Ontario Minister of Finance Charles Sousa announced a reduction to the small business tax rate to take effect on January 1, 2018. Today's tax flash will focus on the tax rate change, its effect on personal dividend tax rates and highlight other Ontario tax changes in the Minister's update.

Small Business Rate Reduction for 2018

Ontario will reduce the small business tax rate to 3.5% (from 4.5%). The small business tax rate applies to the first $500,000 of active business income earned by a Canadian Controlled Private Corporation ("CCPC"). This announcement follows the Federal government announcement released October 16, 2017 to reduce the Federal small business tax rate from 10.5% to 10% effective January 1, 2018, and to 9% effective January 1, 2019 (see October 16, 2017 Tax Flash). This further reduction to the Ontario small business tax rate will bring an additional tax savings of up to $5,000 to qualifying Ontario CCPCs.

Impact on Non-Eligible Dividend Personal Tax Rate

As a result of the decreases to both the Federal small business tax rate for 2018 and 2019 as well as the Ontario small business tax rate for 2018, the non-eligible dividend personal tax rate has been effectively increased. Therefore, as of January 1, 2018 and January 1, 2019, the combined Federal/Ontario top marginal personal tax rate on non-eligible dividend income will be 46.8% and 47.4% respectively.

Additional tax measures

In addition to the above changes, the Ontario Minister of Finance announced the following:

  • The existing Apprenticeship Training Tax Credit will be replaced by a new, enhanced "Graduated Apprenticeship Grant for Employers." In addition to expanding the eligible service sectors, the new program will provide grants to employers when eligible apprentices complete specified levels of their training programs. Additional bonus grant incentives will also be available for employees belonging to certain specified groups;
  • Incentives to small businesses (fewer than 100 employees) to hire and retain young workers from 15 to 29 years of age;
  • New business incentives focused on supporting producers of locally grown produce, enhancements to small business access to financing as well as a new "one-window" service to facilitate small business interaction with government; and
  • Proposed changes to the timing of payment of Land Transfer Tax for certain dispositions as well as the implementation of changes to the Provincial Land Tax to be phased in by 2021.

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