Ontario's Comprehensive Tax Plan

In the 2009 Ontario Budget, the McGuinty government introduced a comprehensive tax package to support job creation, attract business investment and position Ontario's economy for long-term growth. The tax package includes more than $15 billion in tax relief for people and businesses in Ontario and the introduction of the Harmonized Sales Tax (HST) on July 1, 2010.

PERSONAL INCOME TAX (PIT) CUTS

The 2009 Budget provides $10.6 billion in tax relief to Ontarians over three years through Personal Income Tax (PIT) cuts, enhancements to the sales and property tax credits, and help for consumers with the move to the HST.

Effective January 1, 2010, 93 per cent of Ontario income tax payers will get a PIT cut and approximately 90,000 lower-income taxpayers will no longer pay Ontario PIT. The government is cutting the first tax bracket rate from 6.05 per cent to 5.05 per cent - the lowest provincial tax rate in Canada on the first $37,106 of taxable income. This will benefit about 4.3 million individuals and families in Ontario, providing more than $1.1 billion annually in broadly based PIT cuts.

SALES AND PROPERTY TAX CREDITS FOR LOW- TO MIDDLE-INCOME ONTARIANS

The government is introducing two new, separate and enhanced tax credits -- the Ontario Sales Tax Credit and the Ontario Property Tax Credit -- to replace the existing combined property and sales tax credits. An additional $1 billion in annual property and sales tax relief will be provided to low- to middle-income Ontarians through the new credits.

Ontario Sales Tax Credit
The Ontario Sales Tax Credit will be paid quarterly beginning in August 2010. The tax credit will provide about 2.9 million low- to middle-income families and individuals with annual assistance of up to $260 for each adult and child.

Ontario Property Tax Credit
The enhanced Ontario Property Tax Credit will be paid annually to low- to middle-income Ontario homeowners and renters. Seniors will be able to claim up to $625 plus 10 per cent of their occupancy cost. Non-seniors will be able to claim up to $250 plus 10 per cent of their occupancy cost. The maximum credit will be $1,025 for seniors and $900 for non-seniors, and will not exceed occupancy cost.

Like under the existing property tax relief, occupancy cost will be equal to property tax paid or 20 per cent of rent paid.

SALES TAX TRANSITION BENEFIT

To help Ontarians transition to the HST, the government will provide three non-taxable payments to eligible Ontario residents in June 2010, December 2010 and June 2011:

• Eligible families (including single parents) with adjusted family net incomes of $160,000 or less will receive three payments totalling $1,000.
• Eligible single individuals with adjusted net incomes of $80,000 or less will receive three payments totalling $300.

The transition benefit will provide about $4 billion to 6.5 million eligible individuals and families.

COMPETITIVE BUSINESS TAXES

The government is also providing $4.5 billion in tax relief over three years to lower business costs, enhance Ontario's competitiveness and support growing small businesses. These measures will build on tax cuts already in place, such as the elimination of the Capital Tax on July 1, 2010.

Large and small businesses will benefit from permanent and significant Corporate Income Tax (CIT) cuts, beginning July 1, 2010:

• The general CIT rate will be cut from 14 per cent to 12 per cent and further reduced to 10 per cent over three years
• The CIT rate on manufacturing and processing, mining, logging, farming and fishing income will be cut from 12 per cent to 10 per cent 
• The small business CIT rate will be cut from 5.5 per cent to 4.5 per cent 
• The small business deduction surtax of 4.25 per cent will be eliminated.

Once the Ontario CIT rate cuts are fully implemented, Ontario's combined federal-provincial CIT rate of 25 per cent will be lower than the current average corporate tax rate among developed countries.

The HST, when fully implemented, will save businesses $4.5 billion a year through input tax credits (ITCs) on business purchases. Business inputs are the cost of goods and services that a business purchases to conduct its operations. ITCs can generally be claimed by a business for the tax paid to provide taxable goods and services. In addition, businesses will save more than $500 million a year in compliance costs from the move to the HST.

When the tax changes are fully phased-in, Ontario's Marginal Effective Tax Rate (METR) on new business investment will be cut in half, making Ontario one of the most competitive jurisdictions in the industrialized world for new investment.

HARMONIZED SALES TAX

On July 1, 2010, the Retail Sales Tax (RST) will be replaced with a value-added tax and combined with the federal Goods and Services Tax (GST) to create a federally administered Harmonized Sales Tax (HST).

The HST will have a combined rate of 13 per cent. The provincial portion will be eight per cent and the federal portion will be five per cent.

Additional targeted relief will be provided to consumers through point-of-sale rebates, on the provincial component of the HST, on many items important to Ontario families including print newspapers, qualifying prepared food and beverages sold for $4 or less, books, children's clothing and footwear, diapers, children's car seats and car booster seats, and feminine hygiene products.

ELIMINATING HIDDEN TAX

Replacing the provincial sales tax will help eliminate the hidden sales tax that many products carry. Currently the RST is charged on various business costs throughout the production of an item. This hidden tax is ultimately added into the cost the consumer pays at the cash register.

Under the HST, most taxes paid on business inputs will be refunded to the business through ITCs - savings that can be passed on to consumers in the form of lower prices. Visit www.ontario.ca/taxchange for an illustrative example of hidden taxes.