Finance Minister Dwight Duncan today delivered Ontario’s 2008 Budget. There were no new personal or corporate income taxes announced in the Budget. The following is a summary of the more significant tax and related measures.

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PERSONAL TAXES

Tax Rates

The Budget proposes no changes to personal income tax rates.

Tax Treatment of Dividends

Changes were announced in the 2008 Federal Budget to the taxation of eligible dividends. These changes reduce the gross-up applying to eligible dividends commencing in 2010. This Budget proposes to maintain the previously announced increases to the Ontario dividend tax credit rate on grossed-up eligible dividends to 7.4% in 2009 and 7.7% in 2010 and subsequent years.

Combining the Federal and Ontario changes, top marginal rates for eligible dividends in Ontario are as follows:

Property and Sales Tax Credits and Grants for Seniors

The Budget introduces a property tax grant for low and moderate income seniors who own their own homes, effective for 2009 and subsequent years. This grant is in addition to the current refundable property tax credit. The maximum grant will be $250 for 2009 and $500 thereafter. The grant application will be part of income tax returns. For single seniors, the full grant will be available where income is $35,000 or less and property taxes are at least $500. A reduced grant will be available for income between $35,000 and $50,000 and totally eliminated where income exceeds $50,000. For married taxpayers, the thresholds are $45,000 and $60,000 of combined income.

CORPORATE TAXES

Tax Rates

The Budget proposes no changes to corporate income tax rates.

Tax Exemption for Commercialization

The Budget proposes a 10-year corporate income and minimum tax holiday for new corporations that commercialize intellectual property developed by qualifying Canadian colleges, universities and research institutes. New corporations will be those established after March 24, 2008 and before March 25, 2012 that are incorporated in Canada and derive all or substantially all of their income from eligible commercialization activities carried on in Ontario. It is intended that the tax holiday apply to what are considered priority areas such as bio-economy/clean technologies, advanced health technologies and telecommunications, computer and digital technologies.

Ontario Capital Tax

The 2007 Economic Outlook and Fiscal Review announced the elimination of the capital tax for manufacturing and resource activities, effective January 1, 2008. The Budget not only confirms this measure but also announces that the elimination will be retroactive to January 1, 2007. For taxation years straddling January 1, 2007, the elimination will be pro-rated.

There will be complete elimination of the capital tax for corporations for which salaries and wages relating to manufacturing and processing, mining, logging, farming or fishing activities in Ontario represent at least 50% of their total salaries and wages in Ontario. Where such salaries and wages are more than 20% but less than 50% of total Ontario salaries and wages, there will be a proportionate reduction as opposed to full elimination of the capital tax.

The elimination for 2007 applies if the corporation or a successor has employees reporting to a permanent establishment in Ontario on March 25, 2008.

Enhancement of the Ontario Innovation Tax Credit

The Ontario Innovation Tax Credit (OITC) is a refundable 10% tax credit on qualifying scientific research and experimental development expenditures incurred in Ontario and is available to small and medium-sized corporations. The Budget proposes to enhance the credit by paralleling changes made in the 2008 Federal Budget.

Enhancement of the Ontario Interactive Digital Media Tax Credit

The Ontario Interactive Digital Media Tax Credit is a refundable credit available to corporations engaging in the creation, marketing and distribution of interactive digital media products in Ontario. The credit is 30% of qualifying expenditures for smaller corporations that develop and market their own products and 20% for larger corporations. The 30% rate for smaller corporations was to end on December 31, 2009.

The Budget proposes to extend the smaller corporation 30% rate to qualifying expenditures incurred before January 1, 2012. For larger corporations, the credit rate will be increased to 25% for fee-for-service work qualifying expenditures incurred after March 25, 2008 and before January 1, 2012. Currently, eligible labour expenditures must be incurred within a two-year period ending with completion of product development. The Budget proposes to extend this to a three-year period for products completed after March 25, 2008.

CONCORDANCE WITH FEDERAL MEASURES

The Budget announces the intention of Ontario to adopt the following previously announced Federal measures:

• Accelerated capital cost allowance for certain manufacturing and processing equipment;
  
  
• Expanded eligibility for enhanced capital cost allowance on clean energy generation assets;
  
  
• Capital cost allowance rate changes for carbon dioxide pipelines, and related pumping and compression equipment;
  
  
• Increased capital cost allowance rates for railway locomotives;
  
  
• Introduction of the Tax-Free Savings Account;
  
  
• Changes to Registered Education Savings Plans;
  
  
• Increases to the Northern Residents Deduction;
  
  
• Expansion of the list of qualifying medical expenses for individual taxpayers;
  
  
• Nil capital gains inclusion rate on the donation of securities to private foundations and of certain non-traded securities to all registered charities;
  
  
• Quarterly tax instalments for small corporations; and
  
  
• Increases to corporate tax instalment thresholds.
  
  

RETAIL SALES TAX (RST)

Retail Sales Tax Exemptions

The current temporary exemptions from RST for destination marketing fees, admissions to live theatres of not more than 3,200 seats, qualifying purchases of new Energy Star household appliances and light bulbs, new or used bicycles costing $1,000 or less as well as related safety equipment, and nicotine replacement therapies are extended by the Budget for varying periods.

Containers, Packaging and Shipping Items

In response to the recent Procter & Gamble court decision, the Budget proposes to amend the Retail Sales Tax Act, effective May 7, 1997, to confirm that RST applies on purchases of containers, packaging, storage and shipping items that are intended to be returned for reuse. The amendment will also confirm that RST is applicable on purchases of containers and other items that are provided as a promotional distribution.

TOBACCO TAX ACT

The Budget introduces the following measures to strengthen enforcement against the illegal manufacture and distribution of tobacco products:

• Require purchasers or importers of cigarette-making machinery to be registered as manufacturers under the Act;
  
  
• Increase abilities to seize tobacco products from persons found in violation of the Act; and
  
  
• Add minimum penalties to existing tax-based penalties for persons found to be in violation of the Act.

LAND TRANSFER TAX

Family Transfers of Farm Property

Currently, transfers of qualifying farmland between family members and to family farm corporations are exempt from land transfer tax. The Budget proposes to extend the exemption to transfers of farmland from family farm corporations to individual family members effective for transfers after March 25, 2008.