2011 BDO Ontario Budget Report
Highlights
- Deficit of $16.7 Billion Projected for 2010-11
- Deficit of $16.3 Billion Forecast for 2011-12
- Books to be Balanced by 2017-18
- No New Taxes
- Corporate Tax Cuts Proceeding on Schedule
- Agriculture Risk Management Programs Expanded
“Turning the Corner To A Better Tomorrow"
On March 29, 2011, the Honourable Dwight Duncan presented his fourth budget since becoming Finance Minister on a full-time basis. With an election scheduled for October 6, 2011, the government has set out a plan with a continued focus on eliminating the deficit while protecting education and health.
With evidence that the economy is recovering, the government now predicts that it will have a deficit for the 2010-11 fiscal year of $16.7 billion, down from the original forecast of $19.7 billion in last year's budget. A deficit of $16.3 billion is forecast for the 2011-12 fiscal year.
The government will stay the course on getting the province's books back in balance. Although the government is projecting reduced deficit numbers in the short-term, with continued global economic uncertainties, the government continues to predict that it will eliminate the deficit by the 2017-18 fiscal year.
The government has announced targeted spending to create jobs and for farmers, health care and education. In particular, new partnerships with the private sector will create and retain about 10,000 jobs in Ontario and new risk management programs will be implemented for farmers. As well, more than 60,000 new spaces will be available for students in Ontario's colleges and universities by 2015-16.
Ontario is undertaking major reforms to modernize its pension policy framework and has indicated its commitment to support certain enhancements to the Canada Pension Plan and also to explore new types of pension plans that will improve workforce coverage.
On the tax front, the government has announced technical changes that will benefit Ontario book publishing corporations, mine operators and Ontario manufacturers of beer and wine. Refundable tax credits provided for low-to-moderate income Ontarians for taxes and energy costs will be transformed into a single credit paid monthly to improve timing of this assistance.
The following is a summary of the more important items of interest to our clients.
|
Ontario Budget Projections
(in billions $)
|
|
|
Original Forecast
2010/2011
|
Revised Forecast
2010/2011
|
Projected
2011/2012
|
|
Revenue
|
106.9
|
106.2
|
108.5
|
|
Program Expense
|
(115.9)
|
(113.4)
|
(113.8)
|
|
Interest on Debt
|
(10.0)
|
(9.5)
|
(10.3)
|
|
Reserve
|
(0.7)
|
-
|
(0.7)
|
|
Deficit
|
(19.7)
|
(16.7)
|
(16.3)
|
PERSONAL TAX CHANGES
Ontario Trillium Benefit
The government currently provides low-to-moderate income individuals and families with relief for taxes and energy costs through the refundable Ontario Sales Tax Credit, Ontario Energy and Property Tax Credit and Northern Ontario Energy Credit. These credits are currently paid on a quarterly basis rather than in a lump sum after individuals have filed their income tax returns, to better match the timing of when the actual expenses are incurred. The government proposes to improve this matching of expenses by combining these three credits into the Ontario Trillium Benefit and paying the benefit on a monthly basis, beginning in July 2012.
Ontario Child Care Supplement for Working Families
The government proposes to consolidate payments for the Ontario Child Care Supplement for Working Families (OCCS) and the Ontario Child Benefit (OCB) on a per-child basis. If a family's entitlement to the OCCS for a child is higher than its OCB payment for that child, the family will receive the extra OCCS benefit, allowing families to keep the extra benefit for each eligible child under age seven.
BUSINESS CHANGES
General Corporate Tax Rate Cuts to Proceed on Schedule
The reduction of the general corporate tax rate as announced in the 2009 budget will proceed on schedule. The chart below sets out the corporate tax rates that apply on different types of income.
|
Ontario
Corporate Income Tax Reductions
(Prorations apply for taxation years straddling effective dates)
|
|
Effective
Date
|
General
Rate
|
M&P
Rate
|
Small
Business Rate
|
Small Business Deduction Surtax
|
|
Current
|
12%
|
10%
|
4.5%
|
Eliminated
|
|
July 1,
2011
|
11.5%
|
10%
|
4.5%
|
Eliminated
|
|
July 1,
2012
|
11%
|
10%
|
4.5%
|
Eliminated
|
|
July 1,
2013
|
10%
|
10%
|
4.5%
|
Eliminated
|
Ontario Book Publishing Tax Credit
The Taxation Act, 2007 currently provides a 30% refundable tax credit for Ontario book publishing corporations. The Ontario Book Publishing Tax Credit is available on qualifying expenditures related to publishing and promoting a book by a Canadian author in an eligible category of writing.
The budget proposes to change the period during which qualifying marketing expenditures can be incurred to a two-year period from the existing 12-month period. The new two-year period will start one year before the date of publication and end one year after that date. This new period will start with expenditures incurred after March 29, 2011.
Taxation of Corporate Groups
In November 2010, the federal government released a tax policy paper to solicit input from taxpayers and other stakeholders regarding the possibility of changing Canada's corporate tax system to allow some form of tax loss sharing amongst companies in a corporate group. The stated policy objective is to increase the efficiency of the tax system - over time the view has developed that the lack of a formal system to consolidate tax reporting or to offset profits and losses within corporate groups is considered an impediment to Canada's international competitiveness. In fact, many countries have a formal system of taxation of corporate groups.
If there is sufficient support for a change in the Canadian tax loss transfer system for Canadian corporations, there will be further consultations with taxpayers and other stakeholders before finalizing the new proposals. One large issue that will have to be dealt with is the impact of a loss transfer system on provincial corporate tax revenue. The government of Ontario states in the 2011 budget documents that the focus of any changes should be to increase the efficiency and competitiveness of the Canadian corporate tax system while ensuring that all provinces receive the revenue to which they are entitled.
OTHER CHANGES
Agriculture Risk Management Programs Expanded
In today's budget, the government recognized that volatility in commodity markets can make it difficult for farmers to manage business risks. Risk management programs can help mitigate these difficulties by providing stable support for managing costs. In today's budget, it was announced that the current Risk Management Program for grain and oilseed farmers will be extended. In addition, the government will implement a new program for the cattle, hog, sheep and veal sectors, as well as a Self-Directed Risk Management Program for the edible horticulture sector. The cost of these programs will be shared between the Ontario government and farmers.
Functional Currency Election for Mine Operators
Amendments are proposed to the Mining Tax Act to allow mine operators who are reporting in a functional currency for federal tax purposes to elect to report in the same functional currency for Ontario tax purposes. With this change, mine operators will no longer need to prepare a separate set of Canadian dollar financial statements solely for the purposes of filing their Ontario mining tax return. The election will apply until the mine operator either ceases to meet the conditions for functional currency reporting under the Income Tax Act or the Mining Tax Act, or revokes its election. The amendments will be based on the rules for functional currency under the Income Tax Act and will apply for taxation years beginning after December 31, 2010.
Annual Promotional Exemption for Wine, Wine Coolers and Beer
Promotional distribution of beer and wine by Ontario manufacturers helps to increase awareness of Ontario beer and wine products. It can also encourage tourism. In order to complement the marketing initiatives of the Ontario Wine Strategy and Ontario Craft Brewers Strategy, the budget proposes an annual exemption of up to 10,000 litres of beer, wine or wine coolers to be distributed without charge. This proposed exemption would be retroactive to July 1, 2010, and would be prorated based on the manufacturers' sales year. If beer manufacturers distribute beer without charge under this proposed provision, they will not qualify for the small beer manufacturers' tax credit.
Improved Administration and More Efficient Tax Collection
Currently Estate Administration Tax, the tax that is applied to the value of an estate when the estate's representative applies to the court for a certificate of appointment of estate trustee (a process also referred to as probate), is administered by the Ministry of the Attorney General. Today's budget proposes that this tax be administered by the Ministry of Revenue, starting
January 1, 2013.
The budget also states that amendments will be proposed to various provincial statutes to standardize tax collection processes in order to ensure debts to the province are collected and tax revenue is received on a timely basis. For example, when a Retail Sales Tax Act clearance certificate is requested under the Bulk Sales Act, it is proposed that amendments be made to allow the Minister of Revenue to withhold the issuance of such a clearance certificate until tax debts under the following statutes are paid or secured: Alcohol and Gaming Regulation and Public Protection Act, 1996; Fuel Tax Act; Gasoline Tax Act; Race Tracks Tax Act and Tobacco Tax Act. This change will generally apply to bulk sales completed on or after July 1, 2011, except for bulk sales under written agreements entered into on or before March 29, 2011.
Pensions and Retirement Systems
The federal government put forward a framework for Pooled Registered Pension Plans (PRPPs) in December 2010. The objective of PRPPs is to make defined contribution pooled registered pension plans available across Canada to improve the range of retirement savings options for Canadians.
Briefly, under the federal proposed framework, a financial institution would be allowed to administer a pooled pension fund. Members of the PRPP could participate by way of employment at a participating employer, as Employed Members, or as Individual Members. Individual Members could be employees of employers who do not offer a PRPP, or could be self-employed. The success of the plan for PRPPs is dependent on a high level of regulatory harmonization between provinces and with the federal government, as private pensions are primarily subject to provincial rather than federal laws.
In today's budget, the Ontario government states that they will continue to work closely with other provinces and territories and the federal government to design implementation details based on a PRPP framework. Joint stakeholder consultations are being held to inform upcoming policy development and discussions. The key areas of success for such a plan will be providing a low-cost option that is simple for smaller employers and the self-employed to access, as well as protecting plan members' interests.
Ontario also strongly endorses a modest, phased-in and fully funded expansion of the Canada Pension Plan (CPP), on the basis that CPP provides a secure, fully indexed, defined benefit pension to all working Canadians, and it is fully portable across Canada.
Finally, Ontario is also exploring the feasibility, design and implementation of jointly governed, single-employer target benefit plans, an innovation recommended by the Expert Commission on Pensions.
HOW ONTARIO COMPARES
The following chart compares top personal and corporate tax rates and sales taxes for all provinces and territories, as announced to March 29, 2011.
|
|
Top 2011
Personal Rates
%
|
2011
Corporate Rates
|
|
|
|
General
%
|
M&P
%
|
Small
Business
%
|
2011
Provincial
Sales
Tax
%
|
|
BC
|
43.70
|
26.50
|
26.50
|
13.50
|
7.00(6)
|
|
Alta.
|
39.00
|
26.50
|
26.50
|
14.00
|
-
|
|
Sask.
|
44.00
|
28.50
|
26.50
|
15.50(1)
|
5.00
|
|
Man.
|
46.40
|
28.50
|
28.50
|
11.00
|
7.00
|
|
Ont.
|
46.41
|
28.50(2)
|
26.50
|
15.50
|
8.00(6)
|
|
Qué.
|
48.22
|
28.40
|
28.40
|
19.00
|
8.50(7)
|
|
NB
|
43.30
|
27.50(3)
|
27.50(3)
|
16.00
|
8.00(6)
|
|
NS
|
50.00
|
32.50
|
32.50
|
15.50
|
10.00(6)
|
|
PEI
|
47.37
|
32.50
|
32.50
|
12.00
|
10.00(7)
|
|
Nfld.
|
42.30
|
30.50
|
21.50
|
15.00(4)
|
8.00(6)
|
|
Yukon
|
42.40
|
31.50
|
19.00
|
15.00(5)
|
-
|
|
NWT
|
43.05
|
28.00
|
28.00
|
15.00
|
-
|
|
Nunavut
|
40.50
|
28.50
|
28.50
|
15.00
|
-
|
(1) The small business rate will be reduced to 13% on July 1, 2011.
(2) The general business rate will be reduced to 28% on July 1, 2011.
(3) The combined general business and M&P rates will be reduced to 26.5% on July 1, 2011.
(4) The small business rate decreased from 16% effective for fiscal periods beginning on or after April 1, 2010.
(5) The tax rate for M&P profits eligible for the small business deduction is 13.5%.
(6) As part of the HST (combined rates are 15% in Nova Scotia, 13% in Ontario, New Brunswick and Newfoundland & Labrador, and 12% in British Columbia).
(7) Provincial sales tax applies on GST. Effective combined rate is 13.925% in Québec and 15.5% in Prince Edward Island.
The information in this publication is current as of March 29, 2011.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.
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