Ontario to expand access to small-business tax rate, increase disability and senior payments

Ontario will match a tax break for small businesses proposed in the 2022 federal budget and included in Bill C-32, tabled in Parliament earlier this month.

In its fall economic statement released Monday, Ontario’s Conservative government proposed increasing the level of taxable capital at which a business can still access the small business tax rate (a provincial rate of 3.2% on the first $500,000 of taxable income, versus the general corporate rate of 11.5%).

Under current rules, access to the small business rate is proportionally reduced when a business has taxable capital of between $10 million and $15 million. Under the proposal, access to the rate would phase out more gradually between $10 million and $50 million.

The 2022 federal budget said the proposed change would allow more medium-sized small businesses to access the small business deduction (SBD) and increase the amount of active business income that would be eligible for the SBD. The proposal would be effective for tax years beginning on or after the federal budget date.

Ontario intends to introduce legislation for this measure once Bill C-32 has received royal assent, to ensure simplicity and clarity for businesses. The proposed Ontario measure would apply to taxation years that begin on or after April 7, 2022, consistent with the proposed federal change.

“The increased threshold will be a much-needed incentive for small businesses,” said Armando Minicucci, a tax partner with Grant Thornton LLP in Toronto, in an email.

“The increased funding will support growth and investment in people and equipment. Often, a business’s significant debt load results in a grind to the small business deduction, yet they are the businesses that need it the most.”

Most provinces refer to the federal business limit for the purposes of calculating small business tax, meaning that provincial rules would automatically align with the federal change. However, Ontario needed to make a legislative amendments to match the proposed federal measure.

The Ontario government said the change would allow about 5,500 more businesses to use the small business corporate income tax rate and give businesses $185 million in income tax relief over three years.

In addition to a measure announced Sunday that a 5.7-cent gas tax cut that took effect in July would be extended until the end of 2023, the mini budget also contains changes to allow Ontario Disability Support Program recipients to keep more of their earnings and doubles payments to low-income seniors.

The government seeks to increase the monthly earnings exemption for people on ODSP from $200 to $1,000 per month. Above that amount, people on ODSP could keep 25 cents on the dollar. It could encourage up to 25,000 more people to participate in the workforce, the government said.

In the budget earlier this year, the government increased ODSP rates by 5% and promised to index future increases to inflation, but advocates have said the amounts still leave people unable to pay for basic needs.

For low-income seniors, the government proposes to double the Guaranteed Annual Income System payment for a year starting in January. The maximum payment for single seniors would be $166 per month and $332 per month for couples. The government is also indicating it is working on expanding eligibility for the payments.

The government also indicated it would begin consultations on regulations to implement a permanent target-benefit pension plan framework in Ontario. These multi-employer plans — which are often created by a union or association for a specific industry — would allow more employers to offer workplace pensions, the document stated, and allow more workers to remain in a plan after changing jobs.

Ontario is projecting improving deficits over the next couple of years, despite an expected economic slowdown, and expects to nearly come to balance in two years.

The province forecasts a deficit of $12.9 billion in this fiscal year, followed by $8.1 billion the following year and a deficit of just $700 million in 2024-25.

Government officials say a nearly $7-billion improvement in this year’s $19.9-billion deficit from the spring budget is largely due to higher nominal GDP and inflation.

Ministry of Finance officials say there is a high degree of economic uncertainty, and under a faster economic growth scenario Ontario could see a $9.2-billion surplus in 2024-25, while under a slower growth scenario, the deficit that year could be $8.5 billion.

Ontario’s real GDP growth is pegged for next year at just 0.5%, down sharply from 2.6% this year.

The projections come after Finance Minister Peter Bethlenfalvy had announced in September that the province ended the 2021-22 fiscal year with a $2.1-billion surplus, a far cry from the $33-billion deficit projected in the previous budget.

Bethlenfalvy said Monday that eliminating the deficit is a “critical part” of the government’s long-term vision for the province.

“After unprecedented spending in response to the pandemic, now is the time for governments to show restraint, to act cautiously and responsibly,” he said in the legislature.

“Irresponsible spending today will only make inflation more painful and drag out an economic downturn.”

The province also proposed to launch a voluntary clean energy credit registry for businesses.

“The proposed registry would provide businesses with more choice in how they pursue their environmental and sustainability goals,” the government said in the economic update document.

Companies that have commitments to use 100% clean or renewable energy could use the credits to show their electricity has been sourced from clean resources such as hydroelectric, solar, wind, bioenergy and nuclear power, the government said. Revenue “could be” returned to ratepayers, to help lower electricity costs or support more clean energy generation, the document said.