Ontario Finance Minister Greg Sorbara delivered the Province’s 2007 Budget today. The following is a summary of the more significant tax and related measures.

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PERSONAL TAXES

Ontario Child Benefit

The Budget proposes the creation of the Ontario Child Benefit. The Ontario Child Benefit will be combined with the Ontario Child Care Supplement for Working Families and will be phased in starting in July 2007. In July 2007 there will be a lump sum payment of up to $250 per child under 18, reduced by 3.4% of family net income over $20,000.

Starting in July 2008, there will be monthly payments for each child under 18. The maximum annualized payment per child will be as follows:

July 2008 – June 2009    $ 600
July 2009 – June 2010    $ 805
July 2010 – June 2011    $ 900
July 2011 – June 2012    $ 1,100

After July 1, 2008, the benefit will be reduced by 8% of family net income in excess of $20,000.

Pension Income Splitting

On October 31, 2006, the federal government announced its intention to allow a recipient of qualifying pension income to transfer for tax purposes up to half of the amount received to his or her spouse, including a common-law partner, starting with the 2007 taxation year. The Budget proposes that Ontario parallel this measure, contingent on the federal legislation receiving Royal Assent.

Property and Sales Tax Credits for Seniors

The refundable Ontario Property and Sales Tax Credits for qualifying seniors are reduced by income over a threshold amount. The Budget proposes to increase the threshold for 2007 for senior couples over the current $23,090. The increased income threshold will be set so that those receiving the guaranteed minimum level of income from governments will not have their credit reduced.

Locked-In Retirement Accounts

The Budget proposes changes to locked-in retirement accounts, effective January 2008 at the earliest. The intention is to give seniors with locked-in retirement savings transferred from employer pension plans increased flexibility in planning their retirement income. Consultations will be initiated on the process for implementing new Life Income Funds and on other changes to the rules for locked-in accounts.

CORPORATE TAXES

Elimination of the Ontario Capital Tax

This Budget confirms the elimination of the capital tax effective July 1, 2010. As implemented in the 2006 Budget, the capital deduction was increased to $12.5 million from $10 million January 1, 2007 and will increase to $15 million January 1, 2008. The 2006 Budget reduced the capital tax rate for regular corporations to .285% from .3% January 1, 2007, to .225% January 1, 2009, and to .15% January 1, 2010.

Ontario – Federal Corporate Tax Harmonization

In October 2006, the Ontario and federal governments agreed to transfer the administration of Ontario corporate income tax to the federal government for taxation years ending after 2008. A condition of this agreement is for Ontario to eliminate its deduction of the portion of the federal investment tax credit related to scientific research and experimental development (SR&ED) in Ontario. The Ontario Research and Development Tax Credit replaced this deduction.

This non-refundable credit will be 4.5% of eligible expenditures and will be applicable for taxation years ending after 2008. Eligible expenditures will be those incurred by a corporation for SR&ED carried on through an Ontario permanent establishment and must be qualified SR&ED expenditures for purposes of the federal investment tax credit. This credit will be determined after the application of the corporate tax harmonization credits but before the corporate minimum tax credit. Corporations will be able to waive all or part of their credit entitlement. Partnerships will be able to flow the credit through to corporate partners active in the partnership. Unused credits will be able to be carried forward 20 years and back 3 years with no carry back to years ending before 2009.

There are further proposals, related to the transition from separate Ontario and federal tax pools, to harmonize tax pools with respect to various items, including unclaimed deductions for losses and SR&ED expenditures. Under the proposal, each Ontario tax pool will be adjusted to the federal balance. Any increase or decrease to Ontario tax as a result of these adjustments will be spread out evenly over five years, commencing with the corporation’s first taxation year ending after 2008. There will be special rules with respect to this five-year adjustment as it relates to the new 4.5% tax credit.

Corporate Minimum Tax (CMT)

Corporate minimum tax credits and losses currently carry forward for 10 years. The Budget proposes to extend the carry-forward period to 20 years, applicable for credits and losses arising in taxation years ending after March 22, 2007. Unused minimum tax credits from earlier years, at the beginning of a corporation’s first taxation year ending after 2008, will have their carry-forward period extended by 10 years.

The Budget proposes to simplify the corporate reorganization rules, including eliminating the need to track gains and the exemption from CMT of the accounting gains arising from corporate reorganizations or the replacement of assets. In addition, when a transferee disposes of a property that was acquired from a transferor that deferred the CMT gain, the transferee would no longer be liable for CMT on that deferred gain. These measures would apply to a disposition, amalgamation or winding-up completed after March 21, 2007.

Apprenticeship Training Tax Credit

The Budget proposes to extend this refundable tax credit to salaries and wages paid before January 1, 2015 in respect of apprentices who commence employment before January 1, 2012. In addition, six new trades will qualify for this credit.

Ontario Production Services Tax Credit

The rate of credit, available to Ontario-based corporations in respect of foreign and domestic productions not claimed under the Ontario Film and Tax Credit program, was temporarily increased to 18% from 11% in 2005. The Budget proposes to extend the rate increase to March 31, 2008.

RETAIL SALES TAX (RST)

Tax Credit for Fuel Conservation

The Budget proposes that vendors leasing vehicles eligible for the fuel conservation tax credit will be allowed to deduct the credit from their RST remittances.

Exemption for Destination Marketing Fees

The government proposes to extend the RST exemption for destination marketing fees. Any destination marketing fees billed on or before June 30, 2008 would qualify for exemption from the 5% RST on accommodations.

Rebate for Clean Home Energy Systems

The temporary RST rebate for residential purchases of solar, wind, micro hydro-electric and geothermal energy systems is being extended to purchases made before January 1, 2010.

OTHER MEASURES

The minimum hourly wage will be increased by 75 cents annually commencing March 31, 2008 reaching $10.25 on March 31, 2010.

As a result of expanded diamond mining in the province, a diamond royalty system will be introduced under the Mining Act. Effective March 22, 2007, a diamond mine’s output will be excluded from taxation under the Mining Tax Act but will be subject to the province’s royalty on diamonds.

Starting in 2008, the ceiling for the education portion of property taxes imposed on business will be reduced. By 2014 the ceiling BET rate will be 1.6% for both commercial and industrial properties.