On April 11, 2019, Ontario’s Finance Minister Vic Fedeli delivered the province’s 2019 Budget. The Budget does not include any changes to personal or corporate income tax rates. Of interest to middle market businesses is the Budget’s focus on tax measures that support the government’s approach to being “open for business, open for jobs” by providing relief over six years through faster write-offs of capital investments under the Ontario Job Creation Investment Incentive, introducing certain tax incentives in the cultural media and digital media space and fighting to eliminate the federal government’s carbon tax to reduce costs across multiple sectors. Also of note are the measures to address the rising cost of child care to Ontario families by introducing the new refundable Ontario Childcare Access and Relief from Expenses (CARE) personal tax credit and the elimination of the Estate Administration Tax on the first $50,000 of an estate’s value.
Business tax measures
ONTARIO JOB CREATION INVESTMENT INCENTIVE
The Job Creation Investment Incentive parallels the immediate write-off measures of the Accelerated Investment Incentive that was announced in the federal government’s Fall Economic Statement 2018. Under these measures:
- Manufacturing and processing machinery and equipment, and specified clean energy equipment can be immediately written off; and
- Most other capital investments are eligible for an Accelerated Investment Incentive that provides a depreciation rate of up to three times the normal rate in the first year the asset is put into use.
These measures are in place for assets acquired after November 20, 2018, and will be phased out from 2024 to 2027.
SMALL BUSINESS DEDUCTION
The Ontario Budget will not adopt the federal passive income rules, which eliminate or reduce the Small Business Deduction. The 2018 Federal Budget proposed to reduce the small business tax rate for corporations that have significant passive investment income. Under these rules, a Canadian-Controlled Private Corporation (CCPC) and their associated corporations, which earn more than $50,000 of passive investment income in a year, will gradually have their Small Business Deduction reduced. The Small Business Deduction is effectively eliminated when the CCPC and its associated corporations earn $150,000 of passive investment income. The Small Business Deduction will be reduced by $5 for every $1 of passive investment income above the $50,000 threshold. Ontario legislation will not be paralleling the federal government in phasing out the benefit from the lower small business corporate income tax rate.
REVIEW OF CULTURAL MEDIA TAX CREDIT CERTIFICATION
The budget provides that the government will review the Cultural Media Tax Credit Certification process to streamline administration and reduce application processing times.
REVIEW OF ONTARIO INTERACTIVE DIGITAL MEDIA TAX CREDIT
To qualify as a specialized digital game corporation, a company must spend at least $1 million in its taxation year on Ontario labour expenditures for eligible digital games. The budget proposes to reduce this minimum Ontario labour expenditure threshold from $1 million to $500,000. This proposal would be effective for taxation years commencing after April 11, 2019.
FIGHTING THE FEDERAL CAP-AND-TRADE CARBON TAX
The government continues to challenge the federal cap-and-trade carbon tax at both the Saskatchewan and Ontario Courts of Appeal. The government considers the carbon tax to be, among other things, a threat to Ontario jobs across the automotive, manufacturing, transportation, mining and forestry sectors due to increased heating and transportation costs.
OTHER MEASURES
To find and address tax loopholes and abuse, the province has created a specialized unit of tax experts who are working with federal and provincial tax officials.
Personal tax measures
CHILDCARE ACCESS AND RELIEF FROM EXPENSES (CARE)
Effective for the 2019 taxation year, the government proposes a new refundable Ontario Childcare Access and Relief from Expenses (CARE) personal income tax credit. The new CARE tax credit will be determined by multiplying the eligible child care expenses by the CARE tax credit rate (see table below), which progressively decreases as the family income increases and is completely eliminated once the family income reaches $150,000.
Family income |
CARE Tax Credit Rate |
Up to $20,000 |
75% |
Greater than $20,000 and up to $40,000 |
75% minus 2% for each $2,500 (or part thereof) above $20,000 |
Greater than $40,000 and up to $60,000 |
59% minus 2% for each $5,000 (or part thereof) above $40,000 |
Greater than $60,000 and up to $150,000 |
51% minus 2% for each $3,600 (or part thereof) above $60,000 |
Greater than $150,000 |
0% |
The new refundable tax credit for child care costs would provide up to $6,000 per child under the age of seven, up to $3,750 per child between the ages of seven and 16, and up to $8,250 per child with a severe disability.
For the 2019 and 2020 tax years, taxpayers would claim the proposed Ontario CARE tax credit on their tax returns. Starting with the 2021 tax year, Ontario intends to provide families with the choice to apply for regular advance payments throughout the year or receive a single payment when filing their tax returns after the year ends. Ontario will work with the Canada Revenue Agency and provide further details about advance payment delivery in time for the 2021 tax year implementation.
REDUCTION AND SIMPLIFICATION OF ESTATE ADMINISTRATION TAX
Effective January 1, 2020, the Budget proposes to eliminate the Estate Administration Tax on the first $50,000 of an estate’s value. The Estate Administration Tax will continue to apply at the current rate of 1.5 per cent for every $1,000, or part thereof, of the value of the estate exceeding $50,000. In addition, the budget provides that the government will explore options to provide further Estate Administration Tax relief, including additional tax relief in respect of charitable donations. However, further details have not been provided in this regard.
THE LOW-INCOME INDIVIDUALS AND FAMILY TAX (LIFT) CREDIT
Starting January 1, 2019, the non-refundable LIFT credit will provide up to $850 in Ontario Personal Income Tax relief to low-income Ontario taxpayers who have employment income. Ontario tax filers may claim it when they file their 2019 income tax return. The credit is calculated as follows:
Step 1: Determine the maximum LIFT Credit, which is the lesser of:
- $850; and
- 5.05 per cent of employment income
Step 2: Reduce the amount determined in Step 1 by 10 per cent of the greater of the tax filer’s:
- Adjusted individual net income greater than $30,000; and
- Adjusted family net income greater than $60,000.
The credit is only available for those who have Ontario Income Tax payable. The credit is effectively phased out when an individual earns more than $38,500 in adjusted net income or the adjusted family net income exceeds $68,500.
