On March 23, the Ontario government released its 2023 budget. The following are highlights of the key tax measures.

Personal tax measures

No personal income tax rate changes were announced in this year’s budget. The current personal combined income tax rates for 2023 are outlined below:

Corporate tax measures

No corporate income tax rate changes were announced in this year’s budget. The current corporate income tax rates for 2023 are outlined below:

Small business corporate income tax (CIT)

Ontario’s small business CIT rate of 3.2 per cent applies to active business income earned by a Canadian‐controlled private corporation (CCPC) up to a small business limit of $500,000 annually. The limit is proportionately phased out and then eliminated when a CCPC, or an associated group of CCPCs, had between $10 million and $15 million of taxable capital employed in Canada in the previous year. Income above the business limit is subject to a higher CIT rate.

Continuing with its proposal in the 2022 Ontario Economic Outlook and Fiscal Review, the government has introduced legislative amendments to implement a change to extend the phase-out range to between $10 million and $50 million of taxable capital employed in Canada. This mirrors the federal government’s extension of the federal phase‐out range for the federal small business CIT rate, and is expected to provide about 5,500 Ontario small businesses with additional Ontario income tax relief.

This proposed measure would apply to taxation years beginning on or after April 7, 2022.

Ontario-made manufacturing investment tax credit

As part of the budget, the government has proposed legislation that would create a new 10 per cent refundable corporate income tax credit on qualifying investments in buildings, machinery and equipment for use in manufacturing or processing in the province.

The credit would be available to CCPCs that make qualifying investments and have a permanent establishment in Ontario. For the purposes of this credit, a permanent establishment is a fixed place of business such as an office, factory or workshop. Qualifying investments are expenditures for certain capital property included in Class 1 or Class 53 for capital cost allowance (CCA) purposes.

Class 1 Property – Qualifying investments in Class 1 would include expenditures for constructing, renovating or acquiring buildings used for manufacturing or processing in Ontario that become available for use on or after March 23, 2023. To qualify as a building used for manufacturing, 90 per cent of the building’s floor space must be used at the end of the corporation’s taxation year for manufacturing or processing in Ontario, and the building must be eligible for the additional six per cent CCA permitted under the federal Income Tax Act (ITA) for non-residential buildings used in Canada to manufacture and process goods.

Class 53 Property – Qualifying investments in Class 53 would include expenditures for machinery and equipment used in the manufacturing or processing of goods in Ontario. The machinery and equipment would have to be acquired and become available for use on or after March 23, 2023, and before 2026. After 2025, qualifying investments would include expenditures for machinery and equipment used in the manufacturing or processing of goods for sale or lease included in Class 43(a). “Available for use” refers to the rules set out in the federal ITA that determine the taxation year in which a taxpayer can start to claim CCA for a depreciable property.

The credit would be available for qualifying investments up to a limit of $20 million in a taxation year and be prorated for a short taxation year. An associated group of corporations would be subject to the $20 million limit. The government would also conduct a review of the credit every three years.

Ontario’s film and television tax credits

The government is committed to improving these programs through the following regulatory amendments drafted and posted on Ontario’s Regulatory Registry on Feb. 21, and available for public comment until April 11, 2023:

• Proposing to extend film and television tax credit eligibility to professional film and television productions made available exclusively online
• Proposing a requirement that film and television productions supported by Ontario tax credits provide on‐screen acknowledgement of such support in their end credits
• Simplifying the Ontario Computer Animation and Special Effects Tax Credit to reduce administrative complexity
• Review of the Ontario Film and Television Tax Credit regional bonus to ensure it provides effective and appropriate incentives and support for film and television production in all regions of Ontario 

Other tax measures

Provincial sales tax measures

The government has extended the current gas tax and fuel tax rate cuts until Dec. 31, 2023, keeping the rates at nine cents per litre.

Harmonizing wine tax

The government is proposing to set a single 12 per cent basic tax rate on wine and wine coolers sold in offsite winery retail stores, including wine boutiques. The new rate would take effect July 1, 2023. The proposed amendment would replace the four separate basic tax rates applicable to wine sold in offsite winery retail stores with a single rate. These proposed changes are in response to a World Trade Organization settlement reached between Canada and Australia.

Non-Resident Speculation Tax (NRST)

As announced this past October, the government has increased this tax rate from 20 per cent to 25 per cent, effective Oct. 25, 2022. The NRST is applied to the price of residential property purchased in Ontario by foreign nationals (individuals who are not citizens or permanent residents of Canada), foreign corporations or taxable trustees.

Next steps

Contact your Baker Tilly advisor to learn more about how we can help you navigate the complexities of the Canadian tax system.

Meet the Author

Brenda L. Scott
National Office
E .(JavaScript must be enabled to view this email address)