Ontario reduces capital tax

Ontario says it will reduce the province’s capital tax by five per cent, starting next year. That was the only tax measure announced in Thursday’s provincial budget.

The cut, two years ahead of schedule, is expected to cost the province $60 million in fiscal 2007, according to Dwight Duncan, Ontario’s finance minister. Duncan adds the capital tax could be eliminated completely by 2010, “if the fiscal plan allows.”

In 2004, the Liberals introduced legislation to phase out the capital tax by 2012, in an effort to attract new business. “Increased capital investment creates widespread benefits to people throughout the Ontario economy,” the budget reads. “A competitive tax system is essential to attract business investment and foster economic growth in a highly competitive global economy.” Opposition critics and business leaders had called for an immediate end to the capital tax.

The provincial budget forecasts a deficit of $1.4 billion in the current fiscal year, but Duncan is promising a balanced budget by fiscal 2008.

Regarding the federal government’s proposed changes to the taxation of dividend income, Ontario noted that since critical details are unavailable at this time, the province “will review the federal legislation when it is introduced and will respond at that time.”

Quebec also tabled its budget Thursday, including some modest personal income tax reductions, an overall $288 million cut, which the province says will mean a $400 gain for a couple with two children earning $45,000 a year.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com