Ontario’s plan to raise taxes on those making more than $150,000, has grabbed early headlines, but the provincial government says it has more changes in store for taxpayers, should the budget pass.

Here are the changes that could affect your clients.

Read: Winners and losers from Ontario budget

Dividend Tax Credit Changes

The government plans to introduce legislation following up on its proposal to change how dividends are taxed. In its 2013 economic update the government said it would change the dividend tax credit rates and the surtax calculation, starting in 2014. The new rules would mean these credits have the same value for all taxpayers, regardless of their incomes. The tax credit rates for non-eligible and eligible dividends would be set at 4.5% and 10%, respectively.

Small Business Deduction

Ontario proposes to eliminate the Small Business Deduction (SBD) for large Canadian controlled private corporations (CCPCs). The SBD is intended to provide tax relief to small businesses in the province which they can use to invest, grow and create jobs. However, currently the SBD is available for all CCPCs regardless of their size.
Ontario is proposing to parallel the federal SBD phase-out where a CCPC’s taxable capital is between $10 and $15 million. CCPCs with taxable capital of $15 million or more would no longer be eligible for the preferential corporate income tax rate of 4.5% on the first $500,000 of active business income. Eliminating the preferential tax rate for large CCPCs targets the benefit of the SBD to small businesses only.
The changes would apply to taxation years ending after May 1, 2014 and would be pro-rated for taxation years straddling this date.

Corporate Tax Avoidance

The government will introduce legislative amendments to the Taxation Act, 2007, that would require corporations in Ontario to disclose aggressive tax avoidance transactions to the federal Minister of National Revenue, who administers Ontario’s corporate taxes. This approach parallels the measures taken by the federal and Quebec governments on reportable transaction rules.
Subject to federal implementation, Ontario would also automatically parallel the following federal initiatives to address aggressive international tax planning:

• Captive insurance—an amendment to an anti-avoidance rule intended to prevent Canadian taxpayers, e.g., financial institutions, from shifting income from the insurance of Canadian risks offshore;
• Offshore regulated banks—an amendment related to the calculation of income for regulated foreign financial institutions owned by Canadian taxpayers.

Land Transfer Tax

The Province proposes to introduce a general anti-avoidance rule into the Land Transfer Tax Act, applicable to transactions that are completed after May 1, 2014 and transactions that are part of a series of transactions that is completed after May 1, 2014. Other legislative options to further ensure the integrity of the land transfer tax system are also under consideration.

Tax Credit for Farmers

The Local Food Act, 2013, which received Royal Assent on November 6, 2013, introduced a new non-refundable income tax credit for farmers who donate agricultural products to community food programs, including food banks. The credit is worth 25% of the fair market value of the agricultural products donated and will be able to be claimed for donations made beginning January 1, 2014. The government will bring forward regulations to implement the credit.

Expanding the Ontario Child Benefit

In July 2014, the maximum annual Ontario Child Benefit (OCB) per child will increase to $1,310. The government proposes to begin indexing the OCB maximum benefit, and the income threshold at which the OCB starts to be reduced, to annual increases in the Ontario Consumer Price Index (CPI).

This would take effect in July 2015, and would safeguard the purchasing power of the OCB from erosion due to inflation.

Since the introduction of the OCB in 2007, Ontario Child Care Supplement (OCCS) payments have been reduced by the amount of a family’s OCB. OCCS will end July 2014 when the maximum annual OCB increases to $1,310 per child. The final OCCS payment will be paid in June 2014. Eligible families will continue to receive child benefit payments through the OCB.

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