. The government is also projecting a deficit of $4.3 billion in 2016-17, but expects to meet its commitment to return to balance in 2017-18 and remain balanced in 2018-19. Net debt-to-GDP is expected to peak at 39.6% in 2015-16, remain level in 2016-17 and begin to decline in 2017-18.

On the tax side, there were no changes to personal or corporate income tax rates. There were, however, changes to certain tax credits both personally and for business owners. In addition there were increases to both tobacco taxes and alcohol mark-ups and taxes.

The following is a summary of the changes announced in the budget. Please note that announced changes are still proposals until passed into law by the provincial government.

Personal Tax Matters Personal income tax rates

There were no changes to personal income tax rates in the budget. Tax brackets (other than the $150,000 and $220,000 brackets) and personal credit amounts have been indexed by 1.5% for 2016. The table below shows the new Ontario tax rates and brackets for 2016.

Taxable income range       2016 tax rates
$10,012 – $41,536                             5.05%
$41,537 – $83,075                             9.15%
$83,076 – $150,000                         11.16%
$150,001 – $220,000                       12.16%
$220,001 and greater                      13.16%
Ontario also imposes a surtax equal to 20% of Ontario income tax in excess of $4,484, plus an additional 36% of Ontario income tax in excess of $5,739.

The new federal marginal tax rate of 33% for taxable income in excess of $200,000 became effective January 1, 2016. The table below shows the combined federal and provincial highest marginal tax rates for various types of income.

Type of income                2016 tax rates
Regular income                            53.53%
Capital gains                                 26.76%
Eligible dividends                        39.34%
Non-eligible dividends               45.30%

Ontario Student Grant

The government will create a simple, integrated, upfront grant − the Ontario Student Grant (OSG) − starting in the 2017-18 school year. Under the proposed system, average college and university tuition will be free for students with financial need from families with incomes of $50,000 or less, and tuition will be more affordable for middle-income families as well.

More than 50% of students from families with incomes of $83,000 or less will receive non-repayable grants in excess of  average tuition, and no Ontario student will receive less through the OSG than they are currently eligible for through the Ontario Tuition Grant.

Students in families with annual incomes of less than $50,000 will have no provincial student debt. The government will also expand financial support for mature and married students, and access to interest-free and low-cost loans for middle- and  upper-income families will be increased by reducing their expected parental contributions.

Also, the maximum Ontario Student Assistance Program debt level will be capped at $10,000 annually for higher-income families.

Tuition and Education Tax Credits

Budget 2016 proposes to discontinue Ontario tuition and education tax credits, beginning in fall 2017. Additional revenue from eliminating the tax credits would be reinvested to support the new Ontario Student Grant or other post-secondary, education, training and youth jobs programs.

Ontario’s tuition tax credit is calculated based on eligible tuition and ancillary fees, as well as fees for certain occupational, trade or professional examinations. The education tax credit provides set amounts in recognition of non-tuition expenses for each month of full-time or part-time post-secondary studies.

The timing of the proposed elimination of the tuition and education tax credits would correspond to the introduction of the Ontario Student Grant. Ontario students would be able to claim the tuition tax credit for eligible tuition fees paid in respect of studies up to and including September 4, 2017, and would be able to claim the education tax credit for months of study before September 2017.

Children’s activity tax credit The Ontario government introduced the Children’s Activity Tax Credit (CATC) in 2010 to help parents with the cost of enrolling their children in various extracurricular activities, including sports, arts and cultural programs. Because non-refundable tax credits only benefit people who pay personal income tax (PIT), the CATC was made refundable so that low-income people who pay little or no Ontario PIT could fully benefit from the credit.

As per Budget 2016, although the credit is refundable, it largely goes to higher-income families, who are less likely to need it to help pay for their children’s activities.

Budget 2016 proposes to end the CATC as of January 1, 2017, and the government will focus on developing other programs to encourage physical activity and healthy eating for Ontario children.

Healthy Homes Renovation Tax Credit

Ontario’s Healthy Homes Renovation Tax Credit (HHRTC) was announced in 2011 to help seniors live independently in their homes by increasing the affordability of renovations that improve safety and accessibility. Ontario proposes to end the HHRTC as of January 1, 2017 since the credit has lower take-up than originally projected and therefore provides minimal support to lower income seniors.

Paralleling Federal Personal Income Tax Measures

Budget 2016 confirms that the Ontario government will introduce changes to parallel recent federal changes in the  following areas:

• Small business dividend tax credit and gross-up: In its 2015 budget, the federal government announced reductions in the federal small business corporate income tax rate over four years. The corresponding changes to the gross-up rate for non-eligible dividends will be paralleled by Ontario. As a result, Ontario’s non-eligible dividend tax credit rate will decline from 4.5 per cent for 2015 to 4.2863 per cent for 2016. Ontario will review its non-eligible dividend tax credit rate for 2017 and subsequent years.

• Tax on split income: The Ontario government proposes to change the way it taxes income that is split with certain related children, by paralleling the federal approach of applying its top marginal personal income tax (PIT) rate to all such income. Starting January 1, 2016, such split income would be taxed at Ontario’s top marginal PIT rate of 20.53 per cent, and no surtax would be payable on that income.

Personal income tax system Ontario has a complex personal income tax (PIT) system where tax brackets and other components result in effective tax rates that are not easily understood by tax filers. The government will examine ways to simplify the PIT calculation, including the Ontario surtax and Ontario tax reduction, so that Ontarians can better understand their effective tax rates.

Corporate Tax Matters Corporate income tax rates There were no changes to corporate income tax rates in the budget. The table below shows Ontario tax rates and the small business limit for 2016.

Category 2016 tax rates

General rate 11.5%
Manufacturing & processing rate 10.0%
Small business rate 4.5%
Small business limit $500,000

Research and Development Tax Credits

The Ontario government provides the following corporate tax credits to support research and development (R&D) activities  in Ontario:

• Ontario Research and Development Tax Credit (ORDTC): A 4.5% non-refundable tax credit on eligible R&D expenditures;

• Ontario Innovation Tax Credit (OITC): A 10% refundable tax credit for small to medium-sized companies on eligible R&D expenditures;

• Ontario Business Research Institute Tax Credit (OBRITC): A 20% refundable tax credit on eligible R&D expenditures incurred under contract with eligible research institutes. Despite total Ontario R&D support of approximately $400 million delivered annually through the tax system, business spending on R&D in Ontario has declined over the last decade. Consequently, Budget 2016 proposes to reduce the level of support provided through the ORDTC and the OITC by proposing the following changes, effective for eligible R&D expenditures incurred in taxation years that end on or after June 1, 2016;

• Decreasing the ORDTC rate from 4.5% to 3.5%; and • Decreasing the OITC rate from 10% to 8%. The rate reductions would be prorated for taxation years straddling June 1, 2016.

Apprenticeship Training Tax Credit

The Apprenticeship Training Tax Credit (ATTC) is a refundable tax credit available to businesses that hire and train eligible apprentices. As committed in Budget 2015, the province is reviewing the ATTC to ensure it encourages businesses to help apprentices gain the certifications and skills they need.

The government remains committed to the continuation of employer support for apprenticeship training, and is examining ways to improve completion rates of apprenticeships and increase opportunities for apprentices in underrepresented groups. The Ministry of Training, Colleges and Universities is undertaking an engagement process with stakeholders and partners and will announce further details in 2016.

Addressing the Underground Economy

Participation in the underground economy creates an unfair advantage for illegitimate businesses. When businesses fail to report their income for tax purposes or avoid meeting other regulatory obligations, consumer and worker safety is put at risk. The province is continuing to focus on underground economy activities in all high-risk sectors, and will continue to take concrete action to better support consumer and worker safety, as well as provide a level playing field for legitimate businesses.

Other Proposals

Tobacco tax The budget increases the tobacco tax effective at 12:01 a.m. on February 26, 2016. The tax rate per cigarette and per gram of tobacco products (other than cigars) will increase from 13.975 cents to 15.475 cents. The tax rate on a carton of 200 cigarettes will increase from $27.95 to $30.95. In order to ensure that tobacco tax rates retain their real value over time, the budget proposes increasing tobacco tax rates over each of the next five years beginning in 2017, based on the rate of inflation.

Alcohol Charges

The budget proposes the following increases to wine mark-ups and taxes:

• Effective June 2016, the ad valorem mark-up for wine products sold by the LCBO will increase by 2%.  There will be further 2% mark-up increases in April 2017 and April 2018, followed by a 1% mark-up increase in April 2019.

• The basic tax on non-Ontario wines purchased at winery retail stores will increase by 1% on each of June 2016, April 2017, April 2018 and April 2019.

• The minimum retail price for table wine will increase to $7.95 (including deposit) per 750 ml bottle, phased in over three years. In addition, the government proposes to also phase in over three years minimum retail prices for cider, fortified wine and low-alcohol wine.

Ontario Retirement Pension Plan (ORPP)

The government is on track to ensure that, by 2020, all eligible Ontario workers would be covered by a comparable workplace plan or the ORPP. The ORPP Administration Corporation, an independent entity responsible for administering the ORPP and managing and investing ORPP contributions, is now established and the process to register the plan with the Canada Revenue Agency is well underway. Final elements of plan design were announced in January 2016 and would be outlined in legislation to be introduced in spring 2016.

The government has engaged Ontarians, including businesses, associations, labour groups and pension experts, throughout the design of the ORPP.
Based on feedback and to ensure a successful and smooth implementation, the ORPP Administration Corporation would launch the employer verification and enrolment process in 2017, with employer and employee contribution collection beginning in 2018.

To support the launch of the ORPP in 2017, with collections beginning in 2018, the Administration Corporation would proceed with the following updated implementation timelines.

Employer contribution rates below would be matched by eligible employees
Enrolment of employers in the ORPP would begin on January 1, 2017 and be completed by January 1, 2021.

Wave 1:  Large employers without registered workplace pension plans

Wave 2:  Medium-size employers without registered workplace pension plans

Wave 3:  Small employers without registered workplace pension plans

Wave 4:  Employers with registered  pension plans that either do not meet the comparability test or do not cover all classes of employees

Collaboration on a National Pension Solution

Ontario will work collaboratively and intensively with the federal government, provinces and territories to make progress on a Canada Pension Plan (CPP) enhancement that addresses the needs of future retirees. The province’s consultations in developing the ORPP have helped to inform Ontario’s view that a CPP enhancement must be timely and provide a level of adequacy and targeted coverage that is consistent with the ORPP.

Budget 2016 indicates that the main objective is to look at ways to meet the goals of the ORPP in an enhanced CPP framework, while preserving the ability to implement the ORPP, should that not be possible. The government looks forward to collaboration on a CPP enhancement and other innovative approaches at the federal-provincial territorial finance ministers meeting in June 2016.

Strengthening and modernizing workplace pension plans In recent years, low long-term interest rates have placed funding pressures on pension plan sponsors of single-employer defined benefit (DB) pension plans. To assist sponsors in these challenging circumstances, the government has initiated a review of the current solvency funding framework.

A stakeholder reference group is being established to ensure that reforms to the existing solvency funding framework are informed by a broad range of stakeholder opinions. A consultation paper, outlining possible reform measures, will be released in spring 2016.

To provide plan sponsors with more immediate assistance, the government plans to extend temporary solvency funding relief measures introduced in 2009 and 2012 for private-sector plan sponsors. Draft regulations will be posted for consultation in spring 2016.

Social Assistance

In 2016, the government will build on its previous investments in social assistance by increasing rates by 1.5% for adults receiving Ontario Works and people with disabilities relying on the Ontario Disability Support Program. The province will also provide a further top-up to those with the lowest social assistance rates − singles without children receiving Ontario Works − bringing their total increase to $25 per month, which is $100 more per month than they received in 2012.

Palliative Care

The government has committed to provide Ontarians with greater choice, access and equity, and clear accountability with respect to palliative and end-of-life care, along with more supports for caregivers. The government has been meeting with patients, families and stakeholders across Ontario to develop a comprehensive provincial palliative and end-of-life care strategy.

Investor Protection

Currently, in Ontario, no general framework exists to regulate the activities of individuals who offer financial advisory and financial planning services. Last year, the government appointed an independent expert committee to review the regulatory framework relating to financial advisory and financial planning services. The expert committee is finalizing its preliminary policy recommendations and will soon begin further consultation to solicit stakeholder feedback. The committee’s final report is expected to be delivered to the government in fall 2016.

Review of the Credit Unions and Caisses Populaires Act, 1994

The government intends to propose legislation to modernize and replace the existing Credit Unions and Caisses Populaires Act, 1994 (CUCPA). The new statute would improve the clarity of the framework governing credit unions and caisses populaires and result in improved efficiency for the sector. However, as a first step, the government intends to implement recommendations relating to deposit insurance limits, subsidiary ownership rules, MUSH (municipalities, universities, school boards and hospitals) sector business, loan syndications and the removal of differentiated rules for small credit unions.

Strengthening the Property Tax and Assessment System

The province is working with municipalities, the Municipal Property Assessment Corporation (MPAC), and other stakeholders to strengthen Ontario’s property tax and assessment system. For example, the province is providing municipalities with increased flexibility to manage the Business Property Tax Capping Program, moving forward with measures to create a fair and modern Provincial Land Tax (PLT) system, and implementing recommendations of the Special Purpose Business Property Assessment Review. Building on the success of this work, the province will be engaging in further consultations with key stakeholders on these and other measures.