Ontario 2012 Budget: perspectives on business incentives

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By Terry Lavineway

The Ontario 2012 budget was released March 27, 2012. The general theme of the budget is getting efficiency out of the prior investments and government spending and cultivating the growth presumably inspired by previous stimulus budgets. This focus on efficiency carries through to existing programs and business-specific incentives, specifically with regards to research and development incentives and Apprenticeship Training Tax Credits (ATTC). Aside from these two areas, the budget was quiet with regards to specific tax credits and discretionary funding programs for businesses.

The budget references the federal activity regarding the effectiveness of encouraging innovation and R&D in Canada, specifically the Scientific Research and Experimental Development (SR&ED) tax credit program. The Ontario budget indicates that Ontario agrees there are inefficiencies when it comes to the effectiveness of R&D tax credits and cites better efficiency required for provincial-federal collaboration with respect to R&D incentives.

Ontario is not proposing any changes at this time to the provincial R&D tax credits (Ontario Innovation Tax Credit, Ontario Research and Development Tax Credit or Ontario Business Research Institute). Certainly there is recognition that any changes introduced by the federal government to the SR&ED program will directly impact businesses in Ontario. And Ontario will need to adjust and respond accordingly.

One such way Ontario will attempt to increase innovation and productivity is through the creation of the Jobs and Prosperity Council, which will broadly identify and advise the government on ways to improve the efficiency and effectiveness of approximately $2-billion worth of tax and discretionary incentives.

More specifically, it will:

  1. Work to identify inefficiencies & improvements in the province and simplify compliance and administration with the goal of encouraging increased R&D investment;
  2. Evaluate the  efficiency and consolidation of the approximately $2-billion worth of support to businesses through discretionary programs and tax credits by  focusing on consistency and clarity of intended objectives and reducing duplication and excessive administration costs; and
  3. Eliminate programs that are improperly structured to achieve the desired goals of increased productivity and innovation.

While we might see consolidation of some discretionary funding programs such as the Strategic Jobs Investment Fund, the budget specifically mentions three funds that will continue. It cites the success of the Eastern Ontario Development Fund (EODF). It also specifically mentions the Southwestern Ontario Development Fund and programs administered by the Northern Ontario Heritage Fund Corporation. All of these programs will continue; and presumably will benefit from the efficiencies introduced resulting from the work done by the Jobs and Prosperity Council.

Still in the theme of increased efficiency the budget discusses the growth in the Apprenticeship Training Tax Credit. The uptake of registration of apprentices has been good: twice as many registered apprentices now as compared to 2002-03. Where Ontario seeks necessary improvement in the Apprenticeship program is in completion of apprenticeship programs by the registrants. The budget mentions that, on average, only approximately 50 percent of registered apprentices complete their respective program.

The Ontario College of Trades will be conducting a review starting in April, 2012 to identify recommendations to improve the completion rate. An acceptable rate of completion was not mentioned. The tax credit rates for ATTC remain unchanged, however the tax credit will be included in the review by the Ontario College of Trades.

Ultimately there are no immediate, consequential changes in the budget as it relates to tax credits and discretionary funding programs. Keys to watch will be changes made federally to the SR&ED program to which Ontario will need to respond; as well as any conclusions, recommendations or changes resulting from the Jobs and Prosperity Council.

Further insights on the broader Ontario budget can be found at www.welchllp.com.

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