BUDGET HIGHLIGHTS

  • Personal Tax Increase - Health Care Premium
  • Some Medical Services No Longer Covered
  • Capital Tax to be Phased Out
  • Apprenticeship Training Tax Credit
  • Ontario Parallels Federal Budget Measures
  • Property Tax Credit Enhanced for Seniors

Another day, another promise broken. On May 18, 2004, Greg Sorbara delivered his first full budget speech. It included income tax increases of up to $900 per Ontario taxpayer, a host of user fee increases and additional excise taxes on tobacco and spirits. Some tax breaks were offered to corporations and lower income seniors will enjoy increased property tax credits. The government expects to incur a deficit until 2008.


PERSONAL TAX CHANGES

Health Care Premium

Contrary to their campaign promises, this government has proposed the introduction of a new health care premium. It will be based on an individual's taxable income and be administered through the income tax system. This new tax is in addition to the already existing Ontario Fair Share Health Care Levy which is a surtax, calculated on an individual's income tax return. The health care premium will be phased in for 2004 at one half of the proposed 2005 rates. The cost of this measure for an Ontario taxpayer is outlined in the table below:
Taxable Income Proposed Maximum Premium
2004 Taxation Year 2005 and Beyond
up to $20,000 $0 $0
$20,000-$36,000 $150 $300
$36,000-$48,000 $225 $450
$48,000-$72,000 $300 $600
$72,000-$200,000 $375 $750
over $200,000 $450 $900

 

This new tax will apply to individuals who are resident in Ontario on the last day of their taxation year. For example, deceased individuals or those who emigrate from Canada during the year will calculate the amount owing based on the taxable income reported in their final Ontario tax return.

Withholdings from payroll will commence July 1, 2004 and the premium payment will be included on pay stubs as a component of the income tax withheld. Individuals making quarterly income tax instalment payments will not be required to increase their instalment payments for the proposed premium until later in 2005.

Changes to Medical System

 Beginning this fall, OHIP will no longer cover:
  • chiropractic services
  • physiotherapy services, with the exception of seniors who received their therapy through home care and long term care facilities
  • the cost of routine optometry exams, except for seniors and Ontarians under the age of 20

On the plus side, this budget has proposed to add the chickenpox, meningitis and pneumonia immunizations to the list of children's immunization shots covered under the province's medical program.


CAPITAL TAX CHANGES

The Ontario government proposes to gradually eliminate the capital tax by 2012. Starting January 1, 2005, the current $5 million deduction from taxable paid-up capital will be increased by $2.5 million each year until the deduction reaches $15 million on January 1, 2008. Then, commencing January 1, 2009, capital tax rates are to be reduced each year until the capital tax is fully eliminated on January 1, 2012.

The following table sets out the government's proposed plan:
Effective Date Deduction Rate
Currently $5 million 0.3%
January 1, 2005 $7.5 million 0.3%
January 1, 2006 $10 million 0.3%
January 1, 2007 $12.5 million 0.3%
January 1, 2008 $15 million 0.3%
January 1, 2009 $15 million 0.225%
January 1, 2010 $15 million 0.15%
January 1, 2011 $15 million 0.075%
January 1, 2012   Eliminated

The proposed increased deductions and rate cuts are to be pro-rated for taxation years straddling the effective dates.

Automobile dealerships will not be pleased to hear that amendments are proposed to the definition of "current accounts payable" for capital tax purposes. These amendments are in response to the court decision in QEW 427 Dodge Chrysler (1991) Inc., which held that current accounts payable include amounts owed to creditors and not just suppliers. Effective for taxation years ending after May 18, 2004, the definition of current accounts payable will be amended to apply only to amounts payable to a supplier for purchases of goods and services.


APPRENTICESHIP TRAINING TAX CREDIT (ATTC)

Corporations and unincorporated businesses will be eligible for a refundable tax credit based on salaries and wages paid to an eligible apprentice after May 18, 2004. The credit will be calculated as 25% of eligible salaries paid. For employers with payroll costs not exceeding $400,000, the credit rate will be 30%.

The maximum tax credit per eligible employee will be $5,000 per year to a maximum of $15,000 over the first 36 months of the apprenticeship. The maximum annual tax credit will be reduced if the apprentice is employed for less than a full year.

The budget papers include a list of 28 skilled trades which qualify for the ATTC.

Transitional rules will be put in place to ensure that salaries eligible for the ATTC will not also qualify for the existing Co-operative Education Tax Credit.


CHANGES TO THE ONTARIO BUDGET PARALLELING THE FEDERAL BUDGET

Ontario will enact several measures which were outlined in the March 23, 2004 Federal Budget. These measures include:
  • CCA rates for computer equipment increase from 30 per cent to 45 per cent, and CCA rates for data network infrastructure equipment increase from 20 per cent to 30 percent. The new rates apply for equipment purchased after March 22, 2004.
  • The carry-forward period for non-capital business losses will be extended from seven years to ten years.
  • Fines and penalties imposed by law, whether by government, government agency, regulator, court, other tribunal or person with statutory authority to levy fines or penalties, are no longer deductible. This denial is effective after March 22, 2004.
  • The budget proposes to prevent trading of unused charitable donations after control of a corporation has been acquired. Unused charitable donations at the time control of a corporation is acquired, will expire.


OTHER MEASURES
  • The maximum property tax credit for seniors (calculated on net income) will be increased by $125 effective for the 2004 and subsequent taxation years.
  • Effective September 1, 2004, the driver's license fee will be increased from $50 to $75 per five-year period.
  • Beginning in 2005, the province will commit marketing support for a five-year term of $2 million annually to the Ontario Wine Strategy and $1 million annually to the Ontario Small Brewers' Association Strategy.
  • The budget proposes to amend the Ontario Film and Television Tax Credit to parallel enhancements to the federal Canadian Film or Video Production Tax Credit announced on November 14, 2003.
  • Ontario is to conduct a comprehensive review of the post-secondary education system and is proposing, among other things, to freeze tuition fees for two years at 2003-04 levels for all academic programs funded by the province.
  • The budget proposes to amend the EHT legislation to clarify that, as long as a person reports to work at a permanent establishment in Ontario, all of that employee's remuneration is subject to EHT. This measure is to be retroactive to January 1, 1990 and will particularly impact taxpayers such as professional sports teams based in Ontario.
  • The EHT instalment remittance process will be simplified by having the payments based on the actual payroll for each month. These will be due on the 15th day of the following month, effective January 1, 2005.
  • Several tax credits or incentives are to be eliminated, including the Ontario Home Ownership Savings Plan. Now tax incentives are to be time limited to ensure their effectiveness is reviewed.

We are ready to assist you in assessing the impact these changes will have on your business and personal financial affairs. We invite your calls to discuss these proposals with us, so that we may mutually explore plans to structure your business affairs in the most effective manner.