Summary of Fall Economic Statement
- Suggestions to the federal government to address U.S. tax reform
- Not going along with the federal government’s passive income rules that would limit the small business deduction for CCPCs earning more than $50,000 in passive income
- A new refundable tax credit: Low-Income Individuals and Families Tax (LIFT) Credit for employees earning between $30,000 to $38,000.
- Employer Health Tax (EHT) exemption will increase from $450,000 to $490,000
Addressing U.S. Tax Reform
The Ontario government wrote to the federal government, strongly encouraging initiatives such as the immediate expensing of depreciable assets similar to the United States.
If the federal government introduces a measure that accelerates the expensing of new depreciable assets, Ontario will parallel this measure.
Some Interesting Facts:
- Before the U.S. tax reform, the average marginal effective tax rate (METR) for Ontario was much lower than the United States (35% vs. 19%); now, they’re about the same (19%).
- The METR is now 12 per cent higher than in the United States for Ontario’s manufacturing industry.
- This explains why the Ontario government is in favour of immediate write-offs of depreciable capital assets. We will have to see how the federal government responds in next week’s fall update.
Not Paralleling the Passive Income Measures Implemented by the Federal Government
The 2018 Ontario Budget (“2018 Budget”) proposed to parallel the federal measure for the purposes of the Ontario SBD. The Budget proposal would have reduced or eliminated the benefit of the lower small business CIT rate for some of Ontario’s small businesses.
Ontario is proposing to not parallel this federal measure and will not proceed with the 2018 Budget proposal.
This will result in maximum savings (compared to the 2018 budget proposals) of $40,000 per year for companies earning over $500,000 in business income.
This means that there is still good tax deferral opportunities for Ontario businesses, despite the Federal government’s more stringent measures.
The Low-Income Individuals and Families Tax (LIFT) Credit
Starting with the 2019 tax year, the government is proposing to introduce a new non-refundable Low-income Individuals and Families Tax (LIFT) Credit. The LIFT Credit would eliminate or reduce Ontario Personal Income Tax (PIT) for low-income Ontario taxpayers who have employment income. LIFT will virtually eliminate Ontario personal taxes for employees who earn $30,000 or less.
The proposed tax credit would be calculated as the lesser of:
- $850; and
- 5.05 per cent of employment income.
This amount would then be reduced by 10 per cent of the greater of:
- Adjusted individual net income in excess of $30,000; and
- Adjusted family net income (i.e., taxpayer & his spouse or common-law partner) in excess of $60,000.
The credit is limited to the taxpayer’s PIT otherwise payable, excluding the Ontario Health Premium.
People who are resident in Canada at the beginning of the year and resident in Ontario at the end of the year would be eligible for this credit.
Taxpayers who would not get this new tax relief:
- No Ontario PIT payable;
- No employment income;
- More than $38,500 in adjusted individual net income;
- A higher-income partner such that their adjusted family net income is greater than $68,500; or
Research d Development Tax Credits (ORDTC and OITC)
The 2018 Ontario Budget announced changes to that would have enhanced the Ontario Research and Development Tax Credit and the Ontario Innovation Tax Credit for businesses that meet certain spending requirements. The government will not be implementing these changes. The government said that it will ensure that support provided for research and development is effective and efficient.
Employer Health Tax
Based on Ontario’s Consumer Price Index, the EHT exemption will increase from $450,000 to$490,000, as of January 1, 2019.
The 2018 Ontario Budget proposed exploring measures to target the Employer Health Tax exemption. These measures would have made the exemption only available to individuals, charities, not‐for‐profit organizations, private trusts and partnerships, and Canadian‐controlled private corporations eligible for the small business deduction. The government is not moving forward with these proposals.