Tax Alert - Ontario Cuts Small Business Tax Rate

November 2017

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On November 14, 2017, Ontario Finance Minister Charles Sousa delivered his fall Economic Outlook and Fiscal Review (the Update) offering tax breaks targeted at small businesses. In a move that looks towards a spring election, proposed tax measures include a cut to the small business Corporate Income Tax (CIT) rate, a change to the Apprenticeship Training Tax Credit (ATTC), and an enhancement to the property tax and assessment system.

Reduction to the Small Business Corporate Income Tax Rate

The government is proposing to cut the small business CIT rate from 4.5% to 3.5% effective January 1, 2018. The tax rate reduction will be prorated for taxation years straddling January 1st. The federal government has also proposed to cut its small business CIT rate from the current 10.5% to 10%, effective January 1, 2018, and then to 9%, effective January 1, 2019. This means that with the proposed federal changes, the combined federal–Ontario CIT rate for small business will be reduced from the current 15% to 12.5% as of January 1, 2019.

Changes to Taxes on Ineligible Dividends

Consistent with the corporate tax rate changes, Ontario’s ineligible dividend tax credit rate will also be decreased. The federal dividend tax credit rate on ineligible dividends will also decrease as a result of the federal tax cuts to the small business CIT rate. Consequently, the top personal combined Ontario and federal tax rate on ineligible dividends will increase from 45.30% in 2017 to 46.84% in 2018 and to 47.78% in 2019. Ineligible dividends are dividends that are paid out of after-tax profits taxed at small business rates.

While a decrease in the small business tax rate benefits owners of small businesses, the change to the ineligible tax rate adversely affects taxpayers who earn investment income in a corporation and pay the net earnings to their shareholders by way of dividend.

Elimination of the Apprenticeship Training Tax Credit

The government is proposing to replace the Apprenticeship Training Tax Credit (ATTC) with a new Graduated Apprenticeship Grant for Employers (GAGE). The GAGE is designed to encourage employers to ensure apprentices complete their training programs by providing employer grants based on specific levels of completion of their apprenticeship. GAGE will be available to all 125 trades that are currently eligible for the existing ATTC, plus an additional five Red Seal service sector trades. Employers with eligible apprentices who have registered their apprenticeship program with the Ontario College of Trades after November 14, 2017 would be eligible for the new GAGE support.

The ATTC is a refundable tax credit that is available to businesses that hire and train eligible apprentices in designated construction, industrial, motive power and certain service trades. The government proposes to eliminate the ATTC for employers with apprentices who register in an apprenticeship program after November 14, 2017. However, employers with apprentices already registered in an eligible apprenticeship program on or before November 14, 2017 will continue to be eligible to receive the ATTC for up to 36 months.

Changes to Land Transfer Tax on Unregistered Dispositions

The Update proposes to allow greater flexibility for payment of land transfer tax on unregistered dispositions of a beneficial interest in land. The current requirement is to pay tax within 30 days of the date of an unregistered disposition of land. The proposed changes could mean that qualifying taxpayers could be allowed to file returns quarterly without incurring liability for interest. Further details on will be provided at a later date, with other issues raised with the land transfer tax system that are currently under review.

Summary

We are committed to keeping you updated on current tax changes. Please contact your local BDO office or one of our trusted BDO advisors at BDO Canada to gain more information on these tax changes.

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The information in this publication is current as of November 14, 2017.

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