Ontario’s Fall Economic Outlook Promises Additional Tax Credits During Financial Uncertainty

The Ontario Fall Economic Statement 2023 forecasts a substantial increase in the deficit for the 2023-24 fiscal year of $5.6 billion. This marks a significant departure from the province’s 2023 budget, which had projected a deficit of $1.3 billion. Ontario attributes the expanded deficit to recent interest rate hikes, elevated inflation rates, and lower-than-anticipated revenue from personal tax returns in 2022. Additionally, Ontario mentions the allocation of $2.5 billion from reserves to address economic uncertainty.

Ontario now anticipates achieving a balanced budget by the 2025-26 fiscal year, extending the timeline by one year compared to the initial projection in this year’s budget.

Haven’t had a chance to review the update yourself? Here are the highlights:

Housing and the HST Rebate:

The fall economic statement has introduced measures to stimulate builders to increase the construction of rental units by eliminating the eight percent provincial segment of the Harmonized Sales Tax (HST) on eligible new purpose-built rental housing. This aligns with the government’s broader mission to facilitate accessible and affordable housing options in Ontario.

Presently, builders of new purpose-built rental housing can qualify for a rebate of up to 75% of the provincial HST portion paid during construction, with a maximum cap of $24,000. The new extension eliminates the maximum cap and, when combined with the Federal government’s additional 5% rebate, effectively covers the entire 13% HST for eligible builders.

Qualifying new purpose-built rental housing comprises buildings featuring a minimum of:

• Four private apartments (each unit encompassing a private kitchen, bathroom, and living areas), or 10 private rooms or suites.
• 90% of residential units are designated for long-term rental.

This enhanced rebate applies to qualifying projects initiated on or after September 14, 2023, continuing through December 31, 2030, with completion by December 31, 2035. It is worth noting that substantial renovations to existing residential complexes do not qualify for the enhanced rebate but remain eligible for the existing rebate.

Temporary Gas Tax and Fuel Tax Cuts:

The province will extend the temporary reduction in the Gasoline Tax and Fuel Tax (diesel) by 5.7 cents per litre, now extending until June 30, 2024. The previous expiry date for this temporary relief was December 31, 2023. The Provincial tax on gasoline and diesel will stand at 9 cents per litre.

Vaping Tax:

In the autumn of 2022, the Federal government introduced a Federal vaping tax, and provinces were invited to participate in this taxation framework. Ontario intends to align with the Federal vaping tax, allowing the Federal government to impose an additional tax on vaping products designated for sale in Ontario, mirroring the existing Federal excise duty rate. Further details will be forthcoming in the following months.

Flow-Through Share Tax Credit:

The Ontario Focused Flow-Through Share Tax Credit offers eligible individuals a 5% refundable tax credit on qualifying Ontario expenses. The province is proposing an expansion of this tax credit’s eligibility to encompass specified critical mineral exploration expenses eligible for the Federal Critical Mineral Exploration Tax Credit and renounced on or after January 1, 2023.

General Anti-Avoidance Rule:

The Federal government unveiled its proposed amendments to the General Anti-Avoidance Rule (GAAR) on August 2, 2023. The province intends to mirror stricter tax avoidance rules to stop abuse of these rules. Some of the changes include:

• The introduction of a new penalty (equal to 25 percent of a tax benefit) if a transaction isn’t disclosed to the CRA.
• Changes that would make it easier to apply for the GAAR, which include amending the avoidance transaction threshold from a “primary purpose” test to “one of the main purposes”.
• The addition of a new economic substance rule, which examines whether a transaction has the appropriate economic substance to qualify for a tax credit.
• A new three-year extension of the reassessment period for transactions that are not disclosed to the CRA.

For a better understanding of how these changes may affect your finances, please reach out to our experienced team. Please get in touch with us via email at info@zeifmans.ca or by phone at 416.256.4000.