On Nov. 5, 2020, Ontario’s Minister of Finance, Rod Phillips, tabled Ontario’s 2020-2021 Budget. The Budget is built on three pillars:
- Protecting Ontario residents in the fight against COVID-19,
- providing support for individuals and businesses suffering from the economic effect of COVID-19, and
- building a foundation for recovery by stimulating economic growth.
The Budget builds on the Ontario’s Action Plan that the government introduced in the March 2020 Economic and Fiscal Update and updated in the First Quarter Finances released in August 2020. The first pillar, protect, allocates new funding of $7.5 billion to fight COVID-19, improve conditions in long-term care homes, and build hospitals and other care facilities. The second pillar, support, provides an additional $2.4 billion of assistance to families, workers and employers with new credits, loans and other support programs. The third pillar, recover, provides new funding of $4.8 billion to stimulate business growth in Ontario by reducing payroll taxes, reducing electricity costs for industrial and commercial businesses, and investing in large-scale infrastructure projects.
The government projects a deficit of $38.5 billion for the 2020-2021 fiscal year. Over the next two years, the government projects a deficit of $33.1 billion and $28.2 billion, respectively. Further, the government indicated it will release its 2021-2022 Budget at the end of March 2021.
Following is a summarization of the business and personal income and indirect tax measures relevant to the middle market.
Business Income Tax Measures
No changes are proposed to Ontario’s corporate income tax rates or the $500,000 small business limit. However, the government has proposed to extend various credits and provide other relief to help aid businesses in their economic recovery.
EXTENDING THE REPORTING PERIOD TO CLAIM THE ONTARIO RESEARCH AND DEVELOPMENT TAX CREDIT
The Ontario Research and Development Tax Credit (ORDTC) allows qualifying corporations to claim a non-refundable tax credit on eligible scientific research and experimental development expenditures performed in Ontario. The deadline to claim the ORDTC is typically 18 months after the end of the corporation’s taxation year-end. However, in line with the federal extension of reporting deadlines for Scientific Research and Experimental Development claims, the Ontario government proposes to extend the ORDTC reporting deadlines as follows:
- For corporations with taxation year-ends between Sept. 13, 2018 and Dec. 31, 2018, the deadline to claim the ORDTC is 24 months after the year end; and
- For corporations with taxation year-ends between Jan. 1, 2019 and June 29, 2019, the deadline to claim the ORDTC is Dec. 31, 2020.
Eligible corporations with taxation year-ends between Jan. 1, 2019 and June 29, 2019 should act now to file their ORDTC claim before the extended deadline expires on Dec. 31, 2020.
CULTURAL MEDIA TAX CREDITS
The Cultural Media Tax Credits (CMTC) are a collection of tax credits for productions of film and television, computer animation and special effects, interactive digital media, and book publishing that are designed to encourage production activity and job creation in these cultural industries. However, many of these types of productions were suspended due to COVID-19, potentially limiting a production’s eligibility for the CMTC.
To address this concern and allow companies to maintain eligibility for the CMTC, the Budget proposes to temporarily extend certain timelines and amend certain eligibility requirements. Details of the proposed amendments can be found in Table A1 in the Budget.
Businesses involved in cultural arts productions should take advantage of the extensions and relaxed eligibility requirements to help fund current or future productions.
Other Business Measures
PERMANENT CHANGES TO THE EMPLOYER HEALTH TAX
The Employer Health Tax (EHT) is a provincial payroll tax paid by private-sector employers. Before COVID-19, if an employer’s total annual payroll was $5 million or less, the employer was eligible for an exemption from the EHT on the first $490,000 of payroll. In Ontario’s Action Plan released in March 2020, the amount of annual payroll exempt from EHT was temporarily increased from $490,000 to $1 million for 2020. The Budget now proposes to permanently adopt the EHT exemption on the first $1 million of payroll for companies that pay $5 million or less in annual payroll. The EHT has a top tax rate of 1.95%, meaning that a corporation with a $1 million payroll will save an additional $9,945 per year in EHT due to the increased EHT exemption.
The Budget also proposes to eliminate the obligation to remit EHT in monthly installments, and instead make the EHT due when a corporation files its annual EHT return, provided that the corporation’s annual payroll is $1.2 million or less. As a result, corporations claiming the full EHT exemption would only be required to make monthly EHT installments when their annual EHT is $3,900 or more.
PROPERTY TAX RELIEF FOR SMALL BUSINESSES
The government will enable property tax relief for small businesses by providing municipalities with flexibility to target property tax relief to those that need it most. Starting in 2021, municipalities can modify the classes of business properties and create a new property subclass for small business properties. The purpose of the subclass would be to reduce property taxes for small businesses that fall within the subclass, thereby allowing the province and the municipality to target property tax relief to businesses in need. The Ontario government will also consider matching the municipal property tax reductions to further benefit small businesses.
Check back for updates on the creation of the subclass and definition of a small business property and the amount of property tax relief.
REDUCTION OF PROPERTY TAXES FOR EMPLOYERS
The Business Education Tax (BET) is included in property taxes in Ontario, but BET rates are inconsistent throughout Ontario. Starting in 2021, the government proposes to level off the top BET rate at 0.88% for both commercial and industrial properties, which amounts to a reduction of up to 30% for various businesses that are currently subject to the highest BET rates.
Businesses should examine their current BET rates and be aware of future savings in 2021 from this measure.
REDUCTION OF ELECTRICITY RATES
The government proposes to fund a portion of wind, solar and bioenergy contract cost under the Comprehensive Electricity Plan. Starting on Jan. 1, 2021, the government will fund approximately 85% of these contracts, resulting in average savings of about 14% and 16% on the electricity bills of industrial and commercial employers, respectively.
This new policy aims to provide lower and more stable prices for Ontario’s electricity supply so that businesses that rely heavily on electricity (i.e., mining, steel, manufacturing) will have an incentive to operate in Ontario, thereby creating jobs for Ontarians.
Between April and September 2020, Ontario partnered with the federal government to provide rent support to impacted business tenants and their landlords through the Canada Emergency Commercial Rent Assistance (CECRA). To supplement the CECRA, Ontario instituted a temporary ban on evictions for tenants that received the CECRA.
Although the CECRA concluded at the end of September 2020, Ontario proposes to continue the temporary ban on evictions for commercial tenants that qualified for the CECRA.
Personal Income Tax Measures
No changes are proposed to personal income tax rates. However, the government has introduced or expanded tax measures to support residents of Ontario.
INTRODUCTION OF THE NEW SENIORS’ HOME SAFETY TAX CREDIT
To help seniors remain in their homes longer and to alleviate the burden on long-term care homes, the government proposed to introduce the Seniors’ Home Safety Tax Credit for the 2021 taxation year. This refundable income tax credit would provide a 25% credit on up to $10,000 of eligible renovation expenses related to a senior’s principal residence in Ontario. This will allow seniors, and families who have seniors living with them, to make their homes more accessible and safer by completing necessary modifications such as installing grab bars or wheelchair ramps. The total value of the credit is $2,500.
This credit could be claimed for expenses incurred or that become payable in 2021 to improve a principal residence or to a residence that is reasonably expected to be a principal residence within 24 months after the end of 2021. The credit could also be claimed in respect of an individual’s share of improvements completed by a condominium corporation, or similar body, to property that includes the individual’s principal residence, provided the improvement meets the other eligibility conditions.
Seniors will be eligible for the tax credit regardless of their income and whether they owe taxes for 2021.
SUPPORT FOR LEARNERS INITIATIVE: HELPING PARENTS WITH COVID-19 COSTS
In March 2020, the Ontario government made payments to families in respect of each child up to 12 years old ($200) and in respect of each youth with special needs up to 21 years old ($250). Through the Support for Learners initiative, the government will make a second round of payments to families. The payments are intended to help families with the additional costs related to children due to COVID-19, such as childcare or purchasing technology to facilitate online learning.
The amount of the payments is identical to the first round of payments made in March 2020.
TAX CREDIT FOR TOURISM EXPENSES TO DISCOVER ONTARIO
With national and international travel restrictions in place, the Budget refers to 2021 as “the year of the Ontario staycation”. To encourage Ontarians to travel within Ontario in 2021 and to reignite Ontario’s tourism industry and support tourism businesses, the Budget proposes to introduce a tax credit of 20% on eligible Ontario tourism expenses.
More information on the initiative will be released once stakeholders are consulted about the details.
Other Personal Measures
TUITION REDUCTION AND TUITION FEE FREEZE
Previously, the government reduced tuition fees at publically-funded colleges and universities for the 2019-2020 school year by 10%. In the Budget, the government freezes tuition fees for the 2020-2021 school year. The continued support for students attending post-secondary institutions will help new and existing students to receive an education to allow them to enter the work force.
TEMPORARY WAGE INCREASE FOR PERSONAL SUPPORT WORKERS
The Budget provides a temporary wage increase, effective Oct. 1, 2020, for workers who deliver publicly-funded personal support services. The wage increase is between $2 and $3 per hour, depending on the type of health facility where the personal support worker is employed.
The government will review this wage increase on a regular basis and could extend it to March 31, 2021. By providing this wage increase, the government hopes to attract and retain professionals to care for patients, clients and residents in response to COVID-19.
Indirect Tax Measures
PROVINCIAL SALES TAX
No changes are proposed for other provincially administered tax programs, including Tobacco Tax, Fuel Tax, Gas Tax, Mining Tax, Insurance Premium Tax, International Fuel Tax Agreements, Retail Sales Tax on Insurance Contracts and Benefit Plans, and Race Tracks Tax.
BEER AND WINE TAX
Further to Ontario’s plan to support local businesses in response to the COVID-19 crisis, the government introduced a measure temporarily allowing restaurants and bars to extend outdoor patios and to sell alcohol as part of take-out and delivery orders. In the Budget, the government extends these measures until Dec. 31, 2020. In addition, the government will continue exploring different options to permanently allow the sale of alcohol as part of take-out and delivery orders.
Furthermore, the government is freezing beer tax rates until March 1, 2022. Beer tax rates were previously scheduled to increase on June 1, 2020. The government also proposed to retroactively cancel the increase in wine tax rates, which was set to begin on June 1, 2020.
It is expected that the new measures will help provide flexibility and to support the liquidity needs of local businesses in Ontario.
With Ontario currently battling the second wave of COVID-19, the Budget focuses on continuing its support of individuals and businesses while trying to set the table for the future economic growth and recovery.
Because the government will release its next budget in only five months (March 2021), the government has an opportunity to revisit these measures soon and adjust them as needed.
Thank you to the following contributors to this content:
Sigita Bersenas, Project Coordinator
Serene Lee, Supervisor
Chetna Thapar, Associate