Finance Minister Dwight Duncan delivered Ontario's 2009 Budget on March 26, 2009. The following summarizes the tax related measures included in the current budget.

SALES TAX HARMONIZATION

General

It is proposed that starting July 1, 2010 Ontario will introduce a value-added tax. This tax will be combined with the federal Goods and Services Tax ("GST") to create a federally administered single sales tax. The Ontario value-added tax will replace the existing Ontario Retail Sales Tax ("RST"). The single combined value-added tax will have a 13% rate representing a 5% federal portion and 8% Ontario portion (the same rate as the current RST). The single sales tax will be largely consistent with the GST. The single sales tax will tax a wide range of goods and services but will not be charged on items such as basic groceries, prescription drugs and medical devices. Businesses making taxable or zero-rated sales will generally be able to claim input tax credits for the single sales tax paid on their purchases.

Sales Tax Transition Benefits for Individuals

To assist individuals during the introduction of the single sales tax, benefits will be payable to eligible Ontario income tax filers aged 18 and over.

Sales Tax Transition Support for Small Business

Effective March 31, 2010 the vendors' compensation currently paid under the RST will be eliminated. To assist small business in transitioning to the single sales tax, a credit will be provided. The credit will be based on taxable sales in the first full quarter commencing after June 30, 2010.

Temporarily Restricted Input Tax Credit ("ITC")

Restricted ITCs will be imposed on large businesses with annual taxable sales in excess of $10 million and financial institutions. The restriction will apply only to the provincial portion of the single sales tax and be in place for the first 5 years and then phased out over the following 3 years. Purchases subject to the ITC restriction include certain energy charges, certain telecommunication services, road vehicles less than 3,000 kilograms, food, beverages and entertainment.

Rebates for Public Service Bodies

Similar to the GST, rebates will be available to public service bodies for the provincial portion of the single sales tax.

New Housing Rebate

To ensure that new homes priced under $400,000 do not attract additional sales tax, a rebate will be available equal to 75% of the provincial component of the single sales tax (6%). This rebate will be phased out for homes priced between $400,000 and $500,000 with no rebate available for those priced over $500,000. Resale home purchases will not be subject to the single sales tax.

Insurance Premiums

Insurance premiums currently subject to the RST will also be subject to the 8% provincial portion of the single sales tax.

Alcohol Sales

RST is currently applied on purchases of alcoholic beverages at rates of 10% or 12%. Under the single sales tax these rates will fall to 8%. To ensure that existing revenues are maintained, alcohol fees, levies and charges will be adjusted upward to offset the sales tax rate reduction.

Private Transfers of Motor Vehicles

After implementation of the single sales tax, Ontario will retain a sales tax on private transfers of automobiles.

Hotel Rooms and Other Transient Accommodation

The RST currently applies at a rate of 5% on charges for hotel rooms and other transient accommodation. Under the single sales tax system such charges will be subject to the full 13% thereby increasing the provincial sales taxes applied to 8%.

MEASURES AFFECTING BUSINESSES

Corporate Income Tax Rates

Ontario's current general Corporate Income Tax rate is 14% of taxable income and the rate for manufacturing and processing (M&P), mining, logging, farming and fishing is 12%. The small business Corporate Income Tax rate currently is 5.5%.

The government is proposing to cut Corporate Income Tax rates, beginning July 1, 2010, as follows:

• The general corporate income tax rate would be cut from 14% to 12% and further reduced to 10% over three years.

• The corporate income tax rate on M&P and resource sectors would be cut from 12% to 10%.

• The small business corporate income tax rate would be cut from 5.5% to 4.5%.

• The small business deduction surtax of 4.25% would be eliminated.

Small Business Deduction Surtax

Currently, the benefit of the small business deduction is gradually phased out on taxable income between $500,000 and $1.5 million. The benefit of the small business deduction is phased out by a 4.25% surtax that is applied in addition to the regular Corporate Income Tax rates. The government proposed to eliminate the surtax for small businesses effective July 1, 2010.

Corporate Minimum Tax

It is proposed that effective for taxation years ending after June 30, 2010 the Corporate Minimum Tax rate be reduced to 2.7%; and a corporation or an associated group with under $50 million in total assets or under $100 million in annual gross revenues would not pay Corporate Minimum Tax.

The proposed rate reduction would be pro-rated for taxation years straddling the effective date.

Ontario Innovation Tax Credit ("OITC")

This Budget proposes to extend the OITC to more small and medium-sized corporations by extending the taxable income phase-out range of between $400,000 and $700,000 to a new phase-out range of between $500,000 and $800,000.

This measure would parallel the enhancement of the federal Investment Tax Credit for SR&ED proposed in the 2009 federal budget.

Ontario Film and Television Tax Credit

The government proposes to make the enhanced 35% Ontario Film and Television Tax Credit rate permanent.

Ontario Production Services Tax Credit

The government proposes to make the enhanced 25% Ontario Production Services Tax Credit rate permanent.

Ontario Interactive Digital Media Tax Credit ("OIDMTC")

This Budget proposes to enhance the tax credit rates, to expand eligible labour expenditures, and to extend the tax credit to more fee-for-service arrangements.

Ontario Computer Animation and Special Effects Tax Credit ("OCASE")

This Budget proposes, effective for qualifying expenditures incurred after March 26, 2009, enhancements to the OCASE tax credit that would:

Increase eligible labour expenditures to 100% from 50% of amounts paid to arm's-length unincorporated individuals and partnerships providing freelance services;

Expand eligible labour expenditures to include 100% of amounts paid to arm's-length incorporated individuals providing freelance services while ensuring that incorporated individuals cannot claim the credit directly; and

Streamline administration by relaxing the requirement that an eligible animation or visual effect be created primarily with digital technologies.

Ontario Book Publishing Tax Credit

This Budget proposes to expand eligibility to qualifying expenditures incurred after March 26, 2009 for any number of books by a Canadian author in an eligible category of writing and direct expenses that reasonably relate to publishing an electronic version of an eligible book.

Co-operative Education Tax Credit ("CETC")

This Budget proposes enhancements to the CETC, effective for eligible expenditures incurred after March 26, 2009, which would increase the 10% CETC rate to 25% and the enhanced 15% rate for small businesses to 30%; and increase the maximum tax credit available from $1,000 to $3,000 per work placement.

Apprenticeship Training Tax Credit ("ATTC")

This Budget proposes enhancements to the ATTC, effective for expenditures incurred after March 26, 2009, that would increase the 25% ATTC rate to 35% and the enhanced 30% rate for small businesses to 45%; increase the $5,000 annual maximum tax credit to $10,000; extend the ATTC to salaries and wages paid during the first 48 months of an apprenticeship program; and make the ATTC a permanent tax incentive.

MEASURES AFFECTING INDIVIDUALS

Ontario Sale Tax Transition

As part of the sales tax reform proposed in this Budget, a benefits would be delivered to eligible Ontario tax filers aged 18 and over in each of June 2010, December 2010 and June 2011, totaling a maximum of $300 for single people and $1,000 for single parents and couples. Each maximum benefit would be reduced by 5% of the recipients' previous year's adjusted family net income over $80,000 for single individuals and over $160,000 for families.

Ontario Sale Tax Transition

This Budget proposes a new ongoing sales tax credit to help low- to middle-income individuals and families with the sales taxes they pay. The new sales tax credit would replace the current sales tax relief, and would provide annual relief of up to $260 for each adult and each child. It would be reduced by 4% of adjusted family net income over $20,000 for single people and over $25,000 for families.

Ontario Property Tax Credit

Property tax relief, currently provided through the Ontario Property and Sales Tax Credits, would be replaced by a new refundable Ontario Property Tax Credit for low- to middle-income homeowners and tenants.

A credit would be provided for occupancy cost of up to $250 for non-seniors or $625 for seniors, plus 10% of occupancy cost. The credit would not exceed occupancy cost and would be subject to a maximum of $900 for non-seniors and $1,025 for seniors. It would then be reduced by 2% of adjusted family net income in excess of $20,000 for single individuals and $25,000 for families.

Eligible senior homeowners will continue to receive additional assistance with their property taxes through the Ontario Senior Homeowners' Property Tax Grant.

Personal Income Tax Relief

The government is proposing to provide personal income tax relief by cutting the first tax rate by one percentage point, from 6.05% to 5.05%, effective January 1, 2010. As a result, Ontarians would benefit from the lowest provincial tax rate in Canada on the first $36,848 of taxable income, based on legislation currently in place in other provinces.

Ontario Child Benefit

The 2007 budget introduced the Ontario Child Benefit (OCB) to assist low-income families with children under age 18. The OCB was to be phased in over five years when the maximum annual OCB level per child would increase to $1,100 starting July 1, 2011.

This budget accelerates the maximum annual $1,100 OCB to July 1, 2009. The budget also states that the government is committed to a maximum OCB level of $1,310 annually per child within five years.

Locked-In Accounts

The following changes will increase access to locked-in accounts:

• commencing January 1, 2010, unlocking permitted on purchase from new Life Income Funds (LIFs) will increase from 25% to 50%, allowing new LIF owners to unlock an additional 25% of amounts previously transferred into their existing fund (remaining old LIFs and Locked-in Retirement Income Funds (LRIFs) will be harmonized with the new rules, and current new LIF owners can unlock the additional 25%); and

• financial hardship application withdrawal fees for Ontario locked-in accounts will be waived for two years for applications approved after March 31, 2009.

Other Changes

As a result of the proposed reductions in Corporate Income tax rates, Ontario would adjust the tax credit rates for dividends from taxable Canadian corporations. The changes to the dividend tax credit rates would maintain the integration of Ontario's corporation income tax and personal income tax systems by reflecting the reduction in corporate income tax rates.

OTHER TAX MEASURES

Concordance with Federal Measures

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

• 100% accelerated capital cost allowance rate with no half-year rule for eligible computers and software acquired after January 27, 2009 and before February 2011.

• 50% straight-line accelerated capital cost allowance rate for manufacturing and processing machinery and equipment acquired in 2010 and 2011.

• Increase of the RRSP Homebuyer's Plan withdrawal limit to $25,000 from $20,000 effective for withdrawals after January 27, 2009.

• Carryback of post-death decreases in value of RRSP and RRIF to offset the year-of-death income inclusion for the deceased annuitant, effective for final distribution of property from the RRSP or RRIF of a deceased that occurs after 2008.

Pension reform

To modernize Ontario's pension system the budget includes measures that address the pension division on marriage breakdown and accommodate phased retirement programs.

Tobacco tax

The budget includes measures intended to strengthen tobacco-related enforcement activities.

Tax-Free Savings Accounts ("TFSA")

Technical amendments will also allow designated beneficiaries to receive TFSAs outside of a will in the same way that beneficiaries can receive RRSP proceeds. The TFSA could also pass to the designated beneficiary without being subject to Estate Administration Tax.