November 9, 2020
Canada: Ontario issues budget 2020–21
On 5 November 2020, Ontario Finance Minister Rod Phillips tabled the province’s fiscal 2020–21 budget. The budget contains several tax measures affecting individuals and corporations, but contains no new taxes and no tax increases.
As set out in Table A, the Minister anticipates a deficit of CA$38.5 billion1 for 2020–21 and projects deficits for each of the next two years.
Table A – Projections of Ontario budgetary deficit
Numbers may not add due to rounding.
The 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 2020 corporate tax rates are summarized in Table B.
Table B – Ontario (ON) corporate tax rates
* The small business rate is based on a 31 December year-end.
** Ontario reduced its small business rate from 3.50% to 3.20% effective 1 January 2020.
Other business tax measures
The Minister proposed the following business tax measures:
Ontario Research and Development Tax Credit (ORDTC) – The ORDTC is a 3.5% non-refundable credit. Claims for the ORDTC must be filed no later than 18 months after the corporation’s taxation year-end. Ontario is proposing to extend this deadline in a fashion similar to the federal extension for the federal Scientific Research & Experimental Development tax credit. Corporations with tax year-ends from 13 September 2018 to 31 December 2018 will have an additional six months to file the claim. Corporations with tax year-ends from 1 January 2019 to 29 June 2019 will have until 31 December 2020 to file a claim.
Cultural media tax credits eligibility
As a result of production delays resulting from the COVID-19 pandemic, companies may not be able to meet tax credit deadlines for various cultural media tax credits. To help corporations maintain their tax credit eligibility, Ontario will temporarily extend some timelines and amend some requirements for the following tax credits.
Personal income tax rates
The budget does not include any changes to personal income tax rates.
The 2020 Ontario personal tax rates are summarized in Table C.
Table C – 2020 Ontario personal tax rates
Individuals resident in Ontario on 31 December 2020 with taxable income up to $15,714 pay no provincial tax as a result of a low-income tax reduction. The reduction is clawed back for taxable income over $15,714, resulting in an additional 5.05% of provincial tax on income between $15,715 and $20,644.
For taxable income in excess of $150,473, the 2020 combined federal-Ontario personal income tax rates are outlined in Table D.
Table D – Combined 2020 federal and Ontario personal tax rates
* The rate on capital gains is one-half the ordinary income tax rate.
** The basic personal amount comprises two basic elements: the existing personal amount ($12,298 for 2020) and an additional amount ($931 for 2020). The additional amount is gradually phased out for individuals with taxable income in excess of $150,473 and is fully eliminated for individuals with taxable income in excess of $214,368. Consequently, the additional amount is clawed back on taxable income in excess of $150,473 until the additional tax credit of $140 is eliminated; this results in additional federal income tax (e.g., 0.22% on ordinary income) on taxable income between $150,474 and $214,368.
Personal tax credits
This budget proposes the following personal tax credit:
Seniors’ Home Safety Tax Credit – To help seniors retain their independence and remain in their homes safely and longer, Ontario will introduce a new refundable tax credit for the 2021 taxation year: the Seniors’ Home Safety Tax Credit.
Eligible claimants, which would include senior homeowners, renters or people who live with relatives who are seniors, will be able to claim a refundable tax credit equal to 25% of up to $10,000 in eligible expenses for a senior’s principal residence in Ontario, resulting in a maximum tax credit of $2,500. The $10,000 limit may be shared by people who share a home, including spouses and common-law partners. The credit amount will not depend on the claimant’s income.
Eligible expenses include expenses that are paid or become payable in 2021 and relate to renovations that improve safety and accessibility or assist a senior to be more functional or mobile at home. Examples of eligible expenses include expenditures relating to:
Individuals may claim the credit for eligible expenses if the improvement was made to their principal residence or to a residence that they reasonably expect to become their principal residence within 24 months after the end of 2021. The credit may also be claimed for an individual’s share of improvements done by a condominium corporation (or similar body) to property that includes the individual’s principal residence, as long as the improvement meets the eligibility conditions.
If an individual makes instalment payments for an improvement, all expenses will be considered to have been paid when the final instalment becomes payable. To qualify for the credit, the final instalment must become payable in 2021.
Ontario intends to work with the Canada Revenue Agency (CRA) so that individuals may claim the credit through their 2021 personal income tax returns.
Other tax measures
Employer health tax
Currently, the first $1 million of payroll is exempt from Ontario Employer Health Tax (EHT) for eligible private-sector employers with total annual Ontario remuneration of $5 million or less. The exemption amount must be shared by an associated group of employers. The exemption was increased from $490,000 in 2019 to $1 million for 2020 only, as previously announced in the Ontario economic and fiscal update delivered on 25 March 2020. Ontario will make this increase permanent. Although the amount is indexed to inflation every five years, the next scheduled adjustment will occur on 1 January 2029, in light of the increase of the exemption amount from 2019.
Currently, employers with annual Ontario payroll over $600,000 are required to pay EHT by way of monthly installments. Employers not required to make monthly installments pay EHT when they file their annual returns. Ontario will double this payroll threshold to $1,200,000, beginning in 2021. Employers claiming the full exemption will be required to remit installments when they owe more than $3,900 in EHT for the year.
Business education property tax
Currently, there are a wide range of business education property tax rates in Ontario, depending on location. Ontario will reduce all high tax rates (including the maximum 1.25% rate) to a common high rate of 0.88% for commercial and industrial properties, effective beginning in 2021. The proposed rate reduction will benefit approximately 94% of all business properties in the province.
Small business property tax relief
Ontario will provide municipalities with the flexibility to target property tax relief to small businesses, beginning in 2021. A new optional property subclass will be created for small business properties to allow municipalities to target tax relief by reducing property taxes for these properties. Ontario will also consider matching these municipal property tax reductions in order to provide provincial support to small businesses. The Assessment Act will be amended to allow municipalities to define small business eligibility in a way that best meets local needs and priorities.
Beer and wine tax
Ontario will freeze beer tax rates until 1 March 2022 and will retroactively cancel the increase in wine basic tax rates that was scheduled to take effect on 1 June 2020 but was suspended by a provincial order under the Financial Administration Act for the period between 1 June 2020 and 31 December 2020.
Other technical amendments
Taxation – Ontario will make a number of technical amendments to the Ontario Taxation Act, 2007, to ensure the following:
Ontario will amend various other statutes administered by the Ministry of Finance in an effort to improve administrative effectiveness and enforcement, maintain the integrity of Ontario’s tax and revenue collection system, and enhance legislative clarity or regulatory flexibility to preserve policy intent.
1. Currency references in this Alert are to CA$.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (Canada), Toronto
Ernst & Young LLP (Canada), Ottawa
Ernst & Young LLP (Canada), London
Ernst & Young LLP (Canada), Waterloo