ONTARIO ECONOMIC STATEMENT
On December 13, 2007 the Ontario government issued an economic statement which includes several welcome corporate tax cuts. Some of these tax savings are retroactive to January 1, 2007. Many corporations have already filed their 2007 tax returns and received the related assessments for the year. Reassessments, along with related tax refunds will now need to be issued by Ontario, where applicable. Your DJB tax advisor will be pleased to help you determine how these tax changes will impact your business. Details of the proposals are as follows:
- Increasing the small business deduction threshold to $500,000 from $400,000 retroactive to January 1, 2007.
- Reducing the general Capital Tax rate from 0.285% to 0.225%, effective from January 1, 2007.
- Elimination of Capital Tax for manufacturing and resource sectors starting January 1, 2008.
- Increasing the film tax credit rates effective January 1, 2008.
- Extending the phase-out of the Labour-Sponsored Investment Fund tax credit and increasing the maximum eligible investment.
- Expanding the Land Transfer Tax Refund Program for First-time Homebuyers to include resale homes for agreements of purchase and sale after December 13, 2007.
Increased Access to the Small Business Corporate Income Tax Rate
The Ontario government is increasing the small business deduction threshold to $500,000 from $400,000, with retroactive effect from January 1, 2007. This change will serve to further increase the ability of many Ontario companies to defer the payment of income tax and provide needed working capital to their businesses. The small business deduction will now be fully clawed back once corporate income reaches $1,500,000, rather than the previous $1,128,519. These changes will be pro-rated for taxation years straddling the effective date.
Capital Tax Rate Cut
Ontario proposes to accelerate to January 1, 2007, the Capital Tax rate cuts that were previously scheduled to begin January 1, 2009. As previously announced, the Capital Tax exemption limit will increase from $12.5 million to $15 million commencing January 1, 2008. Ontario Capital Tax will no longer be applicable for any corporations after July 1, 2010.
Eliminating Capital Tax for Manufacturing and Resource Activities
The upcoming proposed elimination of Capital Tax for the manufacturing and resource sectors will be applicable for corporations having 50% or more or their salaries and wages being expended in eligible activities, which will include manufacturing or processing (M&P), mining, logging, farming or fishing activities in Ontario. For corporations having eligible salaries and wages comprising less than 50%, but more than 20% of their total salaries and wages in Ontario, Capital Tax will be reduced proportionately. For example, a corporation with 35 per cent of eligible salaries and wages will have one-half of its Capital Tax eliminated.
Labour-Sponsored Investment Funds (LSIFs)
The government previously announced a phase-out of the LSIF tax credit. The timetable of the phase-out allows investors who purchase LSIF shares to receive a provincial tax credit until the end of the 2010 tax year. The government proposes to slow down the phase-out of the LSIF tax credit by one year by:
- maintaining the 15 per cent tax credit rate until the end of the 2009 tax year
- lowering the rate to 10 per cent for the 2010 tax year
- lowering the rate to five per cent for the 2011 tax year
- eliminating the credit for tax years after 2011.
Ontario also proposes to increase the maximum investment that qualifies for this tax credit from $5,000 to $7,500.
Enhancing Tax Support for Ontario’s Film and Television Industry
The government proposes to increase the Ontario Film and Television Tax Credit (OFTTC) rate from 30 to 35 per cent for labour expenditures incurred after December 31, 2007 and before January 1, 2010. The government also proposes to increase the Ontario Production Services Tax Credit (OPSTC) rate from 18 to 25 per cent for labour expenditures incurred after December 31, 2007 and before January 1, 2010.
Land Transfer Tax (LTT) Refund for All First-Time Homebuyers
First-time homebuyers of resale homes will now be able to receive a refund from the provincial government of up to $2,000 of the LTT paid after December 13, 2007. This credit also remains available for first-time homebuyers of newly constructed homes.
If you have any questions on the economic statement or any other tax matters, please do not hesitate to contact your DJB advisor. We thank you as always for the opportunity to serve you.