My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, February 29, 2016

The 2016 Ontario Budget


Last Thursday, Ontario Finance Minister Charles Sousa delivered the provinces 2016 budget. While there were some interesting programs introduced; such as the Ontario Student Grant program for children from families making less than $50,0000, there were few new tax measures. 

I apologize to readers from other provinces, but Ontario is my home province, so I have a vested interest in this budget.

Personal Income Tax Rates


There were no new personal tax rate changes announced (not surprisingly given the tax rates below). For residents of Ontario who earn greater than $220,000, the combined Federal and Ontario tax rates are as follows for 2016:



Ontario-Federal Combined Top Marginal
Personal Tax Rates for 2016
Salary
Capital Gains
Eligible Dividends
Non-eligible Dividends
53.53%
26.76%
39.34%
45.30%

I  have written previously about how the "top 1%" of income earners are no happy with these rates, so there is no need to discuss them again.

Business Income Tax Rates

 

There were no changes to the corporate tax rates. For incorporated companies carrying on business in Ontario, the tax rates are as follows:


Combined Federal and Ontario
Corporate Income Tax Rates for 2016
General
M&P
Small Business
26.5%
25%
15%


The access to the 15% small business rate could be "shaken-up" if the Federal Liberals follow through in next months Federal Budget with their election promise to look at restricting the ability for certain small businesses and professionals (such as doctors, lawyers and dentists) to claim the small business deduction where they do not meet certain employee thresholds.
 

Miscellaneous Business Changes


  • The government stated that the legislation for The Ontario Registered Pension Plan ("ORPP") will be implemented in the spring of 2016. Though technically not a tax, the ORPP will eventually cost businesses 1.6% to 1.9% on employee pensionable earnings up to $90,000. The impact of this substantial additional cost to employers will have to be seen; I would suggest businesses may not just happily absorb the ORPP cost and the ORPP may cost some Ontarians their jobs.
  • Ontario will reduce R&D credits from 4.5% to 3.5% and the Ontario Innovation Tax Credit from 10% to 8%
  • The Apprentice Training Tax Credit is under review as previously announced

Miscellaneous Personal Changes


  • Ontario will discontinue tuition and education tax credits beginning in September, 2017
  • The government will also discontinue the Children's Activity Tax Credit and Healthy Homes Renovation Tax Credit as of January 1, 2017
  • Ontario will mirror the Federal Split Income rules for minors, whereby the top marginal Ontario rate will be applied starting January 1, 2016

So as noted above, not too much to get excited about. I have a feeling the Federal Budget may create a little more excitement.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

14 comments:

  1. "Ontario will discontinue tuition and education tax credits beginning in September, 2017" #WTF ?!?

    So the middle class loses that credit as well? Nice Ms. Wynne, thanks!

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    Replies
    1. BCM,

      Yes, seems like it.

      This is what the budget said:
      The budget states that all of the additional revenue from eliminating the tuition and education tax credits would be reinvested to support a new Ontario Student Grant or other postsecondary, education, training and youth jobs programs.

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    2. Am I the only one who is considering changing my salary to get the benefit?

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    3. Hi Anon

      I would suggest very few people have the flexibility to do such let alone live on the reduced cash flow.

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    4. Wouldn't a good strategy be when your kids go to school to:

      1. Sell your primary residence
      2. Stop working/Go back to school
      3. Enjoy the free tuition for your child/children.

      If you have 2 or more children that are around the same age you could be generating $10-$15k per child per year in grants, with multiple children this would really add up. You could live off of the tax-free capital gains on your home if you downsized.

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    5. Hi David

      Sounds like a plan. We can name it after you, instead of the Smith Manoeuvre the go to move will now be the McKenna Manoeuvre :)

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    6. It should probably be named after Wynne!

      These programs have good intentions but raise some interesting questions.

      Matthew Lau in the National Post brought a few up, and has been vilified in the comments section.

      http://business.financialpost.com/fp-comment/why-free-tuition-helps-all-the-wrong-students

      What about students who fail, and take 7+ years to complete their degree?

      What about a retiree who decides to do grad school or a bachelor program for fun or general interest? Would that now be funded by the state?

      Will low income people move to the province to qualify? So Ontario would essentially be subsidizing all of Canada's people who make under $50k?

      How is a household defined? Is this open to abuse?

      What if a low income family plans on this being there, and 10 years from now the program is cancelled? What if they could've saved some money to get RESP matching but didn't, thinking this would exist?

      Doesn't this, as well as other recent programs, show the fallacy of dividend income? If government support is ever increasing for lower income Canadians, those with dividends that are recorded at an inflated level (due to the crazy math of the dividend credit) at risk? Dividends are taxed low, but pump up your taxable income disqualifying you from OAS, and now this grant, and electricity rebates for lower income people, etc. etc.

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    7. Great questions, some which will have to be asked

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  2. I was going to write about this but you beat me to it :)

    It will be interesting to see the disruption ORPP brings to small businesses. I can see a few early retirement packages coming to pay for these.

    Mark

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    Replies
    1. Hi Mark,

      Yes, employers do not just accept a 1.6-1.9% increase in costs with a smile. They try and maintain costs by cutting somewhere else. Unfortunately, i think that may be by reducing jobs to keep the total labour cost static. Hope I am wrong.

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  3. Thank you for the excellent blog Mark! While I don't live in Ontario anymore, I still find it interesting to keep up on changes that affect my family and friends. Best regards, Christine

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  4. Again the morons in a Liberal government do nothing to provide help generally, although as one of those retirees who has gone back to school [eliminated my assets] and intends to stay indefinitely because senior bursaries make it free and Liberal stupidity will make it profitable I see a real all-around screwing for high income Ontarians. The system that was in place worked fine and for me the new system will be even better but what about those parents who relied on the deductions for extra cash? The clarity of the new system is the usual incomprehensible Liberal program details!

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    Replies
    1. Hi Firepack, there is nothing left to say here, but I hope you feel better getting it off your chest:)

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