Finance Minister Victor Fedeli presented the Ontario 2018 Economic Outlook and Fiscal Review on November 15, 2018.
The government is projecting a deficit of $14.5 billion in 2018-2019 and is committed to balancing the budget in a modest and reasonable timeframe. Highlights of the notable tax measures from the Economic Outlook are noted below. A complete copy of the Economic Outlook can be found here.
NOTEABLE INCOME TAX AND INDIRECT TAX MEASURES PRESENTED
The Low-Income Individuals and Families Tax (LIFT) Credit
Beginning in 2019, the government has proposed a new non-refundable LIFT Credit that will eliminate or reduce Ontario Personal Income Tax (PIT) for low-income Ontario taxpayers. This credit will be available for single individuals with adjusted net income of $38,500 or less and family units with combined adjusted family net income of $68,500. The maximum credit is $850 per year.
Passive Income Rules and Small Business Deduction (SBD)
The Federal government introduced changes to phase out the $500,000 SBD limit for associated groups of corporations that earn between $50,000 and $150,000 of passive investment income in a taxation year. These Federal changes apply to tax years that begin after 2018 but are impacted by investment income earned in the 2018 taxation year. The detailed discussion of this measure was included in our previous 2018 Federal Budget Commentary.
The Ontario government has proposed not to follow this new Federal restriction and will not have parallel legislation. Therefore, all eligible Ontario small businesses will continue to receive the Ontario SBD regardless of the amount of passive income earned within the associated group. This could result in corporate tax savings of 8% even for those with more than $150,000 passive income.
Personal Tax Rate on Non-Eligible Dividends
The non-eligible dividend tax credit will be adjusted to 3.2863%. As a result, non-eligible dividends will be taxed at 47.4% at the top marginal rate. This is a 1.6% increase in the tax rate from 2018.
Employer Health Tax (EHT)
Currently, EHT is paid by employers on their Ontario payroll. Private sector employers with payroll of less than $5 million are eligible for an EHT exemption on the first $450,000 of payroll. Proposed measures will increase the EHT exemption from $450,000 to $490,000 as of January 1, 2019. The government has estimated this will provide tax relief to Ontario employers of about $690 on average.
Reduction in Workplace Safety and Insurance Board (WSIB) Premiums
WSIB announced that the average WSIB premium rate will decline from $2.35 to $1.65 on every $100 of insurable payroll effective January 1, 2019 representing a 29.8% cut to the average premium rate. The Ontario government estimates savings to employers of $1.45 billion in 2019.