Tax changes in Ontario’s budget

Ontario’s budget contains a few tax tidbits that may impact certain clients.

• In its 2015 budget, the federal government announced reductions in the federal small business corporate income tax rate over four years. The corresponding changes to the gross-up rate for non-eligible dividends (generally issued by companies taxed at the small business rate) will be paralleled by Ontario. As a result, Ontario’s non-eligible dividend tax credit rate will decline from 4.5% for 2015 to 4.2863% for 2016.
• Ontario will review its non-eligible dividend tax credit rate for 2017 and subsequent years.
• The Ontario government proposes to change the way it taxes income that is split with certain related children, by paralleling the federal approach of applying its top marginal personal income tax rate to all such income. Similar to the recent change in Ontario’s tax treatment of trusts, this approach would close a tax planning loophole. The measure is not designed to generate a net increase in revenue. Starting January 1, 2016, such split income would be taxed at Ontario’s top marginal personal income tax rate of 20.53%, and no surtax would be payable on that income.
• Ontario has a complex personal income tax system where tax brackets and other components result in effective tax rates that are not easily understood by tax filers. The government will examine ways to simplify the personal income tax calculation, including the Ontario surtax and Ontario Tax Reduction, so that Ontarians can better understand their effective tax rates.
• The Ontario government proposes to end the Healthy Homes Renovation Tax Credit as of January 1, 2017. The credit has had significantly lower take-up than projected and provides little support to lower income seniors.
• Ontario proposes to end the Children’s Activity Tax Credit as of January 1, 2017, and will focus on developing other programs to encourage physical activity and healthy eating for Ontario’s children.
• The government proposes to discontinue the tuition and education tax credits. In their place, the government will create a single major upfront grant — the Ontario Student Grant (OSG), starting in the 2017–18 school year.

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