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March 27, 2010

2010 ONTARIO BUDGET: ENSURING INVESTMENT GROWTH AND SUCCESS

Ontario's 2010 Budget, announced March 25, reiterated Ontario's commitment to $4.5 billion in tax cuts for businesses over the next three years. This comprehensive tax reform package will cut Ontario's marginal effective tax rate on new business investment in half, making Ontario one of the most competitive jurisdictions in the industrialized world for new investment. This and other investments are designed to enhance Ontario's profile as a sound location for investment growth and success.

Ontario's 2010 Budget proposes $310 million in investments to add 20,000 new spaces to colleges and universities by September 2010. This timely and targeted investment will ensure that investors will continue to draw on Ontario's highly educated talent pool for years to come.

Tax Cuts and Tax Reform

The 2010 Ontario Budget sustains the province's commitment to cut corporate income taxes. The Budget will also cut personal income taxes for 93 per cent of income tax payers.

As of July 1, 2010, the Retail Sales Tax (RST) will be replaced with a modern value-added tax that will be combined with the federal Goods and Services Tax (GST) to create the federally administered Harmonized Sales Tax (HST).

Replacing the RST with the HST allows most businesses to be reimbursed for tax paid on their business inputs through the use of input tax credits. These credits will be paid to most businesses for the HST they originally paid on many of their purchases and capital investments, providing significant savings by lowering the tax burden on business.

Ontario has already affirmed its commitment to cutting the general Corporate Income Tax (CIT) rate from 14 per cent to 12 per cent and reduce the rate to 10 per cent by 2013, and to cutting the CIT rate for small businesses from 5.5 per cent to 4.5 per cent.

Ontario's Corporate Income Tax Rate Cut Plan

Date

Rates (Per Cent)

General

M&P¹

Small Business²

Small Business Deduction Surtax³

Current

14.0

5.5

4.25

July 1, 2010

12.0

4.5

July 1, 2011

11.5

4.5

July 1, 2012

11.0

4.5

July 1, 2013

10.0

4.5

¹	Income from manufacturing and processing, mining, logging, farming or fishing
²	Applies to Canadian-controlled private corporations (CCPCs) on the first $500,000 of active business income
³	Applies to CCPCs on taxable income between $500,000 and $1.5 million
Note:	The proposed tax rate reductions would be pro-rated for taxation years straddling the effective dates

Growing the Green Economy

In 2009, the government enacted the Green Energy Act, 2009 (GEA) to support the growth of clean, renewable energy sources and help build Ontario's green economy infrastructure by attracting new investments and promoting conservation. The GEA firmly established the province as a North American leader in renewable energy by helping more than double the province's renewable energy capacity.

A key component of the GEA is the creation of a Feed-in Tariff that guarantees specific rates for energy generated from renewable sources. Guaranteed rates would be set for 20 years - a demonstration of the government's commitment, and an important signal of confidence to developers, investors and financiers. As of March 2010, the Ontario Power Authority (OPA) announced it had issued the first 510 FIT contracts, totalling 112 megawatts (MW), enough to power more than 13,000 homes.

In order to help create a culture of conservation, Ontario's Industrial Transmission Connected Electricity Efficiency Program, administered by the Ontario Power Authority, will target the province's largest electricity users that are directly connected to the transmission grid. These industrial users account for about 10 per cent of Ontario's electricity usage and spend over $1 billion on electricity per year. This five-year program will further the productivity and global competitiveness of Ontario's industrial sector, conserve electricity and result in an estimated 5,500 jobs. Together with the Northern Industrial Electricity Rate Program announced in the Budget, Ontario will enhance electricity conservation, efficiency and sustainability across the province.

Protecting Ontario's water resources is critical to the development of a strong and green economy. The Province is developing a wide-ranging water strategy to make Ontario the North American leader in water conservation and innovation, and protect Ontario's water resources for future generations. The strategy will promote new business and employment opportunities in the water sector through supporting the commercialization of water and wastewater technologies.

Accelerating Innovation

In 2009-10 Ontario proposed more than $110 million in additional tax relief and $715 million in investments to support key industry partnerships in innovation and to encourage business to develop new products and services, including:

$300 million in capital funds over six years for research infrastructure, which will be available to leverage funding from the federal Canada Foundation for Innovation,
$100 million over four years in additional operating funds for research performed in the biomedical field, focusing on genomics and gene-related research,
$50 million over four years to enhance the successful Innovation Demonstration Fund,
$10 million over three years to the Colleges Ontario Network for Industry Innovation to assist small and medium-sized enterprises with hands-on applied research, technology transfer and commercialization,
$5 million to support the Ontario Genomics Institute, an important partner in encouraging genomics research in Ontario,
$110 million in tax relief in 2009-10 from paralleling the proposed federal temporary 100 per cent accelerated Capital Cost Allowance rate for eligible computers and software purchased after January 27, 2009 and before February 2011,
$2 million a year in proposed tax relief to extend the 10 per cent refundable Ontario Innovation Tax Credit to more small and medium-sized corporations for Scientific Research and Experimental Development in Ontario.

Ontario will continue to support the Ontario Innovation Agenda (OIA) by committing more than $1.3 billion over the next three years for research and innovation.

Ontario will also strengthen state-of-the-art research infrastructure in the province's universities, colleges, hospitals and research institutions through the Ontario Research Fund (ORF). Support for more than 200 research infrastructure projects was announced in 2009.

Supporting Small- and Medium-Sized Business

Ontario will continue to implement targeted measures announced in the 2009 Budget that, together with the tax plan, will provide more than $1 billion of tax relief over three years, beginning in 2010-11, to support Ontario's small businesses, including:

Cutting the small business CIT rate from 5.5 per cent to 4.5 per cent on July 1, 2010
Eliminating the small business deduction surtax to help growing small businesses
Exempting more small and medium-sized businesses from the Corporate Minimum Tax and cutting the rate from four per cent to 2.7 per cent effective July 1, 2010.

Strengthening Ontario's Financial Services Sector

Ontario will continue to pursue important measures to enhance the regulation of Ontario's capital markets, including partnering with industry and other governments to establish a Financial Services Leadership Council.

Ontario is working with the federal government and other provinces to negotiate a Canada-European Union Comprehensive Economic and Trade Agreement (CETA). This would provide Ontario's exporters with greater access to one of the largest and richest export markets in the world.

Entertainment and Creative Industries

Ontario has introduced the Intellectual Property Development Fund - a $10 million pilot program that supports development-stage activities in Ontario's screen-based industries. Once the HST is fully implemented, the information and cultural industries sector will benefit from about $565 million in sales tax relief annually. Moving to the HST will help put creative industries on a more level playing field with their competitors in other provinces and worldwide jurisdictions.

The province will also invest an additional $165 million annually from both the reduction in Corporate Income Tax rates and the elimination of the Capital Tax, for a total tax savings of $730 million annually. This sector will also benefit through the reduction in compliance costs from a single HST administration.

Investing in Ontario's North

The 2010 Ontario Budget proposes investments of $150 million annually, on average, to create a three-year Northern Industrial Electricity Rate Program that would provide electricity price rebates of two cents per kilowatt-hour. This would, on average, reduce industrial electricity prices by about 25 per cent for large facilities, based on 2009 levels.

The Budget also invests $45 million to leverage economic development opportunities in the north, such as the Ring of Fire - an area with potentially large deposits of minerals such as chromite, nickel, copper and platinum.

For more on the 2010 Ontario Budget, please visit http://www.fin.gov.on.ca/en/budget/ontariobudgets/2010/.