On March 25, 2020, Finance Minister Rod Phillips released Ontario's Action Plan: Responding to COVID-19 (March 2020 Economic and Fiscal Update) in place of a full budget that the government originally planned to release. The Action Plan is a one-year outlook based on available economic projections and the government’s first step in responding to COVID-19. The Action Plan includes $7 billion for new direct support to health care, people and jobs, and $10 billion in support to people and businesses through tax and other deferrals to improve cash flow, protecting jobs and household budgets over the coming challenging months.
As part of the Action Plan, the government introduced the following tax measures:
- Cutting taxes by $355 million through a proposed temporary increase to the Employer Health Tax exemption for 2020;
- Helping to support regions lagging in employment growth with a proposed new Corporate Income Tax Credit, the Regional Opportunities Investment Tax Credit;
- Making over $1.8 billion available by deferring by 90 days the upcoming June 30 quarterly municipal remittance of education property tax to school boards;
- Making $1.9 billion available to employers by allowing them to defer Workplace Safety and Insurance Board payments for up to six months;
- Making $6 billion available to businesses by providing 5 months of interest and relief on payments of most provincially administrated taxes.
BUSINESS TAX MEASURES
No changes are proposed to the corporate income tax rates, the $500,000 small-business limit and personal income tax rates.
TEMPORARY EMPLOYER HEALTH TAX EXEMPTION
Private-sector employers except registered charities with total annual Ontario remuneration of less than $5 million are currently eligible for an exemption on Employer Health Tax up to $490,000 of their payroll. In support for people and jobs in response to the COVID-19 outbreak, the government will retroactively increase this exemption from $490,000 to $1 million for 2020. Increasing the exemption to $1 million would provide additional Employer Health Tax relief of up to $9,945 per eligible employer. With this additional relief, eligible employers could benefit by up to $19,500 in total Employer Health Tax relief. This exemption does not apply to public-sector employers.
The government forecasted approximately 57,000 private‐sector employers would pay less Employer Health Tax, including about 30,000 who would not pay Employer Health Tax at all in 2020 because of this new proposal. This exemption will revert back to $490,000 on January 1, 2021, effectively eliminating Employer Health Tax for eligible employers for one year.
REGIONAL OPPORTUNITIES INVESTMENT TAX CREDIT
To stimulate growth in regions that are lagging in employment opportunities, the government proposed a new 10 per cent refundable Corporate Income Tax credit for capital investment by eligible corporations.
Eligible corporations are Canadian-controlled private corporations that make qualifying investments that become available for use after March 24, 2020 in specified regions of Ontario. The term ‘available for use’ is defined in the Income Tax Act, generally referring to a taxation year in which a taxpayer can start to claim capital cost allowance for a depreciable property.
A qualifying investment is an expenditure for capital property included in capital cost allowance Class 1 and Class 6 for purposes of computing capital cost allowance. Class 1 assets are mainly buildings. Class 6 includes frame, log, stucco on frame, galvanized iron or corrugated metal buildings that meet certain conditions. Class 6 also includes certain fences and greenhouses.
In brief, to be eligible for this credit, eligible corporations must construct, renovate or acquire qualifying commercial and industrial buildings in designated regions of the province. Further, a qualifying capital investment must (i) be a capital expenditure in excess of $50,000 and up to a limit of $500,000, and (ii) become available for use by eligible corporations in the taxation year.
The government will review the credit every three years for effectiveness, compliance burden and administrative costs.
PLANNED PROPERTY TAX REASSESSMENT
To ensure that municipal governments are able to focus their resources on the COVID-19 outbreak, the government proposed to postpone the planned property tax reassessment for 2021. Property taxation is based on the assessed value of properties in Ontario and those assessments are updated every four years. The Municipal Property Assessment Corporation had originally scheduled to complete the next property valuation update in 2020 for the 2021 taxation year. Due to the postponement, the assessments for the 2021 taxation year will continue to be based on the same valuation date that was in effect for the 2020 taxation year.
EDUCATION PROPERTY TAX DEFERRALS
Throughout the COVID-19 crisis, many Ontario residents and businesses may find it challenging to make their scheduled property tax payments. The government proposed property tax relief by deferring by 90 days the upcoming June 30 quarterly municipal remittance of education property tax to school boards. This will provide municipalities the flexibility to provide property tax deferrals to residents and businesses, while ensuring school boards continue to receive funding.
WORKPLACE SAFETY EXPENSE DEFERRAL
To improve Ontarians’ cash flows, the Workplace Safety and Insurance Board will allow employers to defer payments for a period of six months. All Schedule 1 and Schedule 2 employers covered by the Board’s workplace insurance will be allowed to defer reporting and payments until August 31, 2020. Interest and penalties will not apply to these outstanding premiums and payments during this six-month deferral period.
INDIRECT TAX MEASURES
To further support cash flow in response to the COVID-19 crisis, beginning April 1, 2020, the government will provide a five-month relief period for Ontario businesses that are unable to file or remit select provincial taxes on time. The filing and payment deadlines still apply; however, interest and penalties will not apply if businesses are unable to file returns or pay outstanding amounts on time during the relief period. The relief is automatic; therefore, there is no requirement to contact the Ministry of Finance to request relief. All late returns and remittances are due at the end of the relief period, August 31, 2020. This initiative and relief period complement the announcement made by the Federal government on March 18, 2020 in respect to the interest and penalties relief for any income tax amounts that become owing under Part I of the Income Tax Act, after March 17, 2020 and before September 1, 2020.
The following provincial taxes are included in the relief period:
- Employer Health Tax
- Tobacco Tax
- Fuel Tax
- Gas Tax
- Beer, Wine & Spirits Tax
- Mining Tax
- Insurance Premium Tax
- International Fuel Tax Agreement
- Retail Sales Tax on Insurance Contracts and Benefit Plans
- Race Tracks Tax
It is expected that these measures will help to support the liquidity needs of approximately 100,000 Ontario businesses and will save businesses as much as $25 million through interest and penalty relief during the grace period.
The Action Plan announced in the March 2020 Economic and Fiscal Update is the first critical step the government has taken to support Ontario people and business through the challenging times caused by COVID-19.
The government will continue assessing the economic situation and may release additional tax and other measures to support the Ontario economy in its future economic and fiscal update and in its provincial budget. The government has scheduled to release the full multi-year provincial budget by November 15, 2020.
Authored and reviewed by:
Dave Corazzola, Sandeep Ghuman, Steve Skopitz, Bonnie Yashinsky, Ibrahim Hatia, and Tracy Li