Ontario's Plan for More Jobs and Growth
Today Finance Minister Dwight Duncan introduced the Ontario Tax Plan for More Jobs and Growth Act, 2009. This Bill builds on the measures laid out in the 2009 Budget and in the recent 2009 Fall Economic Statement.
During this global recession, intense competition for investment and jobs poses an increasing challenge to Ontario's traditional sources of prosperity. Ontario must attract the business investment needed to ensure sustained economic growth, enhance the province's standard of living and preserve the public services that Ontarians rely on.
As important as stimulus measures, such as infrastructure and skills training, are, we must position Ontario for future prosperity. That is why the McGuinty government set out a plan in the 2009 Budget to create jobs and economic growth. This plan includes the most significant reform of Ontario's tax system in a generation to improve the province's competitiveness leading to job creation and economic growth.
The proposed tax plan would:
- Cut Personal Income Tax for 93 per cent of taxpayers
- Almost double property tax and sales tax credits for more Ontarians
- Reduce Corporate Income Tax rates for large and small businesses
- Eliminate the small business deduction surtax
- Replace the eight per cent Retail Sales Tax (RST) with a more modern, value-added tax that would be combined with the five per cent Goods and Services Tax (GST) to create a 13 per cent Harmonized Sales Tax (HST), boosting Ontario's tax competitiveness to create jobs and growth, while not changing the sales tax status for 83 per cent of total consumer purchases
- Provide direct payments to people and businesses to assist in the transition to the HST
- Reduce provincial revenues by $3.4 billion over the first four years, net of federal transitional assistance of $4.3 billion
Ontario's Bold Move to Create Jobs and GrowthA recent study, Ontario's Bold Move to Create Jobs and Growth, released by economist and tax expert Jack Mintz, examines the economic impacts of Ontario's tax plan. The study states that the HST combined with Ontario's proposed corporate income tax rate cuts and other recent tax changes would significantly increase jobs and capital investment, and lead to higher annual incomes for Ontarians.
The study estimates that, within 10 years, 591,000 net new jobs would be created and annual incomes would increase by up to 8.8 per cent.
MODERNIZING ONTARIO'S TAX SYSTEM TO CREATE JOBS AND GROWTH
The Bill would implement measures proposed in the 2009 Budget, including the personal income tax rate cut, the property tax and sales tax credit enhancements and the corporate income tax cuts.
The following are other components of the Bill that implement the harmonized sales tax for jobs and growth and enhance the integrity of the tax system.
IMPLEMENTING THE HARMONIZED SALES TAX FOR JOBS AND GROWTH
The McGuinty government continues to work with businesses, stakeholders and other interested parties to ensure a smooth transition to the HST.
On November 9, 2009, Canada and Ontario entered into a Comprehensive Integrated Tax Coordination Agreement (CITCA). The agreement, subject to legislative approvals, would provide the policy framework for the HST.
Winding Down the Retail Sales Tax
As part of the move to an HST, Ontario would wind down broad-based tax provisions of the current Retail Sales Tax Act, with the exception of certain provincially levied taxes, such as the sales tax on specified insurance premiums and private transfers of used vehicles. The existing RST and related exemptions, special rates, credits and rebates under the Retail Sales Tax Act would generally end for transactions on or after July 1, 2010.
The 2009 Budget proposed to provide targeted relief from the eight per cent provincial portion of the HST on many items important to Ontario families by providing point-of-sale rebates for books, children's clothing and footwear, diapers, children's car seats and car booster seats, and feminine hygiene products.
As announced on November 12, 2009, in addition to the rebates proposed in the 2009 Budget, the government is proposing point-of-sale rebates on the following items:
- Print newspapers that contain news, editorials, feature stories or other information of interest to the general public, published at regular intervals, typically on a daily, weekly, or monthly basis. This excludes flyers, inserts, magazines, periodicals and shoppers. This point-of-sale rebate is expected to provide a benefit to consumers of approximately $65 million per year.
- Qualifying prepared food and beverages that are ready for immediate consumption if the total price for all qualifying items purchased, excluding HST, is not more than $4.00. This point-of-sale rebate is expected to provide a benefit to consumers of approximately $260 million per year.
Promoting Newer, More Fuel-Efficient Vehicles
As part of the transition to the HST and wind-down of RST, the Tax for Fuel Conservation and Tax Credit for Fuel Conservation for new passenger and sport utility vehicles, both legislated under the Retail Sales Tax Act, would no longer apply to new vehicle purchases on or after July 1, 2010. This would save businesses and consumers approximately $35 million per year.
The McGuinty government's goal is that, by 2020, one in every 20 passenger vehicles on the province's roads will be an electric vehicle, which will help the environment and strengthen Ontario's economy by driving innovation, stimulating the global auto sector and creating jobs. Various incentives were recently announced to support this ambitious plan, including a purchase rebate that will be provided to consumers to help reduce the higher cost of electric vehicles. The rebate will be available for plug-in hybrid and battery electric vehicles purchased after July 1, 2010. The introduction of the new rebate for electric vehicles will coincide with the sunset date for the existing RST rebate for alternative fuel vehicles which, as set out in the Bill, would no longer be available for purchases as of July 1, 2010.
Eliminating the Multi-Jurisdictional Vehicle Tax
As part of the transition to the HST and wind-down of the RST, the existing tax on multi-jurisdictional vehicles would no longer apply to renewals or new registrations of these vehicles under the International Registration Plan (IRP) on or after July 1, 2010. In addition, these vehicles would no longer be subject to RST (exit tax) when they cease to be registered under the IRP on or after July 1, 2010.
Eliminating the tax on multi-jurisdictional vehicles would be consistent with the treatment in other Canadian provinces that have adopted a value-added tax and would help maintain a level playing field between multi-jurisdictional and domestic vehicles.
ENHANCING THE INTEGRITY OF THE TAX SYSTEM
The Bill would implement measures proposed in the 2009 Budget to make adjustments to current alcohol fees, levies and charges and to retain a sales tax on private transfers of used vehicles.
Leveling the Playing Field for Private Transfers of Used Vehicles
As announced in the 2009 Budget, Ontario would retain a sales tax on private transfers of used vehicles, similar to the tax treatment in other provinces. The tax rate would be 13 per cent, to help ensure a level playing field between sales by GST/HST registrants (e.g. car dealerships) and private sales. The tax would generally apply to the same vehicle classes that are currently subject to RST, including boats and aircrafts.
Applying the 13 per cent rate to private transfers of used vehicles would raise about $70 million per year in additional revenue.
Exemptions under the current RST on used vehicles would be maintained. The exemption for gifts by family members would be expanded to include siblings, similar to the treatment in other provinces.
Replacing Alcohol Fees
The proposed Ontario Tax Plan for More Jobs and Growth Act, 2009 would replace certain alcohol fees and charges with taxes to enhance their operational structure and legislative clarity. The proposed measures would take effect on July 1, 2010. Rates would be set to:
- Maintain the revenue that would be lost in lowering the 12 per cent and 10 per cent RST rates on alcohol to the Ontario HST rate of eight per cent and maintain the revenue that currently comes from the fees and charges on alcohol products
- Mirror the current system as closely as possible and minimize any shifts in revenue from one segment of the market to another
- Generate no net new revenue for the province and minimize any changes to consumer prices
- Create a structure that continues to promote social responsibility.
The new rates would apply to retail channels outside the Liquor Control Board of Ontario (LCBO). The markups that apply to purchases in the LCBO would be adjusted to achieve the exact same effect as the new rates, ensuring a level playing field across all retail channels.
The new wine rates would apply to the purchase of wine from winery retail stores to offset the proposed reduction in the sales tax rate.
Changes to maintain social responsibility will also be introduced.
Support for Ontario's Wine and Grape Strategy
As announced on October 13, 2009, the McGuinty government is proposing a plan to build on the success of the Ontario grape and wine industry. To support the growth of Vintners Quality Alliance (VQA) wines made from 100 per cent Ontario grapes, the province would implement a VQA support program, marketing initiatives and transition programs. These programs would be financed by levying an additional 10 percentage points on cellared in Canada wines sold in winery retail stores. It is expected that this differential rate would generate approximately $12 million a year in additional revenue to support Ontario's strategy for VQA wines and grapes in Ontario.
Tax Support for Microbrewers
The existing graduated beer fee structure for microbrewers provided by Ontario is being replaced with a single reduced basic rate to help support the development and growth of microbrewers. The single reduced basic rate would apply to purchases of microbrewery products made by beer manufacturers whose annual worldwide production of beer is 50,000 hectolitres or less. This lower rate would help ensure that existing microbrewers continue to benefit from the same level of support as they do now.
The government is proposing to introduce legislation next spring that would provide a refundable corporate tax credit for growing microbrewers effective July 1, 2010. A qualifying microbrewer would be a corporation that is a manufacturer of beer with a permanent establishment in Ontario and whose total annual worldwide production of beer exceeds 50,000 hectolitres but does not exceed 150,000 hectolitres.