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Employment & Labour

Ontario plans scrapping minimum wage hike for income tax credit

The election of Doug Ford as Ontario’s new premier will have a direct impact on a large number of employees, particularly those in lower-income brackets who rely on the protections provided by minimum wage legislation, Toronto employment lawyer Matthew Wise writes in The Lawyer’s Daily.

In January, Ontario became the province with the highest minimum wage, jumping to $14 per hour from $11.60, a significant increase that had clear political and economic ramifications, says Wise, a partner with Macdonald Sager Manis LLP.

“The minimum wage was expected to rise another dollar in January of 2019, but with the election of Ford, this is no longer the case,” he writes. “Instead, Ford has proposed a provincial income tax credit for those minimum wage earners bringing home less than $28,000 annually.”

Had the minimum wage increased to $15 from $14 per hour as planned by the previous government, people working an average of 37.5 hours a week would have seen their take-home pay increase by $1,875 before taxes over a 50-week period, Wise writes.

“Under the provincial income tax credit proposed by Ford, people making less than $28,000 per year would save approximately $800 in taxes,” he says. “Both options leave more money in the pockets of minimum wage earners, but the latter does so in a way that will affect employers less.”

Wise says the increase of the minimum wage to $14 an hour had an impact on both large and small businesses in the province. Some companies attempted to cut paid breaks and reduce benefits coverage, while others, notably those in the fast food sector, implemented automated ordering through self-serve kiosks in order to reduce the number of staff, he writes.

“By scrapping the Liberals’ plan to raise the minimum hourly wage to $15, Ford has attempted to save money for individuals by reducing their taxes and businesses by reducing both taxes and payroll expenditures,” Wise says. “Ontario currently has one of the lowest corporate tax rates in the country at 11.5 per cent and Ford has proposed lowering this even further to 10.5 per cent.”

The new premier has also recommended reducing the tax rate for small businesses to 3.2 per cent from 3.5 per cent, he adds.

“Given the ongoing trade disputes, tariffs and policy changes (and the general uncertainty emanating from south of the border), the goal of these tax reductions is to incentivize investors, stimulate business and increase jobs in the province,” Wise writes.

All things being equal, an increase in the minimum wage to $15 from $14 would have left earners with more money in their pockets than Ford’s income tax credit, but in the long run may have had the “unintended consequence” of reducing the number of hours employees were asked to work, offsetting the one dollar increase, he says.

“While an increase in a particular employee’s hourly rate may seem enticing, it means little to the employee if the employer subsequently reduces their hours,” Wise writes.

The proposed income tax credit has and will continue to be a delicate balancing act that aims to keep employers and employees happy and with more money at the end of the year, he says.

“Moving forward, it will be interesting to see how this income tax credit plays out for minimum wage workers, most of whom already receive much of their income back in tax deductions for child care, dependents and medical expenses,” Wise writes.

“Ontario has made a bold choice to move in a different direction. Only time will tell how these changes will affect the average worker,” he says.

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