Ontario 2010 Budget Summary

By Alan Rowell , DFA, Tax Services Specialist

Ontario's budget announced on March 25, 2010 was big on repetition of previously announced measures, but low on details. Ontario will record a budget deficit of $21.3 billion, down from the forecasted $24.7 billion, but still holds the dubious distinction of being the highest deficit in Ontario's history.

The Ontario government plans to eliminate the deficit over the next seven years, but there is no effective indication or detail as to how this will be achieved, other than government cost cutting and project deferrals. The main thrust of the deficit reduction plan consists of forecasted job creation over the next seven years.

In the meantime, Ontario forecasts estimate an interest expense of 10 billion dollars over the 2010-11 fiscal year; almost 10% of Ontario's forecasted revenues.

Ontario's previously announced move to a Value-Added tax on July 1, 2010 remains the focus of Ontario's budget plan. The budget reaffirmed the government's commitment for the combined federal and provincial HST rate to be 13%.

To help offset the impact of the HST, the budget announced two new tax credits, replacing the existing combined property and sales tax credits, effective for the 2010 tax year for individuals and families.

Ontario residents will also receive Sales Tax Transition Benefit cheques in June 2010, December 2010 and June 2011. These transition amounts are based on income reported on the 2009 income tax returns and consist of total amounts of $300 for a single taxpayer with income less than $80,000, and $1,000 for family incomes less than $160,000.

The new Ontario Sales Tax Credit will consist of quarterly payments totalling $260 per year for each adult and child in an eligible family. These tax credits will be income-tested and will phase out based on the family income.

Ontario business will also receive assistance to offset the costs of transitioning to HST of up to $1,000.

A previously announced personal tax rate change, reducing the personal rate from 6.05% to 5.05% on the first $37,106 of income gives Ontario, at least temporarily, the distinction of having the lowest personal tax rate in Canada.

The previously existing Property Tax Credit will be replaced with a new Ontario Energy and Property Tax Credit. This credit will be paid quarterly beginning in 2011 based on 2010 personal tax return filings. While details are not available, it is almost a certainty that this credit will also be income tested.

The Northern Ontario Energy Credit has been made a permanent tax credit to help Northern Ontario residents offset the higher cost of energy. The credit consists of $130 for single persons with incomes up to $35,000 and up to $200 for families with incomes up to $45,000. The credits are income tested and are eliminated at $48,000 and $65,000 respectively.

The budget announced a reduction in the small business corporate income tax rate from 5.5% to 4.5% effective July 1, 2010, on net income under $500,000. Additionally the budget reiterated a number of previously announced measures including:

• Cutting the general corporate tax rate from 14% to 12%. The rate is to be further reduced to 10% over the next three years.
• Cutting the corporate income tax rate for manufacturing, processing, mining, logging, farming and fishing from 12% to 10%
• Elimination of the Ontario Capital Tax effective July 1, 2010
• Elimination of the small business surtax of 4.5%

Ontario adopted and automatically will mirror the Federal budget tax changes announced earlier this year.

• Roll-over of certain registered plan proceeds to a Registered Disability Savings plan;
• Taxation options of the Universal Child Care Benefit;
• Changes to the Medical Expense Tax Credit;
• Scholarship exemption and Education Tax Credit;
• Treatment of employee stock options;
• Deduction for US Social Security benefits;
• Disbursement quota for charities; and
• Capital cost allowance system.

For the most up-to-date information on tax forms and tax changes consult: EverGreen Explanatory Notes: Your online gateway to the latest changes at the Department of Finance and CRA.