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Collection agreement
In 2006, the Ontario and federal governments signed a Memorandum of Understanding
Agreement, under which the federal government will collect and administer Ontario’s corporate
tax system. This tax collection agreement allows Ontario corporations to make combined
payments and file a single corporate tax return for taxation years ending after 2008. To facilitate
this change, Ontario harmonized its corporate income tax base with the federal one. Under
this federal/Ontario agreement, the Canada Revenue Agency (CRA) also administers Ontario’s
corporate capital tax and corporate minimum tax (CMT).
The CRA now provides the same services to corporations that pay Ontario corporate income
tax that it currently provides for federal income tax. This includes the following functions:
• Payments processing
• Returns processing
• Audit
• Objections and appeals
• Collection of accounts receivable.
Transitional rules
Prior to the corporate tax harmonization, the federal and Ontario governments did not share a
common corporate tax base. A corporate taxpayer could therefore have different tax attributes
or balances for undepreciated capital cost allowance, cumulative eligible capital, donations
carried forward, and unclaimed research and development (R&D) expenses and tax losses.
Under the federal/Ontario agreement, corporations use federal tax attributes as the common
tax base for taxation years ending after 2008. Without transitional rules, the use of federal
tax attributes could cause Ontario corporations to understate or overstate their income tax
liabilities.
As a first step in the transition, a corporation compared its federal tax attributes with its Ontario
tax attributes at the transition time and addressed the difference according to the transitional
rules. A corporation’s transition time occurred on the first day of its taxation year that ends in
2009. Thus, depending on a corporation’s year-end, the transition time could have occurred
early in 2008.
Generally, a corporation’s liability or relief under the transitional rules is determined using a
temporary five-year tax credit or tax debit mechanism. This credit/debit is determined for each
taxation year ending after 2008 and before 2014 by multiplying the Ontario excess/federal
excess by the product of:
• The Ontario basic corporate income tax rate (currently 11.5%)
• The percentage of the corporation’s taxable income allocated to Ontario under federal
rules
• The percentage that the number of days in the taxation year included in the corporation’s
“amortization period” is to the total number of days in the corporation’s amortization
period.
Generally, a corporation’s amortization period starts at the beginning of a corporation’s first
taxation year ending after 2008 and ends five calendar years afterwards. Thus, the percentage
will typically be 20% per annum.
A transitional credit is not refundable. If the transitional credit for a taxation year is not fully
used, the unused portion can be carried forward only to subsequent taxation years in the
amortization period.
Ontario Harmonization
Current as of September 30, 2013
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