On November 14, 2022, Minister of Finance Peter Bethlenfalvy presented Ontario’s 2022 Fall Economic Statement. Titled 2022 Ontario Economic Outlook and Fiscal Review – Ontario’s Plan to Build: A Progress Update, the economic statement stays true to a “building” theme, addressing the construction of roads and other infrastructure, increased support for skilled trades, investments in critical minerals development and electric vehicle battery production, and the creation of a stronger and more resilient provincial economy.
Acknowledging the current uncertainty in the global economy, the government is now projecting a deficit of $12.9 billion for 2022–23, which is a reduction of approximately $7 billion from the estimate in last spring’s budget. The government’s fiscal plan also includes several interesting tax measures and funding initiatives, some of which were previously announced.
Corporate Income Tax Measures
Extension of Small Business Corporate Income Tax Rate
In a measure that will align Ontario’s small business corporate income tax rate with the same rate for federal income tax purposes, the province is proposing to extend the range over which this preferential income tax rate is phased out.
The 3.2% corporate income tax rate available to Canadian-controlled private corporations (CCPCs) on the first $500,000 of active business income is phased out on a straight-line basis for CCPCs (and associated groups of CCPCs) with more than $10 million of taxable capital employed in Canada in the previous year. Effective for taxation years beginning after April 6, 2022, the benefit from the small business corporate income tax rate will be phased out for taxable capital amounts between $10 million and $50 million. This change allows more small and medium businesses to benefit from the preferential tax rate, as the current rules fully eliminate the benefit at $15 million of taxable capital.
Immediate Expensing of Eligible Property for Certain Entities
The province announced that it intends to introduce a measure to temporarily allow certain entities to immediately expense eligible property. Paralleling similar federal measures, the following entities will be permitted to immediately expense up to $1.5 million in eligible property per year: CCPCs; unincorporated businesses carried on directly by Canadian residents who are individuals (excluding trusts); and Canadian partnerships where all partners are CCPCs or Canadian-resident individuals. The annual limit must be shared by any members of an associated group.
This new measure will apply to:
- Eligible property acquired by CCPCs after April 18, 2021, and becoming available for use prior to January 1, 2024; and
- Eligible property acquired by unincorporated businesses and partnerships on or after January 1, 2022, and becoming available for use prior to January 1, 2025 (subject to special rules for certain types of partnerships).
Many types of property will be eligible for immediate expensing under the proposed measure, including capital property that is normally subject to the federal capital cost allowance (CCA) rules. However, certain classes of property will be excluded, including those related to long-life assets, such as buildings and goodwill. The province notes that eligible property will include office furniture, passenger vehicles, tractors, freight trucks, rental cars, computers, data network infrastructure equipment, and systems software.
Revisions to Cultural Media Tax Credits
As announced in last spring’s budget, the government is committed to modernizing its cultural media tax credits, including expansion of the province’s film and television tax credits to professional productions distributed exclusively online. As part of this initiative, the economic statement includes a proposal to expand the definition of eligible tangible property expenditures for Ontario Production Services Tax Credit purposes to include more types of real property leased for on-location filming, effective for expenditures incurred after November 14, 2022.
Currently, tangible property expenditures are required to be paid to a person or partnership “ordinarily engaged” in the business of selling or leasing tangible property of the type being acquired or leased by the tax credit applicant. In addition to removing this requirement and expanding eligibility to include location fees paid to other types of businesses and homeowners, the proposed amendments will limit eligible real property leasing expenditures for on-location filming to 5% of an applicant’s qualifying production expenditures. Eligible expenditures will also be subject to both reasonability and arm’s-length tests.
To increase the visibility of its media support programs, the government is also proposing amendments to require eligible film and television productions to provide on-screen acknowledgement of any tax credits received, effective for productions beginning principal photography in 2023 or later.
Gasoline and Fuel Tax Measure
Extension of Temporary Rate Reductions
As announced in advance of the economic statement, the government has committed to amending both the Gasoline Tax Act and Fuel Tax Act to extend the temporary tax rate cuts for gasoline and diesel fuel that were put in place on July 1, 2022. Under these amendments, the tax rate on gasoline and diesel will remain at nine cents per litre until December 31, 2023. The province’s original gasoline and fuel tax reductions, which were 5.7 cents and 5.3 cents per litre, respectively, were previously set to expire on December 31, 2022.
Tobacco Tax Measure
Review of Tobacco Tax Regime
The province has confirmed its commitment to continue with various actions aimed at addressing unregulated tobacco and an overall review of the Tobacco Tax Act and its regulations to streamline the administration process and reduce the overall burden on taxpayers. First Nation partners, industry groups, and public health organizations will be consulted as the review proceeds.
Non-Resident Speculation Tax Measure
Tax Rate Increase
The economic statement reiterates the government’s most recent increase to the non-resident speculation tax rate from 20% to 25%, effective October 25, 2022. This tax applies to the purchase of homes in Ontario by foreign nationals, foreign corporations, and certain taxable trustees, subject to various exemptions and available rebates. Transitional provisions are in place to provide relief for transactions with valid purchase and sale agreements entered into before October 25, 2022.
Property Tax Measures
Reductions for Small Business
In its economic statement, the province noted that it intends to automatically match property tax reductions for small businesses in all municipalities that adopt the previously announced small business property subclass.
Update on Assessment Cycle
Except for the small business property tax reductions, the economic statement was relatively silent on Ontario’s property tax situation, despite the reality that the province is about to enter the seventh year of what is normally a four-year assessment cycle.
In last year’s fall economic statement, the province confirmed that the current property tax assessment cycle, which is based on a valuation date of January 1, 2016, will remain in place for 2023, adding to the growing uncertainty for taxpayers concerned about the current value of their properties and when the next assessment cycle will begin.
Previously Announced Measures
The fall economic statement also reaffirms the government’s intention to move forward with various tax measures previously announced as part of Ontario Budget 2022.
Government Funding Initiatives
For information on new and extended government funding initiatives included in this year’s fall economic statement, please navigate to our Mentor Works website at: Ontario Fall Economic Statement 2022
More Information
Further details on Ontario’s 2022 fall economic statement can be found on the Ministry of Finance website at: https://budget.ontario.ca/2022/fallstatement/
If you have any questions about how these proposed changes might impact your organization, please do not hesitate to contact the Ryan TaxDirect® line at 1.800.667.1600 or taxdirect@ryan.com.