Canadian Budget Commentary, Tax Updates
2021 Ontario Budget commentary
March 25, 2021
Authored by RSM Canada LLP
Cleo L. Melanson, CPA, CA, CMA shared this article
TAX ALERT |
On March 24, 2021, Ontario’s Minister of Finance, Peter Bethlenfalvy, tabled Ontario’s 2021-2022 Budget. The Budget serves as the next phase of Ontario’s response to COVID-19 and is built on two pillars that the government refers to as the “vital priorities”: protecting people’s health and protecting the economy.
The first pillar, protecting people’s health, includes (i) defeating COVID-19 by making vaccines available to everyone and protecting front-line workers, (ii) fixing long-term care facilities, and (iii) providing care for individuals by investing in hospital construction projects, mental health and addition services, and anti-racism and anti-hate programs. The second pillar, protecting the economy, includes providing targeted support to businesses, workers and families, and working with municipalities and community organizations in all regions of Ontario to support economic recovery.
In total, the Ontario government is committing $51 billion towards these two pillars over the next four years, $39.6 billion of which is direct support and $11.3 billion of which is to improve cash flow for individuals and businesses.
The Budget projects a deficit of $33.1 billion for the 2021-2022 year, which is precisely in line with the government’s projection in last November’s 2020 Budget. The government acknowledges that this deficit is not sustainable, and states that stimulating economic growth – rather than raising taxes or reducing public services – is the path for reducing the deficit.
The following is a summary of the key business and personal income tax measures in the Budget.
Business income tax measures
The government does not propose any changes to Ontario’s corporate income tax rates. Instead, the Budget proposes to extend various grants and tax credits to stimulate economic recovery and revival.
Ontario small business support grant
In January 2021, the Ontario government introduced the Ontario Small Business Support Grant (OSBS grant). The OSBS grant provides financial assistance to small businesses that (i) were required to close or restrict their services due to the province-wide shut down on Dec. 26, 2020, (ii) experienced a revenue decline of at least 20% in April 2020 compared to April 2019 and (iii) had fewer than 100 employees. The funding is between $10,000 and $20,000 for an eligible small business to help cover revenue loss due to COVID-19.
The Budget implements a second round of payments for the OSBS grant. Small businesses that qualify for the original OSBS grant will automatically receive a second grant equal to the amount of the first grant. As a result, a qualifying small business will receive between $20,000 and $40,000 in financial assistance. Businesses are not required to make a second application for the second round of payments.
Currently, the application deadline for the OSBS grant is March 31, 2021. Eligible small businesses that have not applied for the OSBS grant should act quickly to submit an application.
Regional opportunities investment tax credit
The Regional Opportunities Investment Tax Credit (ROITC) is a refundable 10% corporate income tax credit available to Canadian-controlled private corporations (CCPCs) that make qualifying investments in certain geographic areas in Ontario. Qualifying investments include eligible expenditures related to building, renovating or purchasing eligible commercial and industrial buildings and other assets.
In the Budget, the government proposes a temporary increase of the ROITC from 10% to 20% of qualifying expenditures between $50,000 and $500,000 for properties that become available for use in the period beginning on March 24, 2021 and ending before Jan. 1, 2023. Based on the rules set out in the Income Tax Act (Canada), a property is considered available for use in the taxation year in which the owner can start claiming capital cost allowance.
The enhanced ROITC provides an opportunity for businesses to explore the specified regions in Ontario for expansion and investment opportunities at a relatively low tax cost.
Ontario tourism and hospitality small business support grant
To support businesses in the tourism and hospitality sector that have suffered declines in revenue, the government introduces a new Ontario Tourism and Hospitality Business Support Grant (OTHBS grant). The OTHBS grant is a one-time payment of between $10,000 and $20,000 for small businesses that (i) experienced a revenue decline of at least 20% and (ii) had fewer than 100 employees. A small business is not eligible for the OTHBS grant if it receives the OSBS grant.
Eligible businesses in the tourism and hospitality sector, such as hotels, motels, amusement parks, recreational camps and travel agencies should take the advantage of financial assistance available through the OTHBS grant to help bring their operations back on track. The government indicates that applications for the OTHBS grant will be available online soon.
Grants to faith-based and cultural organizations
To help faith-based and cultural organizations that are not eligible for other provincial grants, the Budget proposes to provide grants to fund the costs these organizations incur to meet the public health guidelines. In order to be eligible for this grant, these organizations are required to operate facilities used for regular community gatherings and should not be eligible for the OSBS grant.
The government states that it will release details about this grant in the spring. Faith-based and cultural organizations should continue to monitor the government releases for information about the amount of the credit and the application process.
Digital main street program
In June 2020, in partnership with the federal government, the Ontario government introduced the Digital Main Street Program to help businesses create and enhance their online presence. In the Budget, the government proposes to provide additional $10 million of funding to continue with the digital transformation grants, an online learning platform, training programs and Digital Service Squads that offer technical support under the program to small business owners.
Small businesses should consider the assistance available under this program as an opportunity to achieve digital transformation and extend their reach into new markets.
Modernizing anti-avoidance rules
In the 2020 Fall Economic Statement, the federal government announced that it would explore reworking anti-avoidance rules and, in particular, the General Anti-Avoidance Rule, so that the anti-avoidance rules are sufficiently robust for tax authorities and courts to address sophisticated and aggressive tax planning.
In the Budget, the Ontario government publicizes its support for the federal government’s plan to rework the anti-avoidance rules and, specifically, encourages the federal government to combat artificial income shifting, such as through trusts or corporate continuances, that puts Ontario tax revenue at risk.
Although the Ontario and federal governments have not released specific proposals for revising or reworking anti-avoidance rules, taxpayers should understand the potential audit risks associated with aggressive tax planning strategies.
Personal income tax measures
The Budget does not propose any changes to personal income tax rates. However, it introduces or expands on several tax measures designed to support individuals.
Another round of Ontario COVID-19 child benefits
After providing two rounds of payments to parents in 2020 in respect of each child under the Ontario COVID-19 Child Benefit, the government will distribute a third round of payments under this benefit program. In the third round, parents are entitled to receive $400 for each child “aged 0 to Grade 12” (presumably this means children 18 years old and younger), and $500 for children with special needs that are 21 years old or younger. Parents must submit an online application to receive this benefit. Parents are not required to have applied for the previous rounds of this benefit to be eligible for this third round.
The purpose of the Ontario COVID-19 Child Benefit is to help parents with the additional costs associated with virtual learning and reduced access to after school programs and childcare due to necessary public health restrictions.
Enhanced childcare tax credit
The Childcare Access and Relief from Expenses (CARE) tax credit, originally introduced in 2019, provides low and moderate income families with support of up to 75% of eligible childcare expenses. In 2021, the government will temporarily increase the credit by 20%. This has the effect of increasing the average CARE tax credit from $1,250 to $1,500. Families that are eligible for the CARE tax credit will receive the benefit of the enhanced tax credit when they file their 2021 T1 returns.
Temporary Ontario jobs training tax credit
The government proposes to introduce the temporary Ontario Jobs Training Tax Credit for 2021. This refundable personal income tax credit provides support to individuals that incur eligible training expenses to help them enter or re-enter the workforce. The credit is for 50% of eligible expenses incurred in 2021, up to a maximum of tax credit of $2,000 per individual.
The expenses that are eligible for the Ontario Jobs Training Tax Credit are the same as those that are eligible for the Canada training credit, which include fees and tuition related to (i) occupational skills courses, (ii) post-secondary education courses, and (iii) occupational, trade or professional exams. Examples of qualifying programs are personal support worker training programs, graphic design programs, heavy machinery programs, and postsecondary courses that provide credits towards a degree, diploma or certificate.
An individual must meet all of the following conditions to claim the Ontario Jobs Training Tax Credit:
- The individual must be resident in Ontario on Dec. 31, 2021;
- The individual must have a Canada training credit limit for 2021 greater than zero (this information is found on the latest notice of assessment or reassessment from the Canada Revenue Agency); and
- The individual must be between the age of 26 and 65 at the end of 2021.
This proposed credit of up to $2,000 is temporary in nature and only available for expenses incurred in 2021.
Seniors’ home safety tax credit
As first announced in Ontario’s 2020 Budget, the government is providing support to seniors for improvements that make their homes safer and more accessible through the Seniors’ Home Safety Tax Credit. The credit will reimburse up to 25% of eligible expenses for a senior’s principal residence in Ontario, for a maximum credit of $2,500. Eligible expenses include grab bars and related reinforcements around a toilet, tub and shower; wheelchair ramps; stair lifts and elevators; and renovations to permit first floor occupancy or a secondary suite for a senior. The credit is available to seniors themselves or to individuals who live with senior relatives.
There does not appear to be any changes from the description of this credit in the 2020 Budget, but in the 2021 Budget, the government now estimates the total value of the credit to be $30 million.
Tax credit for tourism expenses to discover Ontario
Another personal tax credit for the 2021 year that the government first announced in the 2020 Budget was a tourism credit equal to 20% of eligible Ontario tourism expenses to help promote tourism within Ontario. In the 2021 Budget, the government clarifies that it has set aside $150 million and intends to introduce legislation for tourism tax credit this year to encourage residents to explore Ontario once public health experts advise that travel is safe.
The government will release more information on this credit later in 2021.
Ontario’s Budget does not stray far from the 2020 Budget released less than five months ago. The focus of the 2021 Budget remains on providing targeted support for businesses hardest hit by the economic effects of COVID-19. At the same time, with the Budget, the government attempts to stimulate economic growth through investments and the implementation of credits and grant programs. Individuals and businesses should ensure that they take advantage of the government investments, credits and grants to which they are entitled.
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This article was written by Enzo Testa, Sigita Bersenas, Yoni Moussadji, Jiani Qian, Nakul Kohli, Chetna Thapar and originally appeared on 2021-03-25 RSM Canada, and is available online at https://rsmcanada.com/our-insights/tax-alerts/2021-ontario-budget-commentary.html.
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