May 2, 2022
Canada | Ontario issues budget 2022/23
On 28 April 2022, Ontario Finance Minister Peter Bethlenfalvy tabled the province’s fiscal 2022/23 budget. The budget contains several tax measures affecting individuals and corporations.
As set out in Table A, the Minister anticipates a deficit of CA$19.9 billion1 for 2022/23 and projects deficits for each of the next four years, with a return to balance by 2027/28.
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 income tax rates
No changes are proposed to the corporate income tax rates or the $500,000 small-business limit.
Ontario’s 2022 corporate income tax rates are summarized in Table B.
Table B – 2022 Ontario corporate income tax rates*
* Rates represent calendar-year rates.
** The 2021 federal budget proposed to temporarily reduce the federal corporate income tax rate for qualifying zero-emission technology manufacturers by 50% (i.e., to 7.5% for eligible income otherwise subject to the 15% general corporate income tax rate or 4.5% for eligible income otherwise subject to the 9% small-business corporate income tax rate), applicable for taxation years beginning after 2021. The reduced tax rates are proposed to be gradually phased out for taxation years beginning in 2029 and fully phased out for taxation years beginning after 2031.
*** The 2022 federal budget proposed an additional tax on banks and life insurers. See EY Global Tax Alert, Canada’s Federal Budget 2022/23 focuses on growing a more resilient economy, 11 April 2022 for details.
Other business tax measures
The Minister also proposed the following business tax measures:
This refundable credit is available to Canadian-controlled private corporations that make qualifying investments in eligible geographic areas of Ontario.
Qualifying investments include expenditures for constructing, renovating or acquiring eligible commercial and industrial buildings and other assets, generally capital property included in Class 1 and Class 6 for the purposes of calculating a corporation's capital cost allowance.
Additional eligibility requirements for the Ontario film and television tax credit will apply for these types of productions to ensure the credit only supports professional productions. Examples of these additional requirements include:
Productions distributed exclusively online that become eligible for these credits will also be eligible for the Ontario computer animation and special effects tax credit if they meet all other eligibility requirements. Additional information on these proposals and their effective date will be made available in the fall.
Personal income tax rates
The budget does not include any changes to personal income tax rates.
The 2022 Ontario personal tax rates are summarized in Table C.
Table C – 2022 Ontario personal income tax rates
In addition, for 2022, a 20% surtax applies to basic Ontario tax in excess of $4,991, and an additional 36% surtax applies to basic Ontario tax in excess of $6,387.
Individuals resident in Ontario on 31 December 2022 with taxable income in excess of $20,000 must pay the Ontario Health Premium. The premium ranges from nil to $900 depending on the individual’s taxable income, with the top premium being payable by individuals with taxable income in excess of $200,599.
Individuals resident in Ontario on 31 December 2022 with taxable income up to $16,230 pay no provincial income tax as a result of a low-income tax reduction. The low-income tax reduction ($257 of Ontario tax) is clawed back for income in excess of $16,230 until the reduction is eliminated, resulting in an additional 5.05% of provincial tax on income between $16,231 and $21,319.
For taxable income in excess of $155,625, the 2022 combined federal-Ontario personal income tax rates are outlined in Table D.
Table D – Combined 2022 federal and Ontario personal income tax rates
*The rate on capital gains is one-half the ordinary income tax rate.
** The federal basic personal amount comprises two elements: the base amount ($12,719 for 2022) and an additional amount ($1,679 for 2022). The additional amount is reduced for individuals with net income in excess of $155,625 and is fully eliminated for individuals with net income in excess of $221,708. Consequently, the additional amount is clawed back on net income in excess of $155,625 until the additional tax credit of $252 is eliminated; this results in additional federal income tax (e.g., 0.38% on ordinary income) on net income between $155,626 and $221,708.
Personal tax credits
This budget proposes the following personal tax credit changes:
As a result of these changes, the maximum credit amount will be $875 for a single individual and $1,750 for couples. In addition, the enhanced credit will be phased out when an individual’s adjusted net income is $50,000 or more (up from $38,500 under the current rules) or a couple’s adjusted family net income is $82,500 or more (up from $68,500 under the current rules).
Other tax measures
Gasoline and fuel tax
On 14 April 2022, gasoline and fuel tax rate reductions were enacted for the period beginning on 1 July 2022 and ending on 31 December 2022. The gasoline tax rate is reduced from 14.7¢ per liter to 9.0¢ per liter, while the tax rate on clear fuel, which includes diesel, is reduced from 14.3¢ per liter to 9.0¢ per liter. The clear fuel rate reduction does not apply to clear fuel that is received or used to operate railway equipment operated on rails in connection with a public transportation system. As well, these changes do not affect tax rates for leaded gasoline, propane or aviation fuel. Importers, wholesalers and retailers who hold inventory purchased at the higher rates will be required to take inventory on 1 July 2022. Suppliers higher up on the supply chain will issue tax adjustments by crediting accounts in accordance with the reported inventory.
Nonresident speculation tax
Ontario imposes a nonresident speculation tax (NRST) in accordance with the Land Transfer Tax Act. Prior to 30 March 2022, the NRST was a 15% tax that applied to purchases of residential property located in the Greater Golden Horseshoe Region of Southern Ontario, where the purchaser was a foreign national. On 30 March 2022, Ontario implemented regulatory amendments to increase the NRST tax rate to 20%, extend the tax to apply throughout the province, and eliminate NRST rebates for international students and foreign nationals working in Ontario. These measures apply to agreements of purchase and sale entered into on or after 30 March 2022, subject to transitional measures. Foreign nationals may continue to claim a rebate if they become permanent residents of Canada within four years after the tax becomes payable, provided certain additional conditions are met. Ontario is also retaining NRST exemptions for nominees under the Ontario Immigrant Nominee Program, protected persons (refugees) and spouses of individuals who are not subject to the NRST, provided certain additional conditions are met.
Supporting the use of municipal vacant home taxes
Municipalities are currently exploring the use of vacant home taxes to increase the provincial housing supply. Ontario will work with municipalities to establish a working group to share information and best practices, as well as to explore opportunities to enhance the existing legislative framework. The Government may consider amendments to the Municipal Act, 2001 in accordance with feedback from the working group. The stated purpose of this collaboration is help maximize the impact of vacant home taxes on housing supply in the province and to ensure that a coordinated and consistent approach applies to the implementation of such taxes.
Extending tax relief for the electricity distribution sector
The Electricity Act, 1998 imposes a 33% transfer tax on the fair market value of electricity assets sold by municipal electricity utilities (MEUs) to the private sector. In accordance with its 2015 budget, Ontario reduced the transfer tax rate from 33% to 0% for MEUs with fewer than 30,000 customers. For larger MEUs, the tax rate was reduced from 33% to 22%. As well, any capital gains arising under the payments in lieu of tax (PILs) deemed disposition rules were exempted from PILs. These tax relief measures applied originally for the period from 1 January 2016 to 31 December 2018. Ontario subsequently extended the application of this relief to 31 December 2022. The 2022 Ontario budget proposes to further extend this tax relief to 31 December 2024.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (Canada)