March 28, the Ontario Minister of Finance, Charles Sousa, tabled his government's 2018-2019 budget. This budget includes taxation measures to help businesses become more competitive.
Taxation of private corporations - passive investment income
The budget proposes to harmonize with the measures targeting the reduction of the business limit announced in the recent federal budget regarding passive investment income earned by private corporations. These measures will apply on the same dates as for federal tax purposes, that is, fiscal years starting after 2018.
The $500,000 limit shall be phased out on a straight-line basis for corporations with an adjusted aggregate investment income (AAII) for the previous fiscal year, including associated corporations, of between $50,000 and $150,000. With certain adjustments, the AAII will rely on the definition of the aggregate investment income.
In particular, for the purposes of the AAII, the accrued income on an exempt life insurance policy will not be taken into account in defining the AAII. However, any gain realized on the disposition of the policy is included in the AAII.
Corporate income that is higher than the reduced business limit will continue to be subject to the general corporate tax rate (11.5% in Ontario and 15% at the federal level). The reduced corporate tax rate is 3.5% in Ontario and, at the federal level, 10% in 2018 and 9% starting in 2019.
Employer Health Tax Exemption
The budget proposes to target the Employer Health Tax (EHT) exemption to small employers starting in 2019. The eligibility criteria will be retightened based on the federal anti-avoidance rules aimed at multiplying the Small Business Deduction (SBD).
Ontario Research and Development Tax Credit (ORDTC)
The budget proposes to raise the ORDTC rate from 3.5% to 5.5% on eligible R&D expenditures as of March 28, 2018. The enhanced rate will apply to expenditures over $1 million during any tax year. The enhanced rate will be prorated for tax years that straddle March 28, 2018.
Ontario Innovation Tax Credit (OITC)
The budget proposes to raise the OITC rate from 8% to 12% as of March 28, 2018, using a formula based on the taxpayer's ratio of R&D expenditures to gross revenues. The enhanced rate will be prorated for tax years that straddle March 28, 2018.
Ontario Interactive Digital Media Tax Credit
The budget proposes to extend eligibility for the Ontario Interactive Digital Media Tax Credit to film and television websites purchased or licensed by a broadcaster and embedded in the broadcaster's website. The amendment would apply to websites that host content related to film, television or Internet productions that have not received either a certificate of eligibility or letter of ineligibility before November 1, 2017.
Closing Tax Loopholes
The budget proposes to harmonize with the following measures announced in the recent federal budget to protect the common tax base:
- expanding the scope of the rules regarding artificial losses using equity-based financial arrangements and of the securities lending arrangement rules;
- changing the stop-loss rules on share repurchase transactions pertaining to shares held as mark-to-market property.
Measures to counter electronic sales suppression
The province will table legislative measures aimed at ending the practice of suppressing sales electronically. Prescribed businesses will be required to update their electronic cash register systems.
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This document is intended only to provide information of a general nature, which should not be considered to be tax advice. While reasonable steps have been taken to ensure that its content is accurate, Desjardins makes no guarantee in this regard.