The broad thrust of the Ontario budget has received extensive coverage in the media. This note will focus instead on issues of particular interest to retailers.
RCC had been deeply concerned about the Ontario government’s plans to introduce new revenue tools to pay for investments in transport and transit infrastructure. Various potential tax hikes had been proposed including raising the HST, gasoline excise tax and imposing a new tax on parking stalls. RCC and its members engaged extensively with the Ontario government, noting that these proposals, and particularly the last, would have a highly discriminatory impact on retailers.
Fortunately, the government’s approach has avoided any such discriminatory measures. The only tax change that will support infrastructure spending is a four cents per litre tax on aviation fuel. There are also excise tax increases on tobacco products but these are not specifically earmarked for infrastructure spending.
Ontario Retirement Pension Plan
The controversial centrepiece of the budget is the government’s commitment to establish a mandatory-contribution public pension plan, patterned on the CPP. The government has determined that the current combination of public pensions and voluntary retirement savings is inadequate – and that absent a major pension initiative, there are serious long-term risks to Ontarians’ standard of living and to the province’s economic activity.
In 2017, Ontario plans to introduce an Ontario Retirement Pension Plan (ORPP). Premiums would then be phased in over two years, requiring equal contributions from employers and employees of 1.9% of incomes between $3,500 and $90,000. Typical premium costs for employers (mirrored to employees) are as follows:
- $10,000* – $123.50
- $20,000 – $313.50
- $30,000 – $503.50
- $45,000 – $788.50
- $70,000 – $1,263.50
- $90,000 – $1,643.50
*The plan is intended to apply to part-time as well as full-time employees.
Most of the detail is still to be worked out, for example, whether to use the CPP threshold income level of $3,500. The government has promised extensive consultation on the details of the plan in which RCC will be fully engaged.
Those already participating in a workplace pension at comparable levels (i.e. at or above 1.9% of eligible income) would not be required to enroll in the Ontario plan. However, the test will be individual. As a result companies with direct contribution plans would still be required to contribute to the ORPP on behalf of employees who do not participate voluntarily in the workplace plan.
The plan would be administered at arms’ length from government and is expected to achieve significant economies of scale. Lastly, it should be noted that the provincial/territorial governments of Alberta, British Columbia, Manitoba, PEI, Nunavut and Northwest Territories have expressed interest in the Ontario plan and have non-voting representation on its guiding committee – the Technical advisory Group on Retirement security, chaired by the Right Honourable Paul Martin.
In addition to the new mandatory ORPP, the government has revised rules to help facilitate pooled registered pension plans (PRPPS). Please see further information on renew rules for PRPPs.
There are two tax increases of note, one in personal income tax and the other in corporate income tax.
The first of these is the raising of personal income tax rates, in two tranches, on earners with income above $150,000. Beginning with the 2014 tax year, the Ontario income tax rate will rise to 12.16% on incomes between $150,000 and $220,000 (from the current 11.16% rate). At $220,000 and up, income will be taxed at a rate of 13.16%. Previously, the highest tax threshold of 13.16% had applied at income levels above $514,090. The impact on an earner with a $250,000 income will be $1,300 per year. At $500,000 in income, the impact will be $6,300 per year. Of additional concern is the fact that these new threshold levels will not be indexed to inflation, so the tax bite will increase over time.
The second increase is in corporate income tax. The change will see the elimination of the Ontario small business deduction for larger corporations. Currently, all Canadian controlled private corporations (CCPCs) are subject to a 4.5% tax rate on income up to $500,000, representing a savings of $35,000 on the standard 11.5% corporate tax rate. The budget proposes to phase out that deduction for corporations with taxable capital between $10 million and $15 million. A corporation with taxable capital above $15 million would no longer receive any benefit from the small business deduction.
It is important to note for the budget to pass, the government needs to gain support from one of the opposition parties. As a result, the final budget may contain modification from the document that was introduced. If the budget does not pass, an election would be triggered and would take place through May and June. The budget would evolve into the election platform for the Liberal party.
If you have any question or comments, please contact [email protected] or 416-467-3744.