Ontario Budget Highlights - June 17, 2002

On June 17, 2002, the Honourable Janet Ecker delivered her first budget as Minister of Finance. In spite of the economic slowdown in the latter part of 2001, she announced that the government was on target to deliver its fourth consecutive balanced budget. This will be accomplished by delaying certain previously announced tax cuts for one year and by focusing spending increases in the priority areas of health care, education and the environment . The following is a summary of the income tax highlights of the budget. For detailed information , please see the official budget documents on the budget page of the Ministry of Finance.

Business Tax Measures

• In last year's budget, the government announced that its tax rate cuts to reduce the general corporate rate of tax, for income not eligible for the small business tax rate, to 8%, would all be implemented by the end of 2004. In today's budget, the Minister announced a one-year delay in the planned reductions in the general and manufacturing tax rates. The planned reductions in the small business tax rate will proceed as previously announced. After today's budget announcement, the proposed corporate tax rates in Ontario will be as follows:

  	General Corporate Tax Rate	Tax rate on income from manufacturing and processing, mining, logging, farming and fishing.	Small business Tax rate
  Currently	12.5%	11%	6%
  January 1, 2003	12.5%	11%	5.5%
  January 1, 2004	11%	10%	5%
  January 1, 2005	9.5%	9%	4%
  January 1, 2006	8%	8%	4%

• The previously announced reductions in the mining tax rate will proceed unchanged.

• No changes were announced regarding the time frame for the increase to the income eligible for the small business rate to $400,000, which is still to be fully implemented by January 1, 2002.

• All tax rate reductions will be effective January 1 of each year and will be prorated for taxation years that straddle the effective date .

• Ontario will parallel Canada's income tax treaties for the purposes of determining whether a non-resident corporation has a permanent establishment in Ontario, effective for taxation years after June 17, 2002.

• Capital tax: The budget did not propose any changes to the capital tax.

• Other: There is no change in the 2001 budget proposal that permits corporations to pay quarterly rather than monthly instalments for taxation years commencing in 2002, if their tax payable in the current or preceding year is between $2,000 and $10,000.

  
  Personal Tax Measures

• The 2001 budget announced reductions in personal income tax rates that were planned to take effect January 1, 2003. These reductions are being delayed by one year, to January 1, 2004. These tax rate cuts affect the low- and middle-income tax brackets only. The personal tax rates for 2002 to 2004 will be:

  Taxable income	$0 to $31,893	$31,893 to $63,786	Over $63,786
  2002	6.05%	9.15%	11.16%
  2003	6.05%	9.15%	11.16%
  2004	5.65%	8.85%	11.16%

  The tax bracket thresholds shown are for the year 2002 and will be indexed for both 2003 and 2004

• The threshold for the first-tier surtax (currently 20% of Ontario tax in excess of $3,685, corresponding to taxable income in excess of $56.161) will be increased to that of the second-tier surtax (currently 36% of Ontario tax in excess of $4,648, corresponding to a taxable income level of $66,164) effective January 1, 2004, instead of January 1, 2003. For 2004 and subsequent years, a single surtax of 56% will apply to Ontario tax above the $4,648 threshold (which will be indexed).

• The budget proposes to increase the Ontario Tax Reduction beginning January 1, 2003, from the current amount of $161 to $178 (plus an increase fro inflation). The Ontario Tax reduction, intended to eliminate or reduce Ontario income tax for low-income individuals, currently applies to individuals with income under $13,008.

• The refundable education tax credit, proposed in the 2001 budget, takes effect in 2002 for tuition fees paid to independent schools in Ontario, including kindergarten, elementary and secondary schools. The credit applies to the first $7,000 of tuition fees paid per child and was to be phased in over five years, beginning with a 10% rate for 2002. The rate increase to 20% will be delayed until 2004 and the final increase to 50% will be reached in 2007.

  The following chart compares top personal and corporate tax rates and sales tax rates for all provinces and territories, as announced to June 17, 2002.

  	Top 2002 Personal Rates	Top Corporate Rates			Retail Sales Tax %
  		General %	M&P %	Small Business %
  B.C.	43.70	39.62	35.62	17.62	7.5
  Alberta	39.00	39.12 (1)	35.12 (1)	17.62 (1)	-
  Sask.	44.50	43.12	32.12	19.12	6.0
  Manitoba	46.40	42.62	38.62	18.12	7.0
  Ontario	46.41	38.62	33.12	19.12	8.0
  Quebec	48.22	35.16	31.16	22.16	7.5 (5)
  N.B.	46.84	42.12 (2)	38.12	17.12 (2)	8.0 (3)
  N.S.	47.34	42.12	38.12	18.12	8.0 (3)
  P.E.I.	47.37	42.12	29.62	20.62	10.0 (5)
  NFLD.	48.64	40.12	27.12	18.12	8.0 (3)
  Yukon	42.40	41.12	24.62	19.12 (4)	-
  Nunavut	40.50	38.12	34.12	17.12	-
  N.W.T.	42.05	40.12	36.12	18.12	-

1. Effective April 1, 2002, the Alberta corporate rates were reduced. Before the reduction, the combined general rate was 39.62%, the combined M&P rate was 35.62% and the combined small business rate was 18.12%.
2. Effective July 1, 2002, the New Brunswick general and small business tax rates will be reduced. The combined general rate will be 40.62% and the combined small business rate will be 16.62%.
3. As part of the HST (combined rate is 15% with GST).
4. The tax rate for M&P profits eligible for the small business deduction is 15.62%.
5. Provincial sales tax applies on GST. Effective combined rate is 15.025% in Québec and 17.7% in P.E.I.

Disclaimer

The information provided is of a general nature and is not intended to construe an opinion. As each taxpayer's situation is unique, no one should act upon any of the above without first obtaining professional advice, from a Chartered Accountant, concerning the particular facts of their situation .

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