Annex: Details of Tax Measures and Other Legislative Initiatives

Overview

This Annex contains detailed information on certain tax measures and other legislative and regulatory initiatives proposed in this document.

Extending and Enhancing the Time-Limited Tax Relief for the Electricity Distribution Sector

Under the Electricity Act, 1998, municipal electricity utilities (MEUs) are subject to a Transfer Tax of 33 per cent on the fair market value of electricity assets sold to the private sector.

MEUs, as well as Ontario Power Generation Inc. and subsidiaries (collectively, OPG), that are exempt from federal and Ontario income tax must make payments in lieu of taxes (PILs) under the Electricity Act, 1998 to the Ontario Electricity Financial Corporation. PILs are equal to the federal and Ontario income tax an MEU or OPG would pay if it were a taxable corporation. An MEU that ceases to be exempt from federal and Ontario income tax is deemed to dispose of all of its assets at their fair market value, with any additional income arising as a result of the deemed disposition being subject to PILs (PILs deemed disposition rules).

Ontario provided time-limited incentives for transactions related to the sale of electricity assets occurring between January 1, 2016 and December 31, 2018. The Transfer Tax rate was reduced from 33 per cent to 22 per cent for MEUs with 30,000 customers or more, and the rate was reduced from 33 per cent to zero per cent for MEUs with fewer than 30,000 customers. Additionally, any capital gains arising under the PILs deemed disposition rules were exempted from PILs. These incentives were extended twice, most recently in the 2022 Budget, and are set to expire on December 31, 2024.

Through amendments to regulations under the Electricity Act, 1998, Ontario will provide further support for consolidation in the electricity distribution sector by extending the existing incentives until December 31, 2028, with an additional temporary reduction of the Transfer Tax rate from 22 per cent to zero per cent for MEUs with 30,000 customers or more, effective from January 1, 2025 to December 31, 2028. This enhancement will ensure that all MEUs, regardless of their number of customers, will be subject to a Transfer Tax rate of zero per cent for transfers of electricity assets from January 1, 2025 to December 31, 2028. All other parameters of the existing incentives would remain the same.

Continuing to Extend the Temporary Gasoline Tax and Fuel Tax Rate Cuts

The Ontario government temporarily cut the gasoline tax rate by 5.7 cents per litre and the fuel (diesel) tax rate by 5.3 cents per litre on July 1, 2022. The gasoline tax and fuel tax rates are currently 9 cents per litre. These tax rate reductions are set to end on December 31, 2024, when the tax rates would return to 14.7 cents per litre for gasoline and 14.3 cents per litre for fuel.

The government is introducing legislation that would amend the Gasoline Tax Act and the Fuel Tax Act to extend the temporary rate cuts so that the rate of tax on gasoline and fuel would remain at 9 cents per litre for an additional six months until June 30, 2025.

Providing a Taxpayer Rebate

The government is proposing a refundable Personal Income Tax credit to provide a one-time taxpayer rebate to Ontario residents that is comprised of two components.

The first component would be a one-time $200 taxpayer rebate made to eligible Ontario tax filers who meet all the following requirements:

• 18 years or older at the end of 2023;
• Resident in Ontario on December 31, 2023;
• Filed their 2023 Income Tax and Benefit Returns by December 31, 2024; and
• Not bankrupt or incarcerated in 2024.

The second component would be a one-time $200 taxpayer rebate made in respect of each child under age 18 for whom the Ontario family receives the Canada Child Benefit (CCB) for 2024. This payment would be made to the person(s) who receives the CCB in respect of the child and is a resident of Ontario.

For circumstances where there exists a shared custody arrangement in respect of a child, payments would be split based on the most recent CCB available.

The one-time taxpayer rebate would provide $3.0 billion in support for about 12.5 million Ontario tax filers and 2.5 million children.

For Ontario families with children who do not receive the CCB for 2024, the government would provide an opportunity for a one-time $200 taxpayer rebate per child through an alternative process.

Responding to the Federal Alternative Minimum Tax Increases

The federal government has increased its Alternative Minimum Tax (AMT) rate from 15 per cent to 20.5 per cent, starting with the 2024 tax year.

Ontario’s additional tax for minimum tax purposes (or AMT) rate of 33.67 per cent is based on a ratio of Ontario’s lowest personal income tax rate and the federal government’s previous AMT rate of 15 per cent. This resulted in an effective tax on Ontario’s notional AMT base equal to its lowest personal income tax rate of 5.05 per cent.

To ensure that the effective Ontario AMT rate remains unchanged at 5.05 per cent, Ontario is proposing to lower its AMT rate to 24.63 per cent, starting with the 2024 tax year. The Ontario AMT credit rate would be adjusted to 24.63 per cent to mirror the proposed Ontario AMT rate of 24.63 per cent, starting with the 2025 tax year.

Concluding the Tax Review

Since 2018, the government has made significant tax changes to lower costs for businesses, families and individuals. These actions contribute to a competitive economic environment that attracts investment and creates opportunities for the future, as well as keeps costs down for the people of Ontario.

In 2023, the government began a review of Ontario’s tax system, focusing on ways to support greater productivity, promote fairness, enable greater simplicity and transparency, and to modernize administration. The government sought advice from a range of tax experts, economists and business leaders, who shared their views on the tax system and opportunities to update it.

Relying on the principles underpinning the tax review, the government has introduced tax measures to support businesses, families and individuals, and improve administrative effectiveness and enforcement of the tax system, as well as to clarify legislative requirements and ensure that regulatory flexibility is maintained to preserve policy intent.

Changes include:

• The adoption of tax measures to support businesses and families, such as the enhanced Ontario Focused Flow-Through Share Tax Credit, the simplified Ontario Computer Animation and Special Effects (OCASE) Tax Credit and the Ontario Harmonized Sales Tax (HST) rebate for purpose-built rental housing.
• The streamlining and simplifying of requirements for taxpayers, including amendments to the Gasoline Tax Act to streamline reporting for interjurisdictional carriers (e.g., long-haul truckers), amendments to the Estate Administration Tax Act, 1998 to provide clear definitions, and proposed changes to the Employer Health Tax Act to provide greater flexibility and clarity to employers.

As it concludes the tax review, the government will continue to review options for future tax measures that support the government’s path to balance, promote productivity and fairness, as well as simplify and modernize the tax system for taxpayers.

Summary of Measures

Technical Amendments

Amendments are being proposed to various statutes administered by the Ontario Minister of Finance, or other statutes, to improve administrative effectiveness or enforcement, maintain the integrity and equity of Ontario’s tax and revenue collections system, or enhance legislative clarity or regulatory flexibility to preserve policy intent.

Proposed legislative amendments include:

• Amendments to the Taxation Act, 2007 to clarify the calculation of the Ontario surtax.
• Amendments to the Taxation Act, 2007 to parallel the Ontario Child Benefit with the federal government’s extension of Canada Child Benefit eligibility in respect of a child for six months following a child’s death.
• Amendments to the Employer Health Tax Act to clarify how the exemption threshold applies to associated employers.
• Amendments to the Employer Health Tax Act to align the filing requirements of employers who pay their entire Ontario remuneration in a single month with all other employers.
• Amendments to the Employer Health Tax Act to allow the minister to make a refund, if due, at any time provided the request is made within 90 days of an assessment.
• Amendments to the General Anti-Avoidance Rule (GAAR) in the Taxation Act, 2007 to mirror the changes made to the federal GAAR, generally effective January 1, 2024.
• Amendments to the Taxation Act, 2007 to mirror the expansion of the federal mandatory disclosure rules to provide for disclosure of “notifiable transactions” and “uncertain tax treatments.” The amendments would be effective from June 2023 to align with the federal changes.
• Amendments to the Municipal Act, 2001 and to the City of Toronto Act, 2006 to support policy, tax administration and enforcement.

Other Legislative Initiatives

Additional proposed legislative amendments include:

• Amendments to the Insurance Act to permit electronic terminations of property and casualty insurance contracts, and accident and sickness insurance contracts, if the insured consents.
• Amendments to the Insurance Act to clarify requirements for notices sent by prepaid courier and harmonize notice periods for different insurance contracts.
• Amendments to the Construction Act to implement priority recommendations from a recent independent review to ensure that the Act is working effectively and to address issues raised by the construction industry. The amendments would enhance access to statutory adjudication, mandate the annual release of holdback, and make technical and housekeeping amendments.
• Amendments to the Ontario Lottery and Gaming Corporation Act, 1999 to facilitate the transfer of responsibility for the Ontario Lottery and Gaming Corporation from the Minister of Finance to the Minister of Tourism, Culture and Gaming.
• A proposed new Act that would continue iGaming Ontario as a standalone agency.