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Special Bulletin - Ontario Budget 2018




Queen’s Park (Ottawa), Wednesday, March 28, 2018 – Ontario Finance Minister Charles Sousa tabled the Kathleen Wynne Liberal government’s budget this afternoon.  

This budget summary has been prepared for the Members of Meridian Credit Union, with a focus on individual and small business taxpayers, and initiatives affecting their financial planning decisions.

We begin with the broad health and child care themes highlighted by the government, then move on to some significant changes to the structure (and amount for some) of personal income taxes, and lastly touch on corporate taxes and business owners.

Health, housing and family matters

Families and child care
Ontario will implement free licensed child care for preschool-aged children from the age of two-and-a-half until they are eligible for kindergarten, beginning in September 2020.

When fully implemented, an average Ontario family with a preschool-aged child could save over $17,000 in upfront costs during the time their child is enrolled in licensed child care. A family with two children could save almost $35,000 on average.

Drug and dental coverage
The government will introduce a new Ontario Drug and Dental Program for individuals and their families who do not have coverage from an extended health plan. This program would reimburse participants for up to 80 per cent of eligible prescription drug and dental expenses, up to an annual maximum of $400 for singles and $600 for couples, plus $50 for each child in the family.

The program is to start in summer 2019.

Seniors OHIP+
As previously announced and implemented, OHIP+ provides drug coverage at no cost to all eligible children and youth under the age of 25, regardless of income. OHIP+ will be expanded to seniors, eliminating the annual deductible and co-payment for seniors under the Ontario Drug Benefit (ODB) program.  Seniors’ prescription medications funded through the ODB program will be free-of-charge, regardless of income.

The extension of OHIP+ to seniors is to start in August 2019.

Seniors housing 
A new Seniors’ Healthy Home Program is to provide up to $750 per year for every eligible household led by seniors who are 75 years or older.  It would provide over $1 billion over three years to help seniors with the costs of maintaining their homes. 

To determine the design – and the types of expenses to be eligible – the government will consult with seniors’ groups and other stakeholders before introducing legislation.  It is expected to be in place for 2019–20

Personal tax issues

Elimination/conversion of provincial surtax
The government intends to eliminate the individual income surtax, adjusting personal income tax brackets and rates in its place.  The surtax is a tax-on-tax, a remnant of an era when Ontario tax was calculated as a percentage of federal tax.  

Currently there are 5 provincial bracket/rates, plus 2 surtax rates (20% and 56%) applied to that preliminary tax calculation.  The proposed changes would create 7 bracket/rates applied directly to taxable income, as outlined in the following table.

Table 1: Ontario personal income tax brackets and rates

 
Pre-Budget Post-Budget (proposed)
Bracket from Tax rate Rate + surtax Bracket from Tax rate
$0 5.05% 5.05% $0 5.05%
$42,960

 
9.15%

 
9.15%
or 10.98%
or 14.27%
$42,960 9.15%
$71,500 11.00%
$82,000 13.50%
$85,923 17.41% 17.41% $92,000 17.50%
$150,000 18.97% 18.97% $150,000 19.00%
$220,000 20.53% 20.53% $220,000 20.53%


Changes will not result in any additional tax for about 83% of taxpayers.  As shown in Table 1, rates are adjusted for income between $71,500 and $220,000.  The Budget offers an example of an individual earning $95,000 who will pay $168 more personal income tax.  

This change is to be retroactive to January 1, 2018.

Combined Federal-Ontario rates and brackets 2018
Here are the combined Federal-Ontario rates and brackets for 2018, including these Ontario changes. 

Table 2: Combined federal-Ontario personal income tax brackets and rates, 2018

Income from Tax rate Income from Tax rate
$10,354 5.05% $92,000 38.00%
$11,809 20.05% $93,208 43.50%
$42,960 24.15% $144,489 46.50%
$46,605 29.65% $150,000 48.00%
$71,500 31.50% $205,842 52.00%
$82,000 34.00% $220,000 53.53%


Surtax effect on non-refundable tax credits
Non-refundable tax credits reduce tax otherwise due.  For those who are subject to surtaxes, this enhances the value of such credits.  For example, the basic personal credit is worth $523 in 2018, but those subject to the 56% surtax would get an additional $293.  The elimination of the surtax makes the value of these credits the same for all taxpayers.   

This change is to be retroactive to January 1, 2018.

Enhancement to Ontario Charitable Donations Tax Credit (OCDTC)
Currently, an OCDTC rate of 5.05 per cent applies to the first $200 in donations and a rate of 11.16 per cent for donations that exceed $200.  The effect of the surtax calculation (described earlier) has been that the OCDTC rate can climb up to 17.41 per cent for surtax payers. 

Ontario is proposing to increase the OCDTC rate to 17.5 per cent for all taxpayers for eligible donations exceeding $200.

Consequential change to withholding tax
As payroll withholding amounts will have been set according to the rules in place at the beginning of 2018, those earning over $71,500 could find that some further amount of tax would be owing when they come to prepare their 2018 tax return for filing in April 2019.

The government will introduce legislative amendments to implement the foregoing changes, which would adjust withholdings beginning on July 1, 2018.

Small business and corporate tax

Corporate income tax rates 2018
The general corporate rate is unchanged at 11.5% for 2018.  Together with the 15% federal rate, the combined rate for 2018 remains 26.5%.

As announced in the Ontario 2017 fall economic statement, the small business rate is reduced from 4.5% to 3.5%, effective January 1, 2018.  This followed the October 2017 federal announcement of the reduction in its small business from 10.5% to 10%, effective January 1, 2018.  The combined federal-Ontario small business rate is therefore 13.5% for 2018, down from 15% in 2017.  The federal rate is slated to drop to 9% in 2019, which will bring the combined rate down to 12.5%.

Income sprinkling 
The federal government is proposing to address income sprinkling by extending the tax on split income rules to certain adult family members who are not active in a business (often run through a private corporation), beginning with the 2018 taxation year.

Ontario will automatically parallel these changes once federal amendments are approved and apply its top personal income tax rate of 20.53% to split income received by an adult family member.

Small business limit and passive investment income
The 2018 federal budget proposed a phase out of the federal small business limit for Canadian-controlled private corporations (CCPCs) that earn passive income between $50,000 and $150,000.  This is to be effective for taxation years beginning after 2018.

Ontario proposes to parallel the federal measure on passive investment income.

Speak to your Meridian Wealth Advisor for perspective on these important issues.

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