In the 2019 Ontario Budget, the Ontario provincial government committed to providing $3.8B in income tax relief to Ontario businesses over six years through the Ontario Job Creation Investment Incentive. This government incentive allows for faster write-offs of capital investments that will help businesses expand and stimulate job creation in Ontario.
The Incentive responds to concerns about Canada’s and Ontario’s competitiveness in global trade in relation to the US. Tax reforms in 2017 in the US significantly reduced the federal corporate income tax rate—from 35% to 21%—and introduced a 100% write-off for certain capital assets.
As a result, some companies in Canada started considering opportunities south of the border that would have previously been less profitable, putting Canada at risk to lose new capital investments and jobs, especially in manufacturing. The Ontario Job Creation Investment Incentive responds to these concerns, providing corporate tax relief that allows Ontario businesses and larger firms to write off a larger share of the cost of newly acquired assets.
Corporate tax savings under the provincial Incentive are expected to amount to over $1B in 2019-20.
The Ontario Job Creation Investment Incentive mirrors corporate tax relief measures introduced by the federal government in the 2018 Federal Fall Economic Statement, which similarly responded to concerns about Canada’s competitiveness vis-à-vis the US with a proposed increased capital cost allowance (CCA) deduction for businesses in all sectors.
Ontario Small Business Access to Corporate Tax Relief Under the Incentive
The Ontario Job Creation Investment Incentive applies to assets acquired after November 20, 2018 and available for use before 2028.
Manufacturing Equipment & Machinery
Under the Incentive, manufacturing and processing equipment, as well as specified clean energy equipment, can be immediately written off as corporate tax deductions. Under the former rules, a business could annually deduct 50% of the cost of manufacturing machinery for income tax purposes. However, in the first year the asset was put into use, the corporate tax deduction was limited to 25%.
Under the new Incentive, a business can deduct the full cost of the manufacturing machinery from its taxable income in the first year the machinery is put into use.
For example, a piece of equipment costing $1M would previously have been eligible for a $250K write-off in Year One of use, whereas under the new government incentive it would be eligible for a $1M write-off in Year One.
Additional Capital Investments
Most other capital investments (e.g. data network equipment) are eligible for an Accelerated Investment Incentive that provides a depreciation rate of up to three times the normal rate in the first year the asset is put into use. For example, an Ontario small business that had purchased a new data server would have previously been able to deduct 15% of the cost in Year One of use. Under the new Initiative, a company can deduct 45% of the cost in Year One.
Expected Impacts of the Ontario Job Creation Investment Incentive
The provincial government expects that the Incentive will provide over $1B in corporate tax relief in 2019-20 alone. Combined with other government incentives, the government estimates aggregate savings of $5B in 2019 for Ontario businesses.
The Incentive is also expected to help businesses make investments in machinery upgrades and expansions that will ultimately result in job creation in the province. The Incentive is part of the Government of Ontario’s Open for Business, Open for Jobs Strategy, which aims to increase employment, drive job creation in the private sector for Ontario small businesses and larger organizations, and reduce regional disparities in jobs and growth.
Government Grants to Hire and Train Apprentices
In addition to tax credits, which are an entitlement for employers, businesses may be eligible to receive other forms of government funding for apprenticeships. Canadian government grants can support both hiring and training projects, but need to be planned and submitted prior to officially hiring or training the individual.
To learn more about developing a forward-looking government funding plan, consider downloading the How to Build a Proactive Funding Plan slide deck.