On May 1, 2014, the Honourable Charles Sousa, Minister of Finance, presented the 2014 Ontario budget. This year’s budget provides a 10-year plan, with a focus on investing in people, modernizing infrastructure, and supporting a dynamic and innovative business environment. The government is also proposing the creation of a first-of-its-kind provincial pension plan, which is intended to help Ontario’s middle-income workers by providing pension benefits in addition to those provided by the Canada Pension Plan.
This year’s budget estimates the deficit for 2013–14 to be $11.3 billion, a $0.4 billion reduction from the 2013 budget forecast, and confirms the government’s commitment to balance the budget by 2017–18.
The budget also introduced a few interesting commodity tax measures, which are discussed below.
Tax on Aviation Fuel
Aviation fuel is currently taxed at a rate of 2.7 cents per litre, which is significantly lower than the tax rates applied to gasoline and diesel. To narrow the gap between the rates of tax on these fuels, the budget proposes to increase the tax on aviation fuel, beginning in 2014, by one cent per litre in each of the next four years. The initial one cent per litre increase will be effective the day after the necessary amendment to the Gasoline Tax Act receives Royal Assent. Subsequent one cent per litre increases will take effect on April 1 of 2015, 2016 and 2017, respectively. Once the increases have been fully implemented, the tax rate on aviation fuel will be 6.7 cents per litre.
Amendments will also be proposed to provide the Minister of Finance with the authority to require the completion of an inventory report and make regulations in respect of transitional matters, in order to facilitate the remittance of additional tax owing at the time of each rate increase.
Registration Requirements for Road-Building Equipment
Under the Fuel Tax Act, unlicensed commercial vehicles may use tax-exempt diesel fuel. Currently, many types of road-building equipment, such as mobile cranes and concrete pumpers, are not required to be licensed and, as a result, qualify for this tax relief. The budget is proposing to amend the Highway Traffic Act to require the registration and licensing of road-building equipment used on public roads and highways. These amendments will result in additional fuel tax revenue for the province, since the operators of newly licensed road-building equipment will no longer be allowed to purchase tax-exempt fuel for use in these vehicles.
Enhanced Audit Activity
The Ministry of Finance currently administers the Employer Health Tax, Tobacco Tax, and Gasoline and Fuel Tax. In 2014, the Ministry intends to direct additional resources to its Flexible and Integrated Risk System (FAIRS) program in order to identify high-risk audit files related to these taxes. This enhanced audit activity is expected to generate an additional $10 million in tax revenue annually.
The Underground Economy
This year’s budget estimates that the underground economy accounts for roughly 2.3 per cent ($15 billion) of the provincial economy. One major impact of the underground economy is the erosion of tax revenue. However, the province notes that the underground economy also undermines business competitiveness, can lead to unsafe working conditions, and puts consumers at risk in cash transactions. To address these negative impacts, Ontario is proposing to:
- develop an action plan, with collaboration among the Ministries of Finance, Labour and Consumer Services, to increase public awareness, coordinate enforcement activities and partner with business in shrinking the underground economy;
- work with the Canada Revenue Agency to enhance compliance action aimed at businesses operating within the underground economy; and
- once again, call on the federal government to release a national strategy to coordinate the activities of all Canadian governments in the fight against the underground economy.
According to the province, the use of tobacco causes nearly 13,000 Ontario deaths and leads to $2.2 billion in health care costs annually. To reduce these numbers, the province has developed a “Smoke-Free Strategy”, with stated goals of reducing the supply of low-cost, illegal tobacco to young people and having the lowest smoking rates in the country. Three initiatives are being proposed in this year’s budget as part of this strategy.
Tobacco Tax Increase
Effective May 2, 2014, the tobacco tax rate will increase by 1.625 cents to 13.975 cents per cigarette (or to $27.95 per carton of 200 cigarettes) or gram of tobacco product, excluding cigarettes and cigars. The rate of tax on cigars will remain at 56.6 per cent of the taxable price. Tobacco wholesalers that are not tobacco tax collectors will be required to count their inventory of tobacco products (excluding cigars) on hand at the end of the day on May 1, 2014, and remit additional tax resulting from this increase to the Ministry of Finance.
First Nations Partnership
In a pilot-project with two First Nation communities, the province is continuing its efforts to enter into agreements for on-reserve, community-based tobacco regulation and revenue sharing. In addition, the province will appoint a facilitator to work with First Nation leaders and communities and seek advice in order to modernize the First Nations Cigarette Allocation System currently in place.
Contraband Tobacco Enforcement
To curb the supply of contraband tobacco, the budget proposes to introduce two measures aimed at strengthening tobacco legislation enforcement. First, effective January 1, 2015, a raw leaf oversight system will be implemented. Second, the Tobacco Tax Act will be amended to increase fines in relation to offences involving marked tobacco products and allow enforcement officers to impound vehicles used to transport illegal tobacco.
Further details on the 2014 Ontario budget are available from the Ontario Ministry of Finance web site at: 2014 Ontario Budget