On March 25, 2020, Ontario’s Minister of Finance, Rod Phillips presented an economic and fiscal update outlining the province’s action plan in response to the COVID-19 pandemic. This update was released in place of a full fiscal budget, which the province intends to release no later than November 15, 2020.
In this update, the province announced a $17 billion aid package to support Ontario’s health care system, communities, and economy during this time of crisis. The province’s action plan is two-fold: $7 billion in direct funding for the province’s health care system, as well as to support its people and protect their jobs; and $10 billion to improve immediate cash flow for the province’s businesses through tax and other deferrals. As a result, the province projects that its deficit will rise to $20.5 billion for 2020–21.
This Tax Alert will focus on the tax measures proposed by the Ontario government as part of its action plan, as well as other measures that may be significant to our clients.
Temporary Doubling of the Employer Health Tax (EHT) Exemption
The EHT is a payroll tax paid by employers based on their total annual Ontario remuneration, and has a top rate of 1.95%. Private-sector employers with total annual Ontario remuneration of less than $5 million are currently eligible for an EHT exemption on up to $490,000 of their payroll. Private-sector employers (except registered charities) with total annual Ontario remuneration over $5 million, and public-sector employers are not eligible for the exemption.
The government proposes to retroactively raise the EHT exemption from $490,000 to $1 million for 2020. The exemption returns to its current level of $490,000 on January 1, 2021.
Interest and Penalty Relief for Ontario Businesses
Beginning April 1, 2020, penalties and interest will not apply to Ontario businesses that miss any filing or remittance deadlines under select provincially administered taxes. This will continue for a period of five months, up until August 31, 2020, under the following provincially administered tax programs:
- Employer Health Tax
- Tobacco Tax
- Fuel Tax
- Gas Tax
- Beer, Wine and Spirits Taxes
- Mining Tax
- Insurance Premium Tax
- International Fuel Tax Agreement
- Retail Sales Tax on Insurance Contracts and Benefit Plans
- Race Tracks Tax
The interest and penalty relief period is available to all Ontario businesses that are required to file returns and make remittances under these tax programs. During the relief period, penalties and interest will not apply to late returns or remittances. This initiative complements the relief from interest and penalties for not remitting Corporate Income Tax owing that was announced by the federal government on March 18, 2020.
Businesses will not be required to provide any documentation supporting their reasons for late filing or payments and they will not be required to advise the Ontario Ministry of Finance of their inability to meet their deadline(s).
Postponement of Planned Property Tax Reassessment
The government is postponing the planned property tax reassessment for 2021. Property taxation is based on the assessed value of properties and in Ontario those assessments are updated every four years. The next property valuation update, known as a reassessment, was scheduled to be completed by the Municipal Property Assessment Corporation (MPAC) in 2020 for the 2021 taxation year. However, due to the unforeseen challenges all municipalities, residents, and businesses are facing during 2020, the government is postponing the reassessment. This means assessments for the 2021 taxation year will continue to be based on the same valuation date that was in effect for the 2020 taxation year.
This measure will not have a financial impact on municipalities, as MPAC will continue to maintain the assessment roll and ensure that it is updated to reflect changes such as new construction.
Introduction of the Regional Opportunities Investment Tax Credit (RITC)
The province proposes to introduce a new 10% refundable Corporate Income Tax credit for capital investments, called the RITC. Canadian-controlled private corporations that make expenditures in excess of $50,000, and up to a limit of $500,000, for qualifying investments, which become available for use on or after March 25, 2020 in specified regions of Ontario would be eligible for the RITC. For the purposes of the RITC, “available for use” is defined in accordance with the rules set out in the Income Tax Act (Canada) that determine the taxation year in which a taxpayer can start claiming capital cost allowance for a depreciable property. Qualifying investments would be eligible expenditures for capital property that would be included in Class 1 and Class 6 for the purposes of calculating capital cost allowance. It would also include expenditures for constructing, renovating, or acquiring eligible commercial and industrial buildings and other assets.
The government proposes to include a mandatory review to be undertaken every three years, which would evaluate the credit for effectiveness, compliance burden, and administrative costs.
The COVID-19 action plan also includes the following additional measures:
- Allow employers to defer Workplace Safety and Insurance Board (WSIB) payments for up to six months. Schedule 1 employers with premiums owed to the WSIB will be allowed to defer reporting and payments until August 31, 2020. The deferral will also apply to Schedule 2 businesses that pay WSIB for the cost related to their workplace injury and illness claims. No interest will be accrued on outstanding premium payments and no penalties will be charged during this six-month deferral period.
- Temporarily suspend Ontario Student Assistance Program (OSAP) loan repayments between March 30, 2020 and September 30, 2020, during which time borrowers will not be required to make any loan or interest payments.
- Provide Ontario parents with a one-time payment of $200 per child up to 12 years of age, and $250 for those with special needs, including children enrolled in private schools to assist with the extra costs associated with the closure of schools and daycares during the COVID 19 outbreak.
- Provide $9 million in direct support to families for their energy bills by expanding eligibility for the Low-income Energy Assistance Program and ensuring that their electricity and natural gas services are not disconnected for nonpayment during the COVID-19 outbreak.
- Set electricity prices for residential, farm and small business time-of-use customers at the lowest rate, known as the off-peak price, 24 hours a day for 45 days to support ratepayers in their increased daytime electricity usage and address concerns about time-of-use metering.
- Double the Guaranteed Annual Income System payment for low-income seniors for six months, starting in April 2020.
- Defer property tax payments the municipalities make to school boards by 90 days.
- Provide additional supports of $26 million to Indigenous peoples and communities.
The information in this publication is current as of March 25, 2020.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.