On February 25, 2016, the Honourable Charles Sousa, Minister of Finance, presented the 2016 Ontario budget. This year’s budget focuses on job creation and economic growth. Similar to last year’s budget, a promise to balance the provincial budget by 2017-18 was reaffirmed. However, the deficit for 2015-16 is projected to be $5.7 billion, with a deficit of $4.3 billion anticipated for 2016-17.
The budget also contained a few interesting commodity tax initiatives, which are discussed below.
Tax on Alcohol
This year’s budget contains a number of announcements related to alcohol sales in Ontario, including a proposal for the Liquor Control Board of Ontario to increase the ad valorem mark-up for wine products by two percent, commencing in June 2016. This will be followed by a two percent increase in April 2017, another two percent increase in April 2018, and a further one percent increase in April 2019.
Winery retail stores would also increase the basic tax on non-Ontario wine by one percent in each of June 2016, April 2017, April 2018 and April 2019.
Phasing in over a three-year period will be an increase in the minimum table wine retail price to $7.95 for 750 mL bottles, which would include the deposit. Low-alcohol wine, fortified wine and cider will also have similar minimum retail prices established over three years.
The government also plans on introducing a tax on spirit purchases to replace the mark-up and commission structure currently used for sales by on-site distillery retail stores. In addition, an increase to basic wine tax rates for winery retail outlets located inside grocery stores will be introduced.
Tobacco Tax
To further discourage smoking and combat the underground economy, tobacco tax rates will increase by 1.5 cents to 15.475 cents per cigarette or gram of tobacco products (other than cigars), effective February 26, 2016. In addition, starting in 2017, tobacco tax rates will be increased based on inflation over the next five years. Tobacco product wholesalers that do not collect tobacco tax will be required to complete an inventory of tobacco products on hand at midnight on February 25, 2016, and remit the increased tax amount for the inventory held.
The Underground Economy
In an effort to curb the underground economy, Ontario is proposing to continue with several initiatives, including:
- informing the public of risks involved in the underground economy through public awareness campaigns;
- developing audit teams in partnership with the Canada Revenue Agency that are primarily engaged in sectors with a higher risk of underground economic activity, such as the residential construction industry;
- implementing legislation to improve information gathering, increase enforcement capabilities, and institute more penalties;
- continuing to work with industry to eliminate the use of electronic sales suppression technologies;
- identifying opportunities to collaborate with the federal government to help fight the underground economy; and
- building on policies set out in the 2015 budget to curtail the proliferation of contraband tobacco, as well as proposing to pass legislation allowing for the forfeiture of raw leaf tobacco.
New Cap-and-Trade Program
Following the global trend of pricing carbon, Ontario is embracing "clean technology" and introducing measures designed to shift towards a low-carbon economy. The recent introduction of Ontario’s Climate Change Strategy includes a plan to implement a cap-and-trade program for greenhouse gas (GHG) emissions. This proposal, commencing in 2017, aims to set an annual declining limit on emissions for each year for the first compliance period (from 2017 to 2020), and establish an allowance for certain sectors based on the forecasted emissions for each of these four years. The province will also consider other factors that affect this program, such as competitiveness and compliance, permitting the auctioning and free-of-charge allocation of allowances to certain industries.
As the cap is reduced each year to help meet emissions reduction targets, emitters would be required to cover their annual emissions with an adequate number of allowances. In order to achieve this, emitters could choose to either purchase additional allowances or lower their carbon footprint.
To alleviate the financial impact of this program on household energy consumers, the province will offer a selection of options for Ontarians to reduce GHG emissions. Based on initial forecasts, the pump price of gasoline is expected to jump by 4.3 cents per litre, and natural gas prices would increase by 3.3 cents per cubic metre, due to the implementation of the cap-and-trade initiatives, but this may be offset to some extent by other incentives provided to consumers. Legislation has already been introduced to establish a framework for this program, and further guidance on the province’s proposed cap-and-trade program is expected to be released at a later date.
Technical Amendments
The government has also committed to improve the effectiveness, enforcement and equity of its tax and revenue collection system, which will be accomplished by amending various provincial statutes in the next fiscal year. As a result, the Retail Sales Tax Act and Tobacco Tax Act will likely be impacted by these technical legislative amendments.
Further details on the 2016 Ontario budget can be found on the Ontario Ministry of Finance web site at:
http://www.fin.gov.on.ca/en/budget/ontariobudgets/2016/