• The provincial deficit anticipated for fiscal 2008-2009 is $3.9 billion. In addition, the province is projecting a deficit of $14.1 billion in 2009-10, $12.2 billion in 2010-11 and $9.7 billion in 2011-12, and a balanced budget by 2015-16.
• The Ministry of Finance outlook includes a 2.5% decline in Ontario’s real GDP in 2009. Growth is expected to resume during the second half of 2009 and strengthen over the next few years, with real GDP growth rates for planning purposes of 2.3% in 2010 and 3.3% in 2011, as a result of resumed economic growth, government efforts to provide jobs, low interest rates and actions taken to improve the functioning of global credit markets.
• Tax measures announced in this budget provide $10.6 billion in tax relief for individuals and $4.5 billion in tax relief for businesses over three years.

• Canada and Ontario have entered into a Memorandum of Agreement for Ontario to join a framework agreement for federal collection of a single value-added sales tax.
• Starting July 1, 2010, the Ontario Retail Sales Tax will be converted to a value-added tax structure and combined with the federal Goods and Services Tax (GST) to create a federally administered single sales tax with a rate of 13%. The provincial portion will be at a rate of 8% and the federal portion at a rate of 5%.
• The single sales tax will generally use the same rules and tax base as the federal GST.

Businesses

• Businesses selling taxable or zero-rated goods and services will be able to claim input tax credits (ITCs) on their purchases, as under the GST, with limited exceptions.
• Businesses selling tax-exempt goods or services will be unable to claim ITCs as under the federal GST rules. For example, most financial services are GST exempt and, therefore, ITCs may not be claimed in respect of these services.
• Ontario will parallel the GST small supplier threshold where businesses with sales under the threshold are not required to register and collect the single sales tax.
• Ontario’s public service bodies (e.g., municipalities, hospitals, universities, colleges, school boards, charities and qualifying non-profit organizations) will be able to claim rebates for the provincial portion of the single sales tax.
• Rebate rates of the provincial portion of tax paid (based on federal GST public service body definitions) for public service bodies are as follows: municipalities - 78%; universities and colleges - 78%; school boards - 93%; hospitals - 87%; charities and qualifying non-profit organizations - 82%.
• Similar to the restricted ITC system in Quebec, large businesses (those with annual taxable sales in excess of $10 million) and financial institutions will be unable to claim ITCs in certain areas. These restrictions will be temporary and will apply only to the provincial portion of the tax. After the first five years of single sales tax implementation, full ITCs on their taxable supplies will be phased in over a three-year period.
• The temporary ITC restrictions for large businesses are:
  • energy, except where purchased by farms or used to produce goods for sale,
  • telecommunication services, other than internet access or toll-free numbers,
  • road vehicles weighing less than 3,000 kilograms (and parts and certain services) and fuel to power those vehicles, and
  • food, beverages and entertainment.
• As part of the sales tax reform proposed in this budget, a Small Business Transition Credit of up to $1,000 will be available to most businesses, other than financial institutions, with less than $2 million in annual revenue from taxable sales.

Individuals

• As part of this reform, an Ontario Sales Tax Transition Benefit will be provided to eligible individuals and families:
  • benefits will be delivered to eligible Ontario tax filers aged 18 and over,
  • eligible families with an income of $160,000 or less will receive three payments totalling $1,000,
  • eligible single people with an income of $80,000 or less will receive three payments totalling $300, and
  • the first benefit will arrive in June 2010, the second in December 2010 and the third in June 2011.
• Point of sale rebates will be introduced for the provincial portion of the tax for the following items: books, children’s clothing and footwear, children’s car seats and booster seats, diapers, and feminine hygiene products.
• To ensure that, on average, new homes under $400,000 will not be subject to an additional tax burden, the government is proposing a new housing rebate. Homebuyers will be able to claim a rebate of part of the provincial portion of the tax for new homes priced up to $500,000. The rebate for new primary residences under $400,000 will be 75% of the provincial portion of the tax (or 6% of the purchase price), with the rebate amount reduced for homes priced between $400,000 and $500,000.
• Resale homes will not be subject to the single sales tax.

• The government proposes to cut corporate income tax rates, beginning July 1, 2010 as follows: the general rate from 14% to 12% and further reduced to 10% over three years (11.5%, 11% and 10% on July 1 of each subsequent year); the rate on manufacturing and processing (M&P) and resource sectors from 12% to 10%; and the small business rate from 5.5% to 4.5%.
• Further, the government proposes to extend the benefit of the small business deduction to all Canadian-controlled private corporations (CCPCs) effective July 1, 2010 by eliminating the small business deduction surtax. CCPCs will be taxed at the new small business rate of 4.5% on the first $500,000 of active business income, regardless of income level. This measure will be pro-rated for taxation years straddling the effective date.
• A corresponding reduction in the corporate minimum tax (CMT) rate is proposed, from 4% to 2.7%. Further, a corporation or an associated group with under $50 million in total assets or under $100 million in annual gross revenues will not pay CMT. These changes are effective for taxation years ending after June 30, 2010. The proposed rate reduction will be pro-rated for taxation years straddling the effective date.
• The budget proposes to extend the Ontario Innovation Tax Credit to more small and medium-sized corporations by extending the taxable income phase-out range to a new phase-out range between $500,000 and $800,000. This measure will parallel the enhancement of the federal Investment Tax Credit for scientific research and experimental development proposed in the 2009 federal budget. The effective date will parallel the federal amendments.
• Ontario will parallel the 2009 federal budget proposal to provide a temporary 100% accelerated capital cost allowance (CCA) rate for eligible computers and software acquired after January 27, 2009 and before February 2011. As announced federally, the accelerated CCA rate will not be subject to the half-year rule.
• Ontario will parallel the 2009 federal budget proposal to extend the 50% straight-line accelerated CCA rate for M&P machinery and equipment acquired in 2010 and 2011, subject to federal implementation.
• The budget confirms the announcement on February 20, 2009 of the government’s proposals to make the enhanced 35% Ontario Film and Television Tax Credit rate and the enhanced 25% Ontario Production Services Tax Credit permanent.
• The budget proposes to enhance the Ontario Interactive Digital Media Tax Credit, effective for qualifying expenditures after March 26, 2009, as follows:
  • the rates are increased to 40% for qualifying corporations that develop and market their own eligible products; and 35% for qualifying corporations that develop eligible products under a fee-for-service arrangement,
  • corporations will be allowed to claim 100% of the amount paid for eligible labour expenditures paid to arm’s length contractors, and
  • the credit is extended to more fee-for-service arrangements.
• The budget proposes enhancements to the Ontario Computer Animation and Special Effects Tax Credit, effective for qualifying expenditures incurred after March 26, 2009, by allowing 100% of eligible labour expenses paid to arm’s length parties.
• The budget proposes to expand the eligibility for the Ontario Book Publishing Tax Credit, to qualifying expenditures incurred after March 26, 2009.
• The budget proposes enhancements to the Co-operative Education Tax Credit that will increase the 10% rate to 25% and the enhanced 15% rate for small businesses to 30%, and increase the maximum tax credit available from $1,000 to $3,000 per work placement, effective for eligible expenditures incurred after March 26, 2009.
• The budget proposes enhancements to the Apprenticeship Training Tax Credit that will increase the 25% rate to 35% and the enhanced 30% rate for small businesses to 45%, to increase the annual maximum tax credit available from $5,000 to $10,000, to extend the credit to salaries and wages paid during the first 48 months and to make the credit a permanent tax incentive, effective for expenditures incurred after March 26, 2009.

• The government is proposing to increase the amount of ongoing sales tax and property tax relief for individuals and families with low to middle incomes by replacing the current combined sales and property tax credits with two new tax credits: the Ontario Sales Tax Credit and the Ontario Property Tax Credit.
• The government is proposing to cut the lowest tax rate by one percentage point, from 6.05% to 5.05%, effective January 1, 2010. This will provide a benefit on the first $36,848 of taxable income. It will also impact the non-refundable credits so that the credit amounts will be multiplied by 5.05%.
• The budget proposes to adjust both surtax thresholds in 2010, such that Ontario will levy a 20% surtax on basic Ontario tax over $3,978 and a 36% surtax on basic Ontario tax over $5,091.
• The Ontario Dividend Tax Credit available on dividends from taxable Canadian corporations will be adjusted to 6.4% for eligible dividends and 4.5% for other dividends as a result of the proposed reductions in corporate income tax rates.
• The budget proposes to amend the Pension Benefits Act Regulation and Schedule of Required Fees to increase access to locked-in accounts.
• A number of proposals announced in the 2009 federal budget will be automatically adopted, including changes to the withdrawal limit for the Home Buyers’ Plan and the carryback and deduction of the amount of post-death decreases in the value of an RRSP or RRIF where a final distribution of property occurs after 2008.
• The government proposes to change the Succession Law Reform Act to allow for a beneficiary designation of Tax-Free Savings Accounts.

• Ontario has proposed measures to encourage Tobacco Tax compliance.
• The budget confirms the December 30, 2008 announcement of the government’s intention to introduce legislation to convert the tax deduction that was available for corporations making eligible political contributions into a non-refundable tax credit, effective for taxation years ending after December 31, 2008.

• Technical amendments will be proposed to various statutes, including the Corporations Tax Act, Income Tax Act, Taxation Act, 2007, Employer Health Tax Act, Fuel Tax Act, Gasoline Tax Act, Land Transfer Tax Act, Mining Tax Act, Provincial Land Tax Act, 2006, Retail Sales Tax Act, and the Tobacco Tax Act.
  For further details, we refer you to the Ministry of Finance Web site, where you can access the official budget documents without charge.