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Canada: Ontario issues budget 2023/24
Executive summary
On 23 March 2023, Ontario Finance Minister Peter Bethlenfalvy tabled the province’s fiscal 2023/24 budget. The budget contains tax measures mainly affecting corporations.
The Minister anticipates a deficit of CA$1.3 billioni for 2023/24 and projects surpluses of $0.2 billion in 2024/25 and $4.4 billion in 2025/26.
A brief summary of the key tax measures follows.
Detailed discussion
Business tax measures
Corporate income tax rates
No changes are proposed to the corporate income tax rates or the $500,000 small-business limit.
Ontario’s 2023 corporate income tax rates are summarized in Table A.
Table A – 2023 Ontario (ON) corporate income tax rates1
|
ON |
Federal and ON combined |
|
|---|---|---|
|
Small-business tax rate2 |
3.2% |
12.2% |
|
General manufacturing and processing tax rate2 |
10% |
25% |
|
General corporate tax rate2, 3 |
11.5% |
26.5% |
1 The rates represent calendar-year-end rates unless otherwise indicated.
2 The federal corporate income tax rates for manufacturers of qualifying zero-emission technology are reduced to 7.5% for eligible income otherwise subject to the 15% federal general corporate income tax rate or 4.5% for eligible income otherwise subject to the 9% federal small-business corporate income tax rate. These reductions are not reflected in the combined federal and Ontario rates above.
3 An additional 1.5% tax applies to taxable income of banks and life insurers (subject to a $100-million exemption to be shared by group members), effective for tax years ending after 7 April 2022 (prorated for tax years straddling this effective date).
Other business tax measures
The Minister also proposed the following business tax measures:
- Ontario-made manufacturing investment tax credit – As announced on 22 March 2023, the budget introduces a 10% refundable corporate income tax credit for eligible corporations making qualifying investments of up to $20 million per tax year, for a maximum credit of $2 million per year. Eligible corporations will be Canadian-controlled private corporations (CCPCs) that have a permanent establishment in Ontario. The $20-million limit will be shared by an associated group of corporations and will be prorated for short tax years.
Qualifying investments consist of expenditures (1) included in Class 1 for capital cost allowance purposes for the construction, renovation or acquisition of buildings that become available for use on or after 23 March 2023, and (2) for machinery and equipment included in Class 53 that are acquired and become available for use on or after 23 March 2023 and before 2026. The buildings and machinery and equipment must be used for the manufacturing or processing of goods in Ontario. After 2025, qualifying investments in machinery and equipment will consist of expenditures included in Class 43(a) that are used in the manufacturing or processing of goods for sale or lease.
- Small-business deduction – The budget confirms, as announced in the province’s fall economic statement delivered in November 2022, that like the federal Government, Ontario is increasing from $15 million to $50 million the range over which the small-business deduction is phased out, effective for tax years beginning on or after 7 April 2022.
As a result, the small-business deduction will not be reduced to nil until a CCPC and its associated corporations have combined taxable capital employed in Canada of $50 million or more.
- Ontario film and television tax credits – Ontario is continuing to work on commitments to modernize the film and television tax credits regime, which were first announced in the province’s 2022 Budget and 2022 Economic Outlook and Fiscal Review.
As part of these proposals, eligibility for the Ontario film and television tax credit and the Ontario production services tax credit would be extended to professional film and television productions that are distributed exclusively online. The province released draft regulatory amendments on 21 February 2023, which will be available for public comment until 11 April 2023.
In addition, film and television productions supported by Ontario tax credits would be required to acknowledge this support in their on-screen end credits. Draft regulatory amendments to this effect were included as part of draft amendments that Ontario released on 21 February 2023.
The Government aims to simplify the Ontario computer animation and special effects tax credit to reduce administrative complexity while ensuring that targeted support remains available to professional productions with significant cultural or economic impact.
The Government will review the Ontario film and television tax credit regional bonus to ensure it provides effective and appropriate incentives and support for film and television production across the province.
Personal tax
Personal income tax rates
The budget does not include any changes to personal income tax rates.
The 2023 Ontario personal income tax rates are summarized in Table B.
Table B – 2023 Ontario personal income tax rates1,2
|
First-bracket rate3 |
Second-bracket rate |
Third-bracket rate |
Fourth-bracket rate |
Fifth-bracket rate |
|---|---|---|---|---|
|
$0 to $49,231 |
$49,232 to $98,463 |
$98,464 to $150,000 |
$150,001 to $220,000 |
Above $220,000 |
|
5.05% |
9.15% |
11.16% |
12.16% |
13.16% |
1 In addition, for 2023, a 20% surtax applies to basic Ontario tax exceeding $5,315, and an additional 36% surtax applies to basic Ontario tax exceeding $6,802.
2 Individuals resident in Ontario on 31 December 2023 with taxable income exceeding $20,000 must pay the Ontario Health Premium. The premium ranges from nil to $900 depending on the individual's taxable income, with the top premium payable by individuals with taxable income exceeding $200,599.
3 Individuals resident in Ontario on 31 December 2023 with taxable income up to $17,291 pay no provincial income tax due to a low-income tax reduction. The low-income tax reduction ($274 of Ontario tax) is clawed back for income exceeding $17,291 until the reduction is eliminated, resulting in an additional 5.05% of provincial tax on income between $17,292 and $22,716.
For taxable income exceeding $165,430, the 2023 combined federal-Ontario personal income tax rates are outlined in Table C.
Table C – Combined 2023 federal and Ontario personal income tax rates
|
Bracket |
Ordinary income1 |
Eligible dividends |
Non-eligible dividends |
|---|---|---|---|
|
$165,431 to $220,0002 |
48.29% |
32.11% |
41.71% |
|
$220,001 to $235,6752 |
49.85% |
34.26% |
43.50% |
|
Above $235,675 |
53.53% |
39.34% |
47.74% |
1 The rate on capital gains is one-half the ordinary income tax rate.
2 The federal basic personal amount comprises two elements: the base amount ($13,521 for 2023) and an additional amount ($1,479 for 2023). The additional amount is reduced for individuals with net income exceeding $165,430 and is fully eliminated for individuals with net income exceeding $235,675. Consequently, the additional amount is clawed back on net income exceeding $165,430 until the additional tax credit of $222 is eliminated; this results in additional federal income tax (e.g., 0.32% on ordinary income) on net income between $165,431 and $235,675.
Other tax measures
Liquor tax
Ontario is proposing a single 12% basic tax rate on wine and wine coolers sold in off-site winery retail stores, including wine boutiques, effective 1 July 2023. This single rate would replace the four separate basic tax rates that apply currently to off-site winery retail stores. This measure is in response to a World Trade Organization settlement reached between Canada and Australia.
Other measures
Review of Ontario’s tax system
The government has committed to reviewing the province’s tax system. The tax review will prioritize competitiveness and long-term growth in Ontario, as well as the fairness and effectiveness of tax relief and supports. In addition, the review will focus on modernized tax administration tools.
Modernizing Ontario’s tax administration system
The province is making improvements to simplify tax administration by creating a more convenient, modern and digital platform, improving the customer service experience and ensuring the delivery of tax and benefit services is both simple and quick. These improvements will be brought about through continued investments in information technology infrastructure and the collection of client feedback.
Call for Goods and Services Tax/Harmonized Sales Tax (GST/HST) relief for new housing
Ontario is seeking to engage with the Federal Government to explore the possibility of providing GST/HST relief, including rebates, exemptions, zero-rating or deferrals, to support new housing and rental development in the province.
_________________________________________
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (Canada), Ontario
- Karen Atkinson, Toronto
- Darrell Bontes, Ottawa
- Heather Wright, London
- Tim Rollins, Waterloo
- Ameer Abdulla, Waterloo
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.