CI Financial : Tax highlights from the 2015 Ontario budget

Tax highlights from the 2015 Ontario budget

Finance Minister Charles Sousa tabled the 2015 Ontario provincial budget on April 23, 2015. The minister confirmed that the estimated deficit for the recently completed 2014-2015 fiscal year is $10.9 billion, $1.6 billion less than anticipated at this time last year. The budget projects a deficit of $8.5 billion for the 2015-2016 fiscal year and a deficit of $4.8 billion in the following year, before moving to a balanced budget in the 2017-2018 fiscal year. The minister also indicated that Ontario intends to invest more than $130 billion over the next 10 years in public infrastructure, such as roads, bridges and transit.
On the tax side, there were no changes to personal or corporate income tax rates. However, as part of Ontario's Program Review, Renewal and Transformation (PRRT) process, the budget proposed several measures to reduce the level of government support available through refundable business tax credits, given the increased competitiveness of the Ontario corporate tax system.
The following pages are a summary of the changes announced in the budget. Please note that these changes are still proposals until passed into law by the provincial government.

Tax brackets (other than the $150,000 and $220,000 brackets) and personal credit amounts have been indexed by
1.02% for 2015. The table below shows the new Ontario tax rates and brackets for 2015.

Ontario also imposes a surtax equal to 20% of Ontario income tax in excess of $4,418, plus an additional 36% of
Ontario income tax in excess of $5,654.

Page 1 of 5

The table below shows the combined federal and provincial highest marginal tax rates for various types of income.

As a result of the phased-in increase to the tax rate on non-eligible dividends proposed in the 2015 federal budget, the combined federal and Ontario top marginal tax rate on non-eligible dividends is projected to increase from the current
40.13% to 41.40% by 2019. This budget has not proposed any changes to the Ontario gross-up factor or dividend tax credit rate.

There were no changes to corporate income tax rates in the budget. The table below shows Ontario tax rates and the small business limit for 2015.

Following a previously announced review of these credits, the budget proposes to change the apprenticeship training tax credit (ATTC), effective for eligible expenditures related to apprentices who commenced an apprenticeship program after April 23, 2015. The proposed changes are as follows:
• the general tax credit rate will be reduced from 35% to 25%;
• the rate for small businesses with salaries or wages under $400,000 will be reduced from 45% to 30%;
• the annual maximum per apprentice will be reduced from $10,000 to $5,000; and
• the eligibility period of an apprenticeship program will be reduced from the first 48 months to the first 36 months.

Page 2 of 5

As a result of the PRRT process, the budget proposes to change the interactive digital media tax credit, effective for expenditures incurred after April 23, 2015. The proposed changes are as follows:
• the credit will be focused on entertainment and educational products for children under the age of 12;
• certain products, including search engines, real estate databases and news and public affairs, would be specifically excluded; and
• the rules that exclude promotional products will be strengthened.
Products started before April 24, 2015 would be eligible for transitional relief. The government intends to release a bulletin with further information.
In addition, the certification process will be amended to require that 80% of total labour costs for eligible products be paid as qualifying remuneration to individuals and corporations operating as personal services businesses, and 25%
of total labour costs for eligible products would be in the form of qualifying wages of employees of the qualifying corporation. This new rule would not apply to products certified before April 24, 2015.

Effective for qualifying production expenditures incurred after April 23, 2015, the budget proposes to change this credit as follows:
• the tax credit rate is reduced from 25% to 21.5%;
• Ontario labour expenditures must make up at least 25% of total expenditures incurred by a qualifying corporation for taxation years starting after April 23, 2015; and
• expenditures incurred by a qualifying corporation pursuant to contracts with non-arm's length parties will be limited to amounts that would have been eligible if they were incurred directly by the corporation.
The budget also clarifies that only expenditures incurred after the final script stage to the end of the post-production stage will be eligible for the credit. This technical change applies to expenditures incurred after June 30, 2009.

Effective for expenditures incurred after April 23, 2015, the budget proposes to reduce the tax credit rate from
20% to 18%.
In addition, productions started after April 23, 2015 must receive the Ontario film and television tax credit or the
Ontario production services tax credit, in order to qualify for this credit.

The budget proposes to diverge from the federal treatment of assistance to productions that reduce tax credits by the amount of assistance received. Ontario will continue its long standing administrative position that government equity investments will not be treated as assistance, and accordingly will not reduce qualifying expenditures for this tax credit. The government will file a regulation, effective after December 31, 2008, to enable this treatment to continue.

The budget proposes to eliminate this credit. Expenditures incurred after April 23, 2015 will only qualify for the credit if the eligible sound recording was started before that date, the expenditure was incurred before May 1, 2016, and an Ontario Music Fund grant is not received in respect of the expenditure.

Page 3 of 5

The budget proposes to parallel most of the federal tax changes with respect to the taxation of trusts and estates announced in the 2014 federal budget. Beginning in 2016, graduated rate estates (GREs) and qualified disability trusts (QDTs) will be subject to Ontario graduated rates and Ontario surtax. Similar to the federal rules, GREs would only
be eligible for these rates for the first 36 months. All other trusts, referred to as top-rate trusts, will pay tax at the highest
Ontario marginal rate of 20.53% on all of their taxable income (combined federal/Ontario rate of 49.53%).
Concurrent with these changes, the budget proposes to increase the tax credit rate for charitable donations over $200 made by top-rate trusts to 17.41%.

The government introduced legislation on December 8, 2014 to establish the foundation for the Ontario Retirement Pension Plan (ORPP) by January 1, 2017. Also in December 2014, the government released a consultation paper of key plan design issues related to the scope of the plan, the minimum earnings threshold, and supporting the self-employed. Consultations have been held with stakeholder groups and conclusions will be announced in the near future.
The budget proposes to introduce legislation to create the Ontario Retirement Pension Plan Administration
Corporation, an independent organization that would be responsible for administering the ORPP.

The government also introduced legislation on December 8, 2014 to establish the legal framework for the establishment and administration of Pooled Registered Pension Plans (PRPPs).

The budget announced that the maximum annual benefit will increase to $1,336 per child in July 2015.

The 2014 budget announced that the government introduced legislation to tie the minimum wage to inflation, beginning in October 2015. Accordingly, the minimum wage will increase from $11.00 per hour to $11.25 per hour in October 2015.

The provincial land tax (PLT) is the property tax paid in unincorporated areas of northern Ontario outside of municipal boundaries. PLT rates have not been updated since the 1950s. The government announced a review in 2013 in response to concerns about inequities between municipal property taxes and the PLT. The budget proposes to introduce changes that would reduce these inequities, beginning in 2015.

Page 4 of 5

The budget proposes to outlaw electronic sales suppression technology, commonly known as zappers, which allow some businesses to hide sales and under-report business income. No further details were provided.

The budget noted that this 2014 proposal to require registration of certain road building machines and the resulting removal of the exemption from fuel tax is currently in the review and consultation stage.

Although this material has been compiled from sources believed to be reliable, we cannot guarantee its accuracy or completeness. All opinions expressed and data provided herein are subject to change without notice. The author of this publication is employed by an affiliate of CI Investments. The information is provided solely for informational and educational purposes and is not intended to provide, and should not be construed as providing individual financial, investment, tax, legal or accounting advice. Professional advisors should be consulted prior to acting on the basis of the information contained in this publication. ®CI Investments and the CI Investments design are registered trademarks of CI Investments Inc.

© 2015 CI Investments Inc. All rights reserved. 1504-0693_E (04/15)

Page 5 of 5

distributed by