By Arthur B. C. Drache, C.M., Q.C.
As most readers will be aware, Ontario recently underwent a provincial election when it became clear that the Budget brought down on May 1 would be defeated, causing Premier Kathleen Wynne to pull the plug and call for the vote on June 12. Her Liberal party came out of the election with a majority.
One of the main proposals of that contentious Budget was to increase taxes on higher income taxpayers by raising rates, a proposal which remains untouched in the new and revised Budget that came down on July 14.
The proposal has two elements. First, it will lower the taxable income threshold for the top tax level (13.16%) from $514,090 to $220,000. Second, it will add a new tax rate of 12.16% on taxable income between $150,000 and $220,000.
These changes will apply to taxation years ending after December 31, 2013, making them essentially retroactive. The top bracket at $500,000 was introduced last year after the Budget to buy support for the NDP. Now the high rates have taken on a life of their own. The government says that these measures will only apply to the top 2% of Ontario taxpayers. This still means that about 220,000 people will pay more Ontario provincial income tax in 2014 on their taxable income above $150,000 if the proposal becomes law.
But the hidden kicker comes with the announcement that Ontario will not simultaneously adjust its charitable donation tax credit rate of 5.05% on the first $200 of donations each year and 11.16% on donations over that amount. This means that top income level donors, those with incomes in excess of $150,000, will not get a full tax offset on their donations in Ontario. Even though one might be paying Ontario tax at 13.16%, the credit for donations will still be calculated using the 11.16% rate, costing donors about two percentage points of tax credit.
This was also the case when the new $500,000 bracket was originally introduced, and we wondered then whether it would have any impact on high income donors who make large charitable donations. But now, the negative impact will cut in for donors whose income is only at the $150,000 level. Thus, according to the government’s own documents, 2% of provincial taxpayers will be somewhat short-changed.
We doubt whether this change will have a major impact on individual donors, but those who seek funds from this group should be aware of the possible change.