1. On 25 February, Ontario Finance Minister Charles Sousa tabled the province’s fiscal 2016–17 budget.
The budget contains no new taxes, but includes several tax measures affecting individuals, trusts and
corporations.
Deficit and Ontario debt outlook
As set out in Table A, the minister anticipates a deficit of $5.7 billion for 2015-16, which is
$2.8 billion less than projected a year ago. A further deficit of $4.3 billion is projected for 2016-17
and balanced budgets in 2017-18 and 2018-19. Measured in relation to the size of the economy, the
Ontario accumulated deficit is expected to decline to 23.3% of gross domestic product (GDP) by
2018–19.
In 2015, Ontario’s real GDP grew by 2.5%. The government projects real GDP growth of 2.2% in
2016, 2.4% in 2017, 2.2% in 2018 and 2.0% in 2019.
2016 Issue No. 8
25 February 2016
Tax Alert — Canada
Ontario budget 2016–17
EY Tax Alerts cover
significant tax news,
developments and
changes in legislation
that affect Canadian
businesses. They act as
technical summaries to
keep you on top of the
latest tax issues. For
more information,
please contact your EY
advisor.
2. Ontario budget 2016-17 | 2
Table A – Projections of Ontario budgetary deficit
2015-16
($ billions)
2016-17
($ billions)
2017-18
($ billions)
2018-19
($ billions)
Revenue outlook 126.5 130.6 137.7 141.9
Program expense outlook (120.9) (122.1) (124.2) (127.6)
5.6 8.5 13.5 14.3
Interest on debt (11.2) (11.8) (12.5) (13.1)
Reserve (0.2) (1.0) (1.1) (1.2)
(Deficit) (5.7) (4.3) 0.0 0.0
Accumulated deficit 193.4 197.7 197.7 197.7
% of GDP 25.9% 25.4% 24.3% 23.3%
Numbers may not add due to rounding.
Following is a brief summary of the key tax measures.
Business tax measures
Corporate tax rates
No changes are proposed to the corporate tax rates or the $500,000 small-business limit.
Ontario’s 2016 and 2017 corporate tax rates are summarized in Table B.
Table B – Corporate tax rates
2016 2017
ON Federal and ON
combined
ON Federal and ON
combined
Small-businesstax
rate*
4.5% 15.0% 4.5% 14.5%
Manufacturingand
processingtaxrate
10.0% 25.0% 10.0% 25.0%
Generalcorporatetax
rate
11.5% 26.5% 11.5% 26.5%
*The federal small-business tax rate is 10.5% in 2016, 10.0% in 2017, 9.5% in 2018 and 9.0% in 2019 and beyond.
Business tax credits
Further to a review of the province’s business support programs, Ontario proposes the following tax
credit changes
Ontario research and development tax credit (ORDTC): The budget proposes to reduce the ORDTC
rate from 4.5% to 3.5%.
Ontario innovation tax credit (OITC): The budget proposes to reduce the OITC rate from 10% to 8%.
The rate reductions will be effective for eligible research and development expenditures incurred in
taxation years that end on or after 1 June 2016. The reductions will be prorated for taxation years
straddling that date.
3. Ontario budget 2016-17 | 3
Other business tax measures
The minister also proposed the following business tax measures:
Apprentice training tax credit (ATTC): The government reiterated its commitment made in 2015 to
continue to monitor and review the ATTC in the future to ensure it is encouraging businesses to
provide apprentices with the certifications and skills they need. Further details on an engagement
process with stakeholders will be announced in 2016.
Personal tax
Personal income tax rates
The budget does not include any changes to personal income tax rates.
The 2016 Ontario personal tax rates are summarized in Table C.
Table C – 2016 Ontario personal tax rates
First bracket
rate
Second bracket
rate
Third bracket
rate
Fourth bracket
rate
Fifth bracket
rate
$0 to $41,536 $41,537 to
$83,075
$83,076 to
$150,000
$150,001 to
$220,000
Above
$220,000
5.05% 9.15% 11.16% 12.16% 13.16%
For 2016, the 20% surtax applies to basic Ontario tax in excess of $4,484, and the additional 36% surtax
applies to basic Ontario tax in excess of $5,739.
For taxable income in excess of $150,000, the 2016 combined federal-Ontario personal income tax rates
are outlined in Table D.
Table D – 2016 combined federal and Ontario personal tax rates
Bracket Ordinary income* Eligible dividends Non-eligible dividends
$150,001 to $200,000 47.97% 31.67% 38.80%
$200,001 to $220,000 51.97% 37.19% 43.48%
Above $220,000 53.53% 39.34% 45.30%
*The rate on the actual capital gain is one-half the ordinary income rate.
Personal tax credits
The budget proposes a number of personal tax credit changes.
Dividend tax credit
The budget confirms that Ontario will automatically parallel the changes to the federal dividend gross-up
rate applicable to non-eligible dividends that were announced in the 2015 federal budget. Specifically, the
federal gross-up factor for non-eligible dividends is reduced from 18% to 17% effective 1 January 2016,
to 16% effective 1 January 2018, and to 15% effective 1 January 2019.
4. Ontario budget 2016-17 | 4
As a result of the federal changes, Ontario’s dividend tax credit rate for 2016 will automatically decline
from 4.5% to 4.2863%. The combined federal-Ontario top marginal rate on non-eligible dividends for
2016 will be 45.30% (see Table D above).
Ontario announced that it will review its non-eligible dividend tax credit rate for 2017 and later years.
Tuition and education tax credits
The budget proposes to eliminate the Ontario tuition and education tax credits, beginning in the fall of
2017. This proposal is consistent with the federal Liberal government’s election platform promise.
The tuition credit will continue to be available to Ontario students for eligible tuition fees paid in respect
of studies up to and including 4 September 2017. Similarly, Ontario students will be able to claim the
education credit for months of qualifying study that occur before September 2017. The eligible portion of
these credits for the 2017 taxation year will be transferable to a qualifying family member (a parent,
grandparent, spouse or common-law partner).
Taxpayers who are resident in Ontario on 31 December 2017 and have unused tuition and education
credit amounts available for carryforward will be permitted to claim these amounts in future taxation
years. However, a taxpayer who moves to Ontario from another province after 31 December 2017 will
not be able to claim any unused tuition and education credit amounts in Ontario.
The additional revenue resulting from the elimination of these credits will be reinvested to support a new
Ontario Student Grant or other postsecondary, education, training and youth jobs programs. The timing
of the introduction of the Ontario Student Grant will correspond with the elimination of the tuition and
education credits.
Other personal tax credits
The budget also proposes to eliminate the following two credits:
Children’s activity tax credit – The refundable children’s activity tax credit, which was first introduced
in 2010, will be eliminated effective 1 January 2017.
Healthy homes renovation tax credit – The healthy homes renovation tax credit, which was
announced in 2011 to help seniors remain in their homes longer, will also be eliminated effective
1 January 2017.
Tax on split income
Ontario proposes to parallel the federal tax on split income (sometimes referred to as kiddie tax), by
introducing a new approach to how it taxes split income, effective 1 January 2016. This change is
intended to close a tax planning loophole.
The federal tax on split income is a special tax at the top marginal personal income tax rate imposed on
certain income (referred to as split income) earned by individuals who are 17 years of age or under.
Similarly, Ontario proposes to tax split income at Ontario’s top marginal personal income tax rate of
20.53%. No surtax will be payable on the split income.
5. Ontario budget 2016-17 | 5
Presumably, Ontario split income will continue to be determined on the same basis as federal split
income. Federal split income essentially consists of dividends, certain capital gains, shareholder benefits
on private corporation shares and certain income from a partnership or trust.
Other personal tax measures
Other personal tax measures include:
Simpler personal income tax system – Ontario announced that it will examine ways to simplify the
calculation of personal income taxes (such as the Ontario surtax and the low income tax reduction) so
that taxpayers can better understand their effective tax rates.
Tax-free savings accounts – The federal reduction in the annual contribution limit for tax-free savings
accounts (from $10,000 in 2015 to $5,500 in 2016) will automatically apply for Ontario income tax
purposes.
Carbon cap-and-trade program
In line with its Climate Change Strategy released in November 2015, the government confirms that
Ontario will join California and Quebec in moving forward with the implementation of a cap-and-trade
program on greenhouse gas (GHG) emissions, beginning in 2017. Cap-and-trade programs operate by
placing a cap on total carbon emissions for a given period and allowing the market to set a price for such
emissions through the distribution and sale of emissions permits or allowances. Carbon emitters in
sectors covered under the program are required to hold a sufficient number of allowances to cover their
annual emissions.
The budget proposes that the following emitters will be subject to the cap-and-trade program:
Industries, institutions, electricity generators, and suppliers and distributors of heating fuels that emit
25,000 tonnes of GHG emissions per year or more
Suppliers and distributors of transportation fuels that distribute 200 litres of fuel per year or more
Electricity and fuel importers
As in Quebec and California, Ontario will also provide allocation emission allowances free of charge to
various industries to help maintain competitiveness and thus avoid the relocation of local industries to
other jurisdictions.
To move forward on initiatives related to the introduction of a cap-and-trade program, Ontario introduced
Bill 172, Climate Change Mitigation and Low-carbon Economy Act, 2016, on 24 February 2016. This
legislation, if passed, will set out a framework for the reduction in greenhouse gas emissions and a cap-
and-trade system. It establishes targets for the reduction of greenhouse gas emissions (15% below 1990
levels by 2020, 37% below 1990 levels by 2030 and 80% below 1990 levels by 2050) and requires the
Ontario government to prepare an action plan to achieve those targets.
In addition, the legislation is designed to:
Ensure cap and trade auction proceeds are directed to a new Greenhouse Gas Reduction Account (to
be used to fund green projects to reduce emissions) and require an annual public report on the funds
flowing in and out of the account
6. Ontario budget 2016-17 | 6
Require the Ministry of the Environment and Climate Change to prepare periodic progress reports
with respect to the action plan and a review of the plan at least every five years
Allow for transitional allowances to large industrial emitters (to be phased out over a period of time)
Authorize the minister to enter into agreements with others (such as Quebec and California) for the
harmonization and integration of the cap-and-trade system and similar programs
Eligible initiatives (aimed at reducing greenhouse gases) that may be funded from the proceeds of the
cap-and-trade system include those relating to energy use, land use and buildings, infrastructure,
transportation, industry, agriculture and forestry, waste management, education and training, and
research and innovation.
Financial impact for energy consumers
Table E outlines the government’s forecast of the impact the implementation of the cap-and-trade
program will have on transportation and home heating costs:
Table E – Impact on fuel costs
Transportation
Gasoline prices 4.3 cents/litre
Home heating
Natural gas prices 3.3 cents/litre
Natural gas (average) costs $5/month
Ontario Retirement Pension Plan (ORPP)
The minister provided an update on the province’s phased-in launch of the ORPP and the renewed
national dialogue to enhance the Canada Pension Plan (CPP). In the event an enhanced CPP to meet the
intended goals of the ORPP is not possible, Ontario will move forward with its own plan to implement the
ORPP.
To provide more time for discussion, Ontario is proposing to phase-in the launch of the ORPP by starting
enrollment in January 2017, one year later than the original start date, and by starting the first phase of
contributions in January 2018. The updated phased-in contribution schedule is described in Table F.
Table F – ORPP contribution rates
Type of employer 1 January
2018
1 January
2019
1 January
2020
1 January
2021
Wave 1: Large employers (500 or more employees) without
registered workplace pension plans
0.8% 1.6% 1.9% 1.9%
Wave 2: Medium employers (50-499 employees) without
registered workplace pension plans
0.8% 1.6% 1.9% 1.9%
Wave 3: Small employers (fewer than 50 employees) without
registered workplace pension plans
0% 0.8% 1.6% 1.9%
Wave 4: Employers without comparable workplace pension plans 0% 0% 1.9% 1.9%
For more background information on the ORPP, read our Tax Alerts 2016 No.5, Ontario unveils details of
the ORPP, and 2016 No.7, Ontario delays ORPP implementation.
7. Ontario budget 2016-17 | 7
Other pension-related changes
The budget also announced the following pension-related changes:
Pooled registered pension plans (PRPPs) – To further facilitate harmonization with other jurisdictions
and ensure the efficient operation of PRPPs, Ontario will introduce amendments to the Pooled
Registered Pension Plans Act, 2015. Regulations to support the implementation of PRPPs in Ontario
are under development. The province will also develop an appropriate test to determine whether a
PRPP is a comparable plan for purposes of the ORPP.
Target benefit multi-employer pension plans – Ontario will continue to consult with affected
stakeholders on all aspects of a target benefit multi-employer pension plan framework.
Other tax measures
Tobacco tax
Effective 26 February 2016, the budget proposes to increase the tobacco tax rate from 13.975 cents to
15.475 cents per cigarette and per gram of tobacco products other than cigars. The rate per carton of
200 cigarettes will increase from $27.95 to $30.95.
Beginning in 2017, the government proposes to increase the tobacco tax rates based on inflation over
each of the next five years.
Alcohol charges
The budget proposes the following increases:
Effective in June 2016, a two percentage points increase in the ad valorem mark-up for wine products
sold by the LCBO. An additional two percentage points increase will occur in April 2017, and again in
April 2018, followed by a one percentage point increase in April 2019.
The basic tax on non-Ontario wine purchases at winery retail stores will be increased from 16.1% of
the retail price to 17.1% in June 2016, 18.1% in April 2017, 19.1% in April 2018 and 20.1% in April
2019.
The minimum retail price for table wine will increase to $7.95 (including deposit) for a 750 ml bottle,
phased in over three years. The minimum retail prices for cider, fortified wine and low-alcohol wine
will also be phased in over three years.
The government also proposes, in the future, to establish higher basic wine tax rates for sales at winery
retail outlets that operate their stores in grocery stores, and to replace the current mark-up and
commission structure at onsite distillery retail stores with a tax on purchases of spirits.
Provincial land tax
The provincial land tax (PLT) is the property tax paid in unincorporated areas of northern Ontario outside
municipal boundaries. As part of the ongoing review of the PLT, Ontario will consult with northern
residents on ways to further address tax inequities in the north. This consultation will take place before
the province determines any PLT rate adjustments for 2017.
8. Ontario budget 2016-17 | 8
Underground economy initiatives
In partnership with the Canada Revenue Agency, the province will launch specialized audit teams to focus
on sectors that are at high risk of underground economic activity. These specialized audit teams will use
advanced analytics and innovative enforcement tools.
Learn more
For more information, contact your EY or Couzin Taylor advisor or one of the following professionals:
Toronto
Karen Atkinson
+1 416 943 2172 | karen.e.atkinson@ca.ey.com
Neil Moore
+1 416 932 6239 | neil.moore@ca.ey.com
Ottawa
Ian Sherman
+1 613 598 4335 | ian.m.sherman@ca.ey.com
London
John Sliskovic
+1 519 646 5532 | john.t.sliskovic@ca.ey.com
Kitchener
Cynthia McIntyre
+1 519 581 5455 |
cynthia.m.mcIntyre@ca.ey.com
And for up-to-date information on the federal,
provincial and territorial budgets, visit
ey.com/ca/budget.
