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Meridian Memo - Ontario Budget, 2017

(Toronto), Thursday, April 27, 2017 – Ontario Finance Minister Charles Sousa tabled the Ontario government’s 2017-18 Budget recently. This summary was prepared from within the official media lock-up by Doug Carroll, Practice Lead for Tax, Estate and Financial Planning with Meridian.

Meridian is Ontario’s largest credit union, helping more than a quarter of a million Members in communities from Windsor to Ottawa grow their lives and businesses.  Our review focuses on issues relevant to our Members and wealth advisory teams, with particular emphasis on personal and small business taxes, portfolio investment matters and financial planning generally.

The government's headline for the Budget is the return to balance.  As important as that is at the macro-economic level, many Ontarians will be much more interested in the particular components that apply to them personally.  With that in mind, we'll first touch on tax rates, then move on to look at who the Budget affects and how.  In this summary, we are focusing on new and recently announced measures, generally leaving aside re-statement of past years' initiatives.

Topics covered in this review:

  • Personal income taxes
  • Corporate income taxes
  • Families with children – Children's health
  • Homeowners, and those hoping to be
  • Seniors
  • Social support recipients
  • Caregivers – Simplifying tax support
  • Post-secondary students
  • Future wage earners in the workforce
  • Spousal support from former spouse's estate 
  • Financial planners and advisors – Regulation recommendations
  • Debtors to Ontario – Collections coming

1. Personal income tax rates and brackets

There were no changes to personal income tax rates in the Budget, though bracket thresholds have risen according to the annual indexation formula.  The prescribed bracket increase from 2016 to 2017 is 1.6%.  Indexing applies directly to the basic personal amount and the two lowest brackets.  The basic amount is the level below which no Ontario tax is due. The two-stage surtax is indirectly indexed, as it is based on Ontario taxes paid.  The surtax is charged at 20% on Ontario 2017 basic tax over $4,556, and an additional 36% on Ontario 2017 basic tax over $5,831.  This results in basic tax on income over the first surtax threshold being multiplied by 1.20, and the basic tax over the second surtax threshold being multiplied by 1.56. The upper two Ontario brackets are not indexed, potentially contributing to bracket creep.  An example of bracket creep is where a worker receives a wage increase pegged to inflation, whereby real income has not changed but some income pushes over an unindexed bracket threshold.

Table1 : Ontario bracket indexing – 2017
  2016 2017
Basic amount $    10,011 $    10,171
1st threshold 41,536 42,201
Surtax 20% 73,142 74,316
2nd threshold 83,075 84,404
Surtax 36% 86,177 87,557
3rd threshold 150,000 150,000
4th threshold 220,000 220,000

The federal indexation factor from 2016 to 2017 is 1.3%, applicable to all federal brackets and the federal basic personal amount. Here are the combined federal-Ontario marginal tax brackets and rates for 2017, by income type.

Table 2: Combined federal-Ontario marginal tax brackets and rates – 2017
From Regular
Eligible dividends Ineligible dividends
$    10,171 5.1% 2.5% 0.0% 0.9%
11,365 20.1% 10.0% 0.0% 6.1%
42,201 24.2% 12.1% 0.0% 10.9%
45,916 29.7% 14.8% 7.6% 17.4%
74,316 31.5% 15.7% 8.9% 19.5%
84,404 33.9% 16.9% 12.2% 22.3%
87,557 37.9% 19.0% 17.8% 27.0%
91,831 43.4% 21.7% 25.4% 33.5%
142,353 46.4% 23.2% 29.5% 37.0%
150,000 48.0% 24.0% 31.7% 38.8%
202,800 52.0% 26.0% 37.2% 43.5%
220,000 53.5% 26.8% 39.3% 45.3%

Regular income includes employment income generally, draw from registered retirement savings plans (generally RRSP, RRIF, RPP and registered annuities), interest and foreign income in non-registered accounts. The capital gains rate applies to amounts realized in the year in non-registered accounts. Dividends from Canadian corporations are treated as eligible if arising out of income on which the corporation paid the general corporate rate; ineligible dividends come from income on which the corporation claimed the lower small business rate.

2. Corporate taxes

There were no changes to corporate tax rates in the Budget.

Table 3: Combined Federal-Ontario corporate income tax rates – 2017
  Ontario Federal Combined
Small business rate 4.5% 10.5% 15.0%
General corporate rate 11.5% 15.0% 26.5%

3. Families with children – Children's health

Presently, the Ontario Drug Benefit Program (ODB) provides prescription drug coverage to over 2.3 million seniors and over 900,000 people on social assistance.

The new OHIP+: Child and Youth Pharmacare will provide universal drug coverage to all children and youth across the province. OHIP+ will cover the cost of all medicines funded under ODB to all children aged 24 and under. Qualification will not depend on family income. There will be no deductible and no co-payment. The program will be effective January 1, 2018.

3. Families with children – Children's health

Presently, the Ontario Drug Benefit Program (ODB) provides prescription drug coverage to over 2.3 million seniors and over 900,000 people on social assistance.

The new OHIP+: Child and Youth Pharmacare will provide universal drug coverage to all children and youth across the province. OHIP+ will cover the cost of all medicines funded under ODB to all children aged 24 and under. Qualification will not depend on family income. There will be no deductible and no co-payment. The program will be effective January 1, 2018

4. Homeowners, and those hoping to be

The Ontario government recognizes that many people across the province are feeling mounting pressure when trying to buy a home or afford their rent.

Addressing foreign speculation in real estate

The government is concerned that non-resident investors (who are not planning on living in the province) have been purchasing Ontario homes primarily for speculation purposes.

On April 20, 2017, the Province announced a new Non-resident Speculation Tax (NRST), a 15 per cent tax on the price of homes in the Greater Golden Horseshoe (GGH) area purchased by individuals who are neither citizens nor permanent residents of Canada. As proposed, the NRST would be effective April 21, 2017, but would not apply to binding agreements of purchase and sale signed on or before April 20, 2017.

Amendments are also proposed to restrict the ability of qualifying purchasers under the land transfer tax (LTT) system to claim their spouse's interest for the first-time homebuyers refund if the spouse is not a Canadian citizen or permanent resident of Canada.

Vacant homes property tax

Concerns have been raised that residential units are potentially being left vacant by speculators, particularly in the city of Toronto. This may affect housing supply and affordability. The government proposes to allow Toronto broad authority to levy additional property tax on vacant homes. The government will "work with" other municipalities that may be experiencing similar issues.

Transparency in sales transactions – "Paper flipping" refers to the practice of entering in a contractual agreement to buy a residential unit and assigning it to another person before closing. This practice may be contributing to tax avoidance and excessive speculation. To better understand the extent of the problem, the government will require greater disclosure of the nature of transactions. At the time of transfer and registration in the land transfer tax (LTT) system, purchasers will have to declare whether they entered into the agreement by way of assignment or another similar arrangement. No date of this change to LTT was given, except that it will be "in the coming months."

Rental housing – Rent controls are proposed to be expanded to all private rental units, including those occupied on or after November 1, 1991. (Until now, rent controls were limited to properties occupied before that date.) A number of other measures are also proposed, designed to strengthen protections for tenants and keep costs affordable, including creation of a standard lease form and protection from eviction through abuse of the "landlord's own use" provision.

5. Seniors

Community mobility

A proposed Ontario Seniors' Public Transit Tax Credit (SPTT) will be available to all Ontarians 65 and older. Structured as a refundable tax credit, it will cover 15% of eligible transit costs, for an average annual benefit of $130. It will apply from July 1, 2017.

Health and wellbeing

Elder Persons Centres (EPCs) are community centres that provide social and recreational programs to promote wellness for seniors. There are currently 263 EPS serving over 100,000 seniors in Ontario. In the next three years, 40 more EPCs will be opened.

6. Social support recipients

Social assistance benefits Ontario Disability Support Plan (ODSP) and Ontario Works (OW) play a critical role in the province’s income security system. Eligibility for both programs is subject to recipient asset and income limits. Those limits are being increased, in addition to a modest increase in the payment rate.

ODSP – Benefit payments will increase by two per cent beginning September, 2017. The cash and other asset limits (above which repayment occurs), will be increased from $5,000 to $40,000 for single individuals and from $7,500 to $50,000 for couples. The income exemption for cash gifts will increase from $6,000 to $10,000 per year.

OW – Benefit payments will also increase by two per cent, but not until October, 2017. The cash and asset limits will be increased: $2,500 to $10,000 (singles); $7,500 to $50,000 (couples). The income exemption for cash gifts will similarly increase from $6,000 to $10,000 per year.

Basic income

Income security can be challenging in an economy where there are structural changes to the labour market. As a three-year pilot project, the government has recently introduced a Basic Income Pilot in three communities: Hamilton, Thunder Bay and Lindsay. Eligible participants aged 18 to 64 earning below a specified amount will receive regular payments.

7. Caregivers – Simplifying tax support

In the 2017 Federal Budget, a number of tax credits related to caregiving were consolidated into the Canada Caregiver Credit. This simplified the system for caregivers to understand and access tax relief, without affecting the net value of the credits.

The Ontario government will act in parallel with the federal initiative, replacing the provincial caregiver and infirm dependant credits with a single new Ontario Caregiver Tax Credit (OCTC). Some features of the new credit: Non-refundable credit at the lowest provincial bracket rate, 5.05%. May be claimed for infirm dependants, including adult children of the claimant or his/her spouse or common law partner. The dependant need not live with the claimant. It does not apply to non-infirm parents or grandparents living with a purported claimant. For 2017, the maximum amount of taxable income for which this credit is available would be $4,794. The OCTC begins phasing out at the dependant's net income over $16,401.

8. Post-secondary students

Ontario Student Assistance Plan (OSAP) provides grants and loans for post-secondary education. The program is in the midst of being transformed to improve accessibility and affordability. Starting in September 2017, the new OSAP will replace many existing provincial grants with a single upfront grant. Weekly aid limits for all students will continue to index to inflation on a yearly basis: Eligible students, including mature students and adult learners with annual incomes of $50,000 or less, will receive enough OSAP grants to cover average tuition costs. 80 per cent of students with annual family incomes below $90,000 will receive grants that equal or exceed the average cost of tuition and will not need to be repaid. The changes will ensure that savings in registered education savings plans (RESPs) will not reduce the amount of financial assistance provided to students through OSAP. Transition to workforce will be eased by raising the minimum salary from $25,000 to $35,000 before an individual will have to start repaying the provincial portion of OSAP loans.

9. Future wage earners in the workforce

Entering the workforce

Practical experience is useful for guiding decision-making and helps close the job experience gap that many students and recent graduates face. Ontario is launching the Career Kick-Start Strategy. This involves the coordination and expansion of existing programs and pursuit of identifying new opportunities. This is directed at generating over 40,000 new work-integration opportunities over the next three years, in the nature of internships, fellowships, apprenticeships, co-op placements and other practical training programs.

Re-entering the workforce

With a changing economy, there can be disruption of people from their work. The government is introducing the Ontario Lifelong Learning and Skills Plan, targeted to provide 90,000 adults with easier access to skills training and upgrading.

10. Spousal support from former spouse's estate

Ontario legislation passed in 2016 led to some uncertainty for divorced individuals seeking spousal support from a former spouse's estate. The government intends to introduce amendments to the Succession Law Reform Act that will clarify how such claims are treated.

11. Financial planners and advisors – Regulation recommendations

In 2015, the government assembled an expert panel to review the regulatory framework relating to financial planning and advisory services. Many recommendations were included in the committee's report, released by the government in March, 2017. The Budget did not get into specific rules or timing, but affirmed the government’s intention to: take steps toward restricting the use of titles related to financial planning, respond to the recommendation for developing a central registry of personals proving financial planning and advisory services, consider recommendations related to referral arrangements, and fully supporting active promotion of financial literacy recommendations. The government also supports the recommendation for a universal statutory best interest duty, and will examine the feasibility of its implementation in Ontario.

12. Debtors to Ontario – Collections coming

The government will expand the collection powers of the Ministry of Revenue in pursuing tax debtors. Where debtors fail to pay or make arrangements to repay their non-tax debts, an enhanced set of collection tools will be available: garnishments, warrants and liens against those debts, including debts existing prior to these amendments being passed.