27 March 2009

2009 Ontario Budget Highlights

Yesterday, Ontario Finance Minister Dwight Duncan delivered the province’s 2009 budget. The budget anticipates a deficit of $3.9 billion in 2008-09 and $14.1 billion in 2009-10. As expected, this budget proposes to harmonize Ontario’s provincial sales tax (PST) with the federal GST to create a single, value-added sales tax, effective July 1, 2010.

The budget also proposes tax cuts for businesses that include reductions in the general corporate income tax rate, the small business income tax rate, and the manufacturing and processing income tax rate, among other measures.

For individuals, the budget includes a personal income tax rate cut, dividend tax increases for eligible and non-eligible dividends, and a temporary relief measure to offset the increased cost of the harmonized sales tax to consumers.

Ontario members will be interested in the following highlights of tax changes.

Sales Tax Changes

PST-GST harmonization 

Ontario proposes to combine its PST with the federal GST to create a single, value-added sales tax that will be federally administered. The single sales tax rate of 13% (5% GST plus 8% PST) will take effect July 1, 2010. The single sales tax will generally use the same rules and tax base as the GST.

Business measures — Businesses selling taxable or zero-rated goods will generally be able to claim input tax credits for the single sales tax paid on their purchases.

Under the PST system, Ontario compensates vendors for collecting and remitting the tax. Under the new system, this vendor compensation will end. Vendor com