2022 Ontario fall fiscal update

TAX ALERT | November 14, 2022

Authored by RSM Canada

Executive summary

On Nov. 14, 2022, Ontario’s Minister of Finance, Peter Bethlenfalvy, released the 2022 Ontario Economic Outlook and Fiscal Review which serves as an update to Ontario’s 2022 Budget.

The government affirmed its commitment to help Ontarians navigate economic uncertainty and introduced new initiatives, particularly for small and medium-sized businesses, as well as additional targeted measures to keep costs down for families.

The following is a summary of the key business and personal income tax measures in the budget.

Business income tax measures

Expanding the small business rate

To mirror the proposed changes to the federal small business corporate rate as announced in the 2022 Federal Budget, the Ontario government is proposing to extend the range over which the benefit from the small business rate is phased out. 

Ontario provides a small business corporate income tax rate of 3.2% for Canadian Controlled Private Corporations (CCPCs) on their first $500,000 of active business income. This benefit is phased out on a straight-line basis for CCPCs, and associated groups of CCPCs, that have more than $10 million of taxable capital employed in Canada in the previous year and is fully eliminated at $15 million. The proposed measure would phase out the benefit from the small business rate for taxable capital between $10 million and $50 million, up from $15 million.

Ontario intends to introduce legislation for this measure once the corresponding federal legislation 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.

Applying to taxation years that begin on or after April 7, 2022, this proposed change will allow more medium-sized CCPCs with Ontario jurisdiction to benefit from the small business rate.

Allowing for immediate expensing

To encourage business investment, the government is proposing to provide temporary immediate expensing for eligible property acquired by a CCPC, an unincorporated business carried on directly by Canadian-resident individuals (other than trusts), and Canadian partnerships where all the partners are CCPCs or Canadian-resident individuals (other than trusts). This measure will mirror the federal measure introduced in the 2021 Federal Budget and received Royal Assent on June 23, 2022.

Once legislation is passed in Ontario, the immediate expensing will be available for property acquired after  April 18, 2021 that is available for use before Jan. 1, 2025. The expense is limited to $1.5 million per taxation year, which must be shared amongst associated members of a group of CCPCs.

Property eligible for this new measure would be capital property subject to Capital Cost Allowance (CCA), other than property in CCA classes 1 to 6, 14.1, 17, 47, 49 and 51.

This change may provide an opportunity for medium-sized businesses to make capital investments at a lower cost.

Modernizing Ontario’s Cultural Media Tax Credits 

In the 2022 Budget, the government announced its intention to modernize various media tax credits. The Economic Outlook confirms that it will proceed with the proposed updates, and in the coming months, proposed regulatory amendments to implement this measure will be posted for public review and comment.

Personal income tax measures

Increasing the Non-Resident Speculation Tax Rate 

Effective Oct. 25, 2022, the government implemented amendments to increase the Non-Resident Speculation Tax rate from 20% to 25%. The Non-Resident Speculation Tax applies to the purchase of a home located anywhere in Ontario by foreign nationals, foreign corporations or taxable trustees.

To ensure taxpayer fairness, purchasers who entered into binding agreements of purchase and sale before Oct. 25, 2022, may be eligible for relieving transitional provisions.