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2018 Ontario Budget Overview – What you Need to Know

The Provincial Government’s 2018 budget was tabled on March 28, 2018. The budget anticipates a surplus of $.6 billion for 2017-2018 followed by deficits of $6.7 billion and $6.6 billion for 2018-19 and 2019-20 respectively. Previously, the minister projected a balanced budget beginning in 2017-18. The net debt-to-GDP ratio is expected to increase over the period as well, finishing this year at 37.1% and rising to 38.6% in 2020-21. Real GDP growth is projected to slow from 2.2% in 2018 to 1.7% in 2021. The budget contains several tax measures affecting corporations and individuals.

Highlights include:

  • Ontario’s personal tax system is simplified by eliminating surtaxes and introducing new brackets and rates
  • Enhancements are made to the Ontario Innovation and the Ontario Research and Development Tax Credits
  • Parallels several 2018 federal budget measures including income sprinkling
  • The charitable donations tax credit rate on donations over $200 is increased
  • The corporate income tax rates remain the same
  • The Employer Health Tax exemption will follow eligibility criteria for the federal small business deduction

Calculator with pen and paper

Business Income Tax Measures

Corporate Income Tax Rates

The budget did not announce changes to Ontario’s corporate tax rates and they will remain at the current rates.

Income Sprinkling

Ontario will parallel the federal measures that limit income sprinkling using private corporations so that Ontario personal tax, at the rate of 20.53%, will apply to split income of an adult family member. This is effective for 2018 and future taxation years.

Ontario Research and Development Tax Credit (ORDTC)

For eligible R&D expenditures incurred after March 27, 2018, the 3.5% non-refundable ORDTC rate increases to 5.5% for companies that qualify and incur expenditures over $1 million in a taxation year.

Ontario Innovation Tax Credit (OITC)

For eligible R&D expenditures incurred after March 27, 2018, the 8% refundable OITC rate increases for companies that qualify and have a ratio of R&D expenditures to gross revenues of:

  • 10% or less – the rate stays at 8%
  • Between 10% and 20% – the rate increases from 8% to 12% on a straight line-basis as the company’s ratio of R&D expenditures to gross revenue increases from 10% to 20%.
  • 20% and above – the rate jumps to 12%

Employer Health Tax Exemption

To better target the payroll tax exemption, Ontario is proposing to apply the eligibility criteria for the small-business deduction to the payroll tax exemption. As a result, the exemption will only be available to individuals, charities, not-for-profit organizations, private trusts and partnerships and CCPCs. It will also incorporate federal anti-avoidance rules related to the multiplication of the of the small-business deduction. If enacted, this will take effect on January 1, 2019.

Mimicking Federal Corporate Tax Measures

Along with incoming sprinkling, the Ontario budget parallels federal tax measures affecting passive investment income of private corporations, the “synthetic equity” and “securities lending” arrangement rules and a stop-loss rule applicable to share repurchase transactions. You can view our 2018 Federal Budget overview here.

PERSONAL INCOME TAX MEASURES

The budget proposes to eliminate Ontario’s surtax and adjust the personal income tax brackets and rates, effective for 2018. The current five personal rates and two surtaxes would be replaced with seven personal income tax rates applied directly to taxable income.

Pre-budget bracket Pre-budget rate Pre-budget rate with surtax
$0 – $42,960 5.05% 5.05%
$42,961 – $85,923 9.15% 9.15%,10.98%,14.27%
$85,924 – $150,000 11.16% 17.41%
$150,001 – $220,000 12.16% 18.97%
Above $220,000 13.16% 20.53%

Proposed bracket Proposed rate
$0 – $42,960 5.05%
$42,961 – $71,500 9.15%
$71,501 – $82,000 11.00%
$82,001 – $92,000 13.50%
$92,001 – $150,000 17.50%
$150,001 – $220,000 19.00%
Above $220,000 20.53%

CHARITIES

Charitable Donation Tax Credit

The budget proposes to increase the top rate for the non-refundable Ontario Charitable Donation Tax Credit. The rate of 5.05% for the first $200 in donations would stay the same, while the rate of 11.6% for donations over $200 would increase to 17.5%.

SALES TAX AND EXCISE TAX MEASURES

Cannabis

Ontario intends to enter into an agreement with the federal government, under which Ontario would receive 75% of the federal excise duty collected on cannabis intended for sale in the province.

Tobacco

Ontario’s tobacco tax will jump from 16.45 cents to 18.475 cents per cigarette and per gram of tobacco products other than cigars. This change is equivalent to $4 per carton of cigarettes. These changes are effective March 29, 2018, and another increase of $4 per carton of cigarettes is planned in 2019.

Land Transfer

Ontario plans to make a new regulation that would allow land transfer tax arising from certain unregistered dispositions of a beneficial interest in land through certain types of partnerships and trusts to be payable 30 days after the end of the calendar quarter in which the disposition occurred. Offering more time than the current regulation which requires this to be done within 30 days of the disposition.

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