Corporate Tax Payers Fare Well In Ontario's Budget

by Mike Godfrey, Tax-news.com, New York

11 May 2001

Ontario's Finance Minister, Jim Flaherty, delivered his first budget earlier this week and fulfilled his promise of reducing both personal income and company taxes, and scrapping the capital tax.

The Tory minister has cut personal income taxes by an overall reduction of 20 per cent which is expected to take effect incrementally in January 2002 and again in January 2003. Although it sounds good, an analysis of the tax cuts conducted by accounting firm KPMG has revealed that the maximum amount a single taxpayer will save from the first tax cut in 2002 will be no more than C$67.

Also from January 2002, the general corporate income tax rate will drop to 12.5 per cent from its current rate of 14 per cent and will be reduced again the year after to 11 per cent. In 2004 the rate is set to go down again to 9.5 per cent and will settle at 8 per cent in 2005. Mr Flaherty stated: 'By 2005, Ontario would have a lower combined corporate income tax rate ... than any of the 50 US states. No Canadian province would have a lower general corporate income tax rate.'

The cut in company tax provided the opposition with a great deal of ammunition as Howard Hampton, leader of the New Democrats, said: 'This is another "be kind to Bay Street" budget that cements big corporate tax cuts while continuing to underfund schools, hospitals, municipalities and the community services that the real peole in Ontario value.'

And Dalton McGuinty, leader of the official Liberal Opposition, claimed that Ontario's premier, Mike Harris, 'wants to insure that by 2005 our corporate taxes are 25 per cent lower than they are at the south of the border. You've got to ask yourself, how long do you think that the Americans will tolerate that differential?'

Mr Flaherty abolished the 'job-killing capital tax' that companies are obliged to pay regardless of their size, equity and debt 'whether they make money or not' he said. Again the termination of the tax will be imposed in stages starting in January next year at which time the threshold for tax-free capital will be raised to C$5 million from the current C$2 million and it will also apply to financial institutions. Mr Flaherty declared: 'This step would relieve more than 11,000 small and medium-sized businesses in Ontario of the burden of capital tax [and] claws back money that should be used to keep employees on the payroll.'

Earlier this week we reported that the Retail Council of Canada (RCC) urged the Ontario government to reduce its sales tax by one percentage point which would save taxpayers around C$1.7 billion a year and help boost the economy. But Mr Flaherty decided against this and offered a sales tax rebate of up to C$1,000 on alternative fuel vehicles that run on propane or natural gas instead.

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