The Ontario government unveiled its 2020-21 budget on Nov. 5, 2020, amid a backdrop of the ongoing COVID-19 pandemic and the related economic fallout.
Ontario Finance Minister Rod Phillips anticipates a deficit of $38.5 billion for 2020–21 and projects deficits for each of the next two years. The budget contains several tax measures affecting individuals and corporations.
Our tax analysts have reviewed the updates and listed the highlights below.
No change to Ontario personal income tax rates
No new personal income tax rate changes have been announced in this year’s budget. As a result, Ontario’s provincial personal income tax rates is as follows:
For taxable income in excess of $150,000, the 2020 combined federal–Ontario personal income tax rates are outlined below.
* 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.
• There is a 20% surtax on basic Ontario tax between $4,830 and $6,182, and a 56% surtax on basic Ontario tax in excess of $6,182 included in the above rates.
• Marginal tax rate for dividends is a % of actual dividends received (not grossed-up taxable amount).
• Marginal tax rate for capital gains is a % of total capital gains (not taxable capital gains).
• Gross-up rate for eligible dividends is 38%, and for non-eligible dividends is 15%.
• The surtax is calculated before deducting dividend tax credits.
• 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.
Seniors’ Home Safety Tax Credit
To help seniors keep their independence and remain in their homes 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:
• Renovations to permit a first-floor occupancy or secondary suite for a senior
• Grab bars and related reinforcements around a toilet, tub, and shower
• Wheelchair ramps, stair and wheelchair lifts, and elevators • Non-slip flooring
Individuals may claim the credit for eligible expenses if the improvement was made to their principal residence, or a residence 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.
Support for learners
The budget provides another one‐time payment to Ontario families of $200 per child aged 12 and under. The maximum payment per child is increased to $250 for children who have special needs and are 21 years old or younger.
Ontario personal tax credits for 2020
The maximum tax credit amounts and actual Ontario tax credits for 2019 and 2020 are set out below.
No change to corporate tax rates in Ontario
Ontario’s 2020 budget has not changed the province’s corporate tax rates.
The combined federal and Ontario corporate income tax rates will be as follows:
* On the first $500,000 of active business income. The small-business rate is prorated based on a 31 December year-end. ** Ontario reduced its small business rate from 3.50% to 3.20% effective 1 January 2020.
Ontario Film and television Tax Credits
The budget temporarily extends certain deadlines for claiming the Ontario Film and Television Tax Credit. Specifically, the budget allows companies to claim the credit where they:
• File an application for a certificate of completion within 48 months of the year end in which principal photography begins (up from 24 months), with the option to further extend this deadline by an additional 18 months
• Claim eligible expenditures up to 48 months before principal photography begins (up from 24 months)
• Have an agreement in writing to have the production shown in Ontario within four years of the production being complete and becoming commercially exploitable (up from two years).
This relief is available to productions for which eligible expenditures were incurred prior to March 15, 2020 and which were not completed, certified by Ontario Creates or deemed ineligible for the tax credit by Ontario Creates before March 15, 2020.
Ontario Production Services Tax Credit
The budget temporarily allows certain companies an additional 24 months to exceed minimum spending requirements to qualify for the Ontario Production Services Tax Credit (ie. $1 million for feature films). This measure would apply to productions for which eligible expenditures were incurred in Ontario in taxation years ending in 2020 and 2021. The budget temporarily allows certain companies to claim otherwise eligible expenditures incurred in the two taxation years prior to the year in which principal photography begins. Currently, a production cannot claim the credit until the taxation year in which principal photography commences. This measure would apply to productions that incurred otherwise eligible expenditures in Ontario in taxation years ending in 2020 and 2021.
Ontario Interactive Digital Media Tax Credit
The budget temporarily waives the eligibility requirement for the Ontario Book Publishing Tax Credit that a literary work must be published in a bound edition of at least 500 copies. This relief applies for the 2020 and 2021 taxation years.
Research and Development Credit - Reporting Period
The budget temporarily extends the reporting period to claim an Ontario Research and Development Tax Credit (ORDTC). As a result, corporations with tax year-ends from September 13, 2018 to December 31, 2018 would have an additional six months to file an ORDTC claim and those with tax year-ends from January 1, 2019 to June 29, 2019 would have until December 31, 2020 to file a claim.
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 March 1, 2022 and will retroactively cancel the increase in wine basic tax rates that was scheduled to take effect on June 1, 2020 but was suspended by a provincial order under the Financial Administration Act for the period between June 1, 2020 and Dec. 31, 2020.
Tourism Tax Credit
The government says it’s exploring ways to create a tax credit of up to 20 per cent of expenses for visiting destinations in Ontario. It says it wants to make 2021 "the year of the Ontario staycation." There will also be a new $100-million community building fund to support tourism, cultural and sports organizations, and a one-time $25-million infusion to help cultural institutions.
The province says it will spend an additional $680 million over the next four years to expand rural broadband access. The budget says when the new cash is combined with previous investments it will total nearly $1 billion over six years for broadband expansion. The program is expected to increase broadband access for 220,000 homes and businesses across Ontario.
Taxation – Ontario will make a number of technical amendments to the Ontario Taxation Act, 2007, to ensure the following:
• Individuals continue to have the right to appeal the amount of Ontario trillium benefit, Ontario sales tax credit, Ontario energy and property tax credit, or Northern Ontario energy credit that they are entitled to receive;
• The adoption expenses tax credit can continue to be used in calculating the amount of tax payable by the spouse or common-law partner, when determining the amount of tax credits that can be transferred to a taxpayer from their spouse or common-law partner;
• The low-income individuals and families tax credit continues not to affect the calculation of the Ontario surtax; and
• The community food program donation tax credit for farmers continues to be the last tax credit to apply in calculating an individual’s Ontario income tax.
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.
New funds for hospitals
The province says it is spending $2.5 billion more in the hospital sector this year to help fight the pandemic. The budget allocates an additional $572 million today for costs incurred during the health crisis. Hospitals have been asked to anchor much of Ontario's pandemic response, including running COVID-19 testing centres and assisting some long-term care homes. The facilities have also struggled with capacity issues through the second wave of the pandemic as they respond to a rise in cases while avoiding cancelling surgeries.
Disclaimer: The material above is provided for educational and informational purposes only. Always consult a tax professional like FBC regarding your specific tax situation.