Tax Package to Support Small Business
Small businesses are the backbone of our economy. They create jobs for our families and encourage a climate of investment and innovation.
In Ontario, there were more than 370,000 small and medium businesses with employees on their payroll in December 2008, representing 99.7% of employer businesses in the province.
Last year, more than 2.9 million Ontarians were employed by small and medium enterprises
More than ever, as we emerge from the first truly global recession in 80 years, we need to encourage small businesses. That means removing barriers and taking steps to help small businesses compete and win ¨C so our entire province can compete and win.
That¡¯s exactly what our government¡¯s proposed tax package, the biggest and most comprehensive tax package in decades, is all about.
A modern tax system for modern times
I¡¯m a big believer in the old saying that ¡®if it ain¡¯t broke, don¡¯t fix it.¡¯ But the sales tax system we have been using since 1961 is broken ¨C and it does need to be fixed.
Quite simply, the current sales tax system is a hindrance to Ontario businesses.
That is why we are proposing a value-added tax system ¨C a system used by over 130 countries and four Canadian provinces.
For Ontario's businesses, it would mean dealing with one sales tax instead of two, one set of rules instead of two and one level of government instead of two.
That¡¯s a lot cheaper for business, taxpayers and consumers. The savings in administration costs alone for business would amount to over $500 million dollars a year.
It would also eliminate the hidden, cascading effect of the Retail Sales Tax (RST), which puts our businesses at a disadvantage and ultimately costs the consumer.
Under Ontario¡¯s current system, when a business purchases supplies, it can claim input tax credits for the five per cent Goods and Services Tax but not the eight per cent RST. That cost is passed on, hidden in the final price. Under the Harmonized Sales Tax (HST), most businesses would be reimbursed for the sales tax they pay on many of their inputs, generating savings that can be reinvested and passed on to consumers.
Business Tax Cuts
The HST is just one piece of our comprehensive tax package. We are also proposing to permanently cut corporate income taxes for businesses in 2010, particularly small business:
The small business corporate income tax rate would be reduced from 5.5% to 4.5%
The small business deduction surtax would be eliminated making Ontario the only province in Canada to eliminate this barrier to growing small businesses.
Aggressively reducing the general corporate income tax rate from 14% to 10%, by 2013.
This is in addition to our plan to eliminate the capital tax, which would provide an additional $1.6 billion a year in tax relief for businesses.
And to help make the changeover to the HST, small businesses would receive a transition credit of up to $1,000.
When you add it all up, including previously announced tax cuts, we would cut in half the tax rate on income from new investment. Our rate would be less than half of the U.S. average. Now that¡¯s a competitive advantage.
Relief for Families
As much as this is undeniably the right thing do, we know it is a big change. Like all big changes, it comes with its share of challenges.
That¡¯s why our comprehensive tax package includes generous permanent tax cuts and credits to help Ontario families.
Consumers would not have to pay the provincial portion of the HST on some important items that are currently exempt from PST ¨C like children¡¯s clothing and footwear, diapers, kids¡¯ car seats and booster seats, books and feminine hygiene products. And the sales tax would not be charged on a range of items to which the GST does not apply, such as basic groceries, prescription drugs and medical devices.
Next year, we propose to permanently reduce the personal income tax rate on the first $36,848 of taxable income - the lowest in Canada. This would mean that 93% of Ontario income taxpayers would pay less personal income tax.
We are introducing tax credits targeted to low income Ontarians, middle income families with children, and seniors. About 2.9 million low-income Ontario families would receive a new, permanent sales tax credit of up to $260 for each adult and child per year ¨C one of the most generous in Canada, A new Ontario Property Tax Credit that would provide up to $1,025 of property tax relief for senior homeowners and tenants.
As well, we are doubling the Ontario Senior Homeowners Property tax grant for qualifying seniors.
And to help make the transition as smooth as possible. we¡¯re proposing to give eligible couples and single parents with less than $160,000 of net income a year three payments totalling $1,000. Eligible single people with less than $80,000 of net income a year would receive three tax free payments totalling $300.
The bottom line ¨C this modern comprehensive tax package would help attract investment and jobs, and result in a more prosperous future for our children.
Many experts, research groups and sector associations agree with our sales tax initiative. Carol Wilding, President and CEO of the Toronto Board of Trade recently endorsed the province¡¯s plan, ¡°The Toronto Board of Trade has long advocated for this reform, which will substantially lower the cost of doing business and put the province on a path towards increased competitiveness and productivity and will generate more high-value added jobs."
Proponents of the status quo admit the world has changed ¨C but deny we should change with it. You know better. You know what it takes to compete.
Thank you to Ontario¡¯s small businesses for your hard work, dedication, entrepreneurial spirit and continued contributions to our great province.
Visit us at Ontario.ca/taxchange for more information about HST and its benefits.
John Wilkinson is the Ontario Minister of Revenue
Quick HST Facts
Small businesses with total taxable sales of $30,000 or less would not be required to register or collect the HST in Ontario.
The reduced administration and compliance costs (as a result of moving from two sales taxes to one) are expected to save Ontario¡¯s business community more than $500 million per year.
More than 130 countries have adopted a value-added tax structure.
In Canada, four provinces ©¤ Quebec, Newfoundland and Labrador, Nova Scotia and New Brunswick ©¤ have converted to a value-added tax structure. Collectively, they have seen business investment jump 11 per cent. BC has recently announced its proposal to adopt the HST.
Potential annual savings after implementing the comprehensive tax package, including the HST:
A manufacturer with sales of $5 million and taxable income of $120,000 could save $47,000 per year
A retailer with sales of $600,000 and taxable income of $40,000 could save $5,000 per year
A service provider with sales of $200,000 and taxable income of $20,000 could save $5,500 per year
A single parent on Ontario Works with 2 children (aged 5 and 7) would see a net benefit of $1,125 in the first year of the HST, and a net benefit of $555 in the third year.
A single senior citizen who has a $20,000 pension and pays $600 in monthly rent would see a net benefit of $190 in the first year of the HST, and $95 in the third year.
A couple with $70,000 of income (split 60%/40% between 2 earners) and with 2 children (aged 5 and 10), would see a net benefit of $750 in the first year of the HST, and a net benefit of $310 in the third year
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Courtney Thack 11/1/2009 |
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