Commission on the Reform of Ontario's Public Services

Refundable Corporate Income Tax Credits
Tax expenditures are a form of spending through the tax system. However, for external
reporting purposes, most tax expenditures are currently offset against tax revenue, with only
the net amount of revenue being reported. The Public Sector Accounting Board (PSAB) of the
Canadian Institute of Chartered Accountants has released a new standard for tax revenue that
distinguishes between tax concessions and transfers made through a tax system. It has been
recommended that this new standard be applied to financial statements for fiscal years
beginning on or after Apr. 1, 2012. Adopting the PSAB standard would result in the reporting of
certain tax expenditures as expenses, which would strengthen fiscal accountability and
transparency in financial reporting.
Recommendation 11-7: Follow the Public Sector Accounting Board (PSAB) recommendation
to report transfers through the tax system as expenses, and adopt the PSAB standard for tax
revenue beginning with the 2012 Ontario Budget. In 2011, Ontario provided refundable
business tax credits (tax credits that are “refunded” or paid out, even if no tax is payable)
totalling $723 million to three main areas: media industries, research and development, and
apprenticeship and co-op student training. Many of these tax credits overlap with the
objectives of direct business support programs, and all should be subjected to the same
degree of scrutiny as program spending. Further gains could be achieved by making the tax
system more neutral, removing special preferences that favour some business activities over
others and better aligning refundable corporate income tax credits with direct business
support programs.
Recommendation 11-8: Introduce legislation to sunset all current refundable corporate
income tax (CIT) credits in 2012–13 as part of the government’s tax expenditure review.
Add refundable CIT credits that demonstrate effectiveness and administrative efficiency into
the single envelope used to fund business support programs, and include revenue forgone
from those tax credits in the funding allocation of an appropriate ministry.
Non-Refundable Tax Credits and Other Business Support in the Tax System
Refundable tax credits are not the only form of government spending in the tax system.
With a more competitive business tax structure, non-refundable tax credits and business
support in other areas of the tax system should also be examined for effectiveness and
administrative efficiency. The province should aim to maximize value for money and ensure
that the tax system directly supports economic growth in Ontario.
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