Three important tax measures from the re-introduced 2014 Ontario Budget

The newly-elected provincial Liberal government in Ontario reintroduced its 2014 Ontario Budget on July 14, 2014.  The Budget, which remains essentially unchanged from the original version presented May 1, 2014, includes a few points of interest.  Below are three measures that are worthy of note.

Increase to personal income tax on taxable income above $150,000

For taxation years ending after December 31, 2013, the Budget introduces changes to the tax rates applicable to the upper income brackets.  Specifically, a new tax rate of 12.16% was introduced in the Budget on taxable income between $150,000 and $220,000.  In addition, the Budget also lowered the taxable income threshold for the application of the top rate (13.16%).  This rate, which previously applied to taxable income exceeding $514,090, will apply to taxable income above $220,000. These thresholds will not be adjusted for inflation.

Phase-out of provincial small business deduction for large Canadian Controlled Private Corporations (“CCPCs”) and associated groups of CCPCs

 Paralleling the Federal phase-out, the provincial Budget phases out the provincial small business deduction for large CCPCs and associated groups of CCPCs.  In particular, the small business deduction (which provides a reduced tax rate of 4.5 % on the first $500,000 of Ontario active business income) will be phased out for CCPCs with more than $10 million in taxable capital employed in Canada in the previous year and fully eliminated where the taxable capital exceeds $15 million in the previous year.  This measure is effective for taxation years ending after May 1, 2014.

A general anti-avoidance rule for the Land Transfer Tax Act

Effective for transactions completed after May 1, 2014, the Budget introduces a general anti-avoidance rule to the Land Transfer Tax Act.  This measure is aimed at curbing perceived abuses of the de minimis partnership exception contained in that legislation.  In particular, the Budget materials express concern that “some structures attempt to use Ontario Regulation 70/91, made under the Land Transfer Tax Act, in a manner inconsistent with its intent. The regulation provides a “de minimis” partnership exemption that is intended to apply to small changes in partnerships that own land. The exemption is not to be used as a vehicle to acquire land without payment of tax.”

The full text of the reintroduced Budget may be found here: