On March 23, 2023, Minister of Finance Peter Bethlenfalvy tabled Ontario’s 2023 budget. This year’s budget projects a deficit of $1.3 billion, with plans to balance the budget next year, despite ongoing global economic uncertainty. Continuing the government’s “building” theme from last year, the budget includes record spending, with significant investments planned for: highway improvements and other key infrastructure projects; critical minerals and electric vehicle production; skills development and worker retention initiatives; and programs to support healthcare, education, public safety, and economic growth.
Several significant tax measures were included in this year’s budget, as outlined below.
Corporate Tax Measures
New Manufacturing Investment Tax Credit
The province has announced plans to launch a new 10% refundable corporate income tax credit for certain investments in buildings, machinery, and equipment used in manufacturing and processing in Ontario.
Many companies that are in the growth or scaling stage of their global maturity are typically unable to utilize traditional tax incentives because of their size or tax attribute status, given significant capital investment deductions. The refundable nature of the new Ontario Made Manufacturing Investment Tax Credit will make tax relief available to companies that are currently investing, but not yet paying significant amounts of corporate income tax federally and in Ontario. This is the power of the new incentive.
To qualify, a corporation must be a Canadian-controlled Private Corporation (CCPC) with a permanent establishment in Ontario that has qualifying investments in certain capital property included in capital cost allowance (CCA) Class 1 (buildings) or Class 53 (machinery and equipment). The capital property must be used for manufacturing or processing in Ontario and become “available for use” on or after March 23, 2023, and before 2026. After 2025, qualifying investments will include expenditures for certain machinery and equipment included in CCA Class 43(a).
The tax credit has an annual qualifying investment limit of $20 million for an associated group of qualified corporations, yielding a maximum of $2 million in refundable tax credits each year.
It is hoped that this initiative will encourage further manufacturing growth in Ontario.
Extension of Small Business Corporate Income Tax Rate
The province will introduce amendments to extend the phase-out range for the small business corporate income tax rate available to eligible CCPCs (and associated groups of CCPCs). Currently, the small business corporate income tax rate is limited to $500,000 of active business income and is phased out for eligible CCPCs (or associated groups) with between $10 million and $15 million of taxable capital employed in Canada.
In line with the federal government’s extension of the phase-out range for its small business deduction, as announced in Federal Budget 2022, Ontario will extend the range over which the small business corporate income tax rate phase-out occurs to between $10 million and $50 million, effective for taxation years that begin on or after April 7, 2022.
Adjustments to Film and Television Tax Credits
Consistent with last year’s budget and the province’s 2022 economic outlook and fiscal review, the government continues to modernize its tax incentives for the film and television industry. This year’s budget proposes the following changes to existing provincial corporate income tax credits:
- Extension of Ontario Film and Television Tax Credit eligibility to include productions made available exclusively online;
- Addition of a requirement that film and television productions receiving Ontario tax credit support provide an on-screen acknowledgement in the closing credits; and
- Simplification of the Ontario Computer Animation and Special Effects Tax Credit (previously proposed).
In addition, the province will move forward with a review of the regional bonus structure for the Ontario Film and Television Tax Credit.
Commodity Tax Measures
Tobacco Tax Administration
As a result of the review and modernization of the Tobacco Tax Act proposed in last year’s budget, the province has decided to remove outdated and redundant requirements from the legislation, which should provide more clarity and minimize the burden placed on registrants. The province also plans to investigate ways to further lessen the administrative burden, modernize compliance, and align the legislation with current marketplace and best-in-class practices found in other jurisdictions.
In addition, the province indicates that it will continue to engage and improve its partnership with the First Nations community and other stakeholders regarding proposed legislative changes and unregulated tobacco, concentrating on business regulation, community safety, and economic development.
Wine Tax Adjustment
This year’s budget proposes to merge the existing four separate basic rates of tax that apply to wine sold in off-site winery retail stores into one rate. Effective July 1, 2023, a 12% basic tax will apply to wine and wine coolers sold in off-site winery retail stores. This change is in response to the settlement reached between Ontario and Australia through the World Trade Organization.
Gasoline and Fuel Tax Reduction
The government also took the opportunity to remind taxpayers that its previously announced gasoline and fuel tax rate cuts (5.7 and 5.3 cents per litre, respectively) will remain in place until December 31, 2023.
Potential Harmonized Sales Tax (HST) Deferral for Rental Property Development
Interestingly, in its budget documents, the province has suggested that the federal government should defer the HST on new, large, purpose-built rental housing projects. While the provincial government believes that such a measure would encourage construction of more rental units and help address the affordable housing shortage, it is unclear what is meant by “defer” and how it might influence real estate development. Currently, in most cases, specialized rules already defer the impact of Goods and Services Tax (GST) and HST during construction of multiple-unit residential complexes until project completion. Further information will be required to evaluate the feasibility and potential impact of this proposal.
For information on new and extended government funding initiatives included in this year’s Ontario budget, please navigate to Mentor Works news at:
Further details on Ontario’s 2023 budget may be found on the province’s website at:
To read key updates from Canada’s 2023 provincial budgets, please navigate to Key Changes | 2023 Canadian Federal and Provincial Budgets.
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 firstname.lastname@example.org.