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.

The Ontario Budget – The Simple Math – No New Jobs

Let me say this upfront. I think yesterday’s Ontario budget is fiscally irresponsible. However, I am prejudiced to start, as I am a Conservative voter and a bean counter.

Notwithstanding my political leanings, if the budget is ever passed into law, here is the reality of the situation.

As my readers are aware, I am the managing partner of my firm (Note: I have not yet discussed the implications of the budget with my partners, so these views are mine at this point and not of my firms and any venom from Liberal and NDP supporters should be solely directed at me).

Here is how our partner meeting after the budget is passed (if it is ever passed) will go. I will say to my partners we have 30-35 people in the office and the cost of the pension reform will be as high as $1,700 per person or somewhere in the range of $50,000-$60,000 before tax for our firm. Our income taxes have gone up say $3k to 4k per partner, so we are out $18,000-24,000. Thus, we will have $70,000 -$85,000 less in our pockets.

I would then proceed to say we are willing to absorb say 25% of this hit, but not the next 75%. Thus, we have three options: either we lay-off our weakest employee, don’t hire the person we were going to hire that year, or cut back our costs $50,000 -$70,000 (assuming we are absorbing 25% of the hit).

It’s very simple math and if people are honest, the same conversation will go on around the province and those employers with the ability to hire out-of province will do so. Those without the ability to hire out of province will have to decide whether to absorb these additional costs (some large corporations may also have an additional corporate income tax hit) or reduce their workforce to keep their total costs in-line.

The result, net-net job gains of zero or at best a job rate growth of an infinitesimal amount.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.