This Annex provides detailed information on proposed tax measures to lower costs for small businesses and to help reduce the cost of air travel and air freight in the North.
These measures build upon previous announcements that deliver support for child care expenses and tax relief for low-income workers, reduce the burden of the Estate Administration Tax, accelerate capital investment writeoffs and support small businesses by not paralleling the federal tax increase on some small businesses earning passive investment income.
Cutting the Small Business Tax Rate
Ontario’s general Corporate Income Tax (CIT) rate is 11.5 per cent. Up to $500,000 of active business income earned by small Canadian-controlled private corporations (CCPCs) is eligible for a reduced small business CIT rate of 3.5 per cent.
As outlined in Chapter 1, Section C: A Plan to Build Ontario Together by Creating a More Competitive Business Environment, the government proposes to cut Ontario’s small business CIT rate to 3.2 per cent from 3.5 per cent, effective January 1, 2020. The rate reduction would be prorated for taxation years straddling January 1, 2020.
As dividends are paid out of after-tax corporate earnings, individual shareholders receive dividend tax credits, the rate of which approximates the CIT rate paid by the corporation. Corresponding to the reduction in the small business CIT rate, Ontario’s small business (non-eligible) dividend tax credit rate would be reduced from 3.2863 per cent to 2.9863 per cent, effective January 1, 2020. As a result, recipients of non-eligible dividends would receive reduced dividend tax credits.
Decreasing the Aviation Fuel Tax Rate for the North
As outlined in Chapter 1, Section A: A Plan to Build Ontario Together by Making Life More Affordable, the government is proposing to reduce the aviation fuel tax rate in Northern Ontario to 2.7 cents per litre from 6.7 cents per litre, effective January 1, 2020. The reduced tax rate would apply on aviation fuel purchases within the North.
The North would be defined as the districts of Algoma, Cochrane, Kenora, Manitoulin, Nipissing, Parry Sound, Rainy River, Sudbury, Thunder Bay and Timiskaming. This is the same geographic area used for the Northern Ontario Energy Credit and the Growth Plan for Northern Ontario.
The end purchaser in the North would be required to pay, and the retailer would be required to collect, the lower tax rate of 2.7 cents per litre on all sales of aviation fuel occurring on or after January 1, 2020. Northern retailers would generally purchase aviation fuel from wholesalers with tax prepaid at the rate of 2.7 cents per litre. Ministry-designated collectors at the wholesale level that sell aviation fuel to Northern retailers would have a reporting requirement on the monthly tax returns they file with the Ministry of Finance. Those who prepay aviation fuel tax at the rate of 6.7 cents per litre but sell it to a retailer or consumer in the North at the rate of 2.7 cents per litre would be able to apply to the Ministry of Finance for an adjustment to reflect the tax rate difference.
Aligning Interest on Refunds
To simplify administration, an amendment is proposed to the Gasoline Tax Act to make the timeline for calculating interest on refunds under the Gasoline Tax Act consistent with that under the Fuel Tax Act. Interest would be payable from the date of the refund application to the date the government makes the refund payment.
Summary of Measures
Table A.1 reflects the impact of new tax measures in this document on government revenue. The 2019 Budget revenue outlook included a provision to accommodate these new measures.
|Cutting the Small Business Tax Rate||(20)||(70)||(95)|
|Reducing the Non-eligible Dividend Tax Credit Rate||15||55||55|
|Decreasing the Aviation Fuel Tax Rate for the North||(3)||(10)||(10)|
Table A.1 footnotes:
Notes: Numbers may not add due to rounding. Estimates below $10 million are rounded to the nearest $1 million. Estimates above $10 million are rounded to the nearest $5 million. Negative numbers represent a decrease in revenue.