In 2009, Ontario introduced a permanent transfer tax exemption for transfers of electricity assets among publicly owned utilities to encourage municipalities to enter into consolidation transactions. A number of primarily public‑to‑public mergers have occurred in the sector since 2009. However, at present, there are about 60 municipal electricity utilities remaining in Ontario.

In 2015, Ontario introduced time‑limited relief on taxes pertaining to transfers of electricity assets for all Municipal Electricity Utilities (MEUs), including transfers to the private sector, effective January 1, 2016.

Before January 1, 2016, MEUs were subject to a transfer tax of 33 per cent on the fair market value of the electricity assets sold to the private sector, less any payments in lieu of taxes (PILs) or Ontario Corporate Income Tax (CIT) paid up to the time of the transfer.

The time‑limited relief on transfer tax began January 1, 2016 and will end December 31, 2022:

  • reduces the transfer tax rate from 33 to 22 per cent, and
  • exempts MEUs with fewer than 30,000 customers from the transfer tax.

These rules were effective January 1, 2016 until December 31, 2018 and will be extended and remain in effect until December 31, 2022 for any MEU with a related Merger, Acquisition, Amalgamation and Divestiture application before the Ontario Energy Board (OEB) before January 1, 2023, and a written agreement completed before January 1, 2023, provided the agreement is not materially changed thereafter.

For more information on these measures, see Time-Limited Relief on Taxes Pertaining to Transfers of Electricity Assets.

Consolidation in the electricity distribution sector could lead to reduced electricity rates and improved services for electricity customers through innovation and efficiency gains. Private‑sector expertise can play an important role in achieving these objectives.

To encourage private‑sector involvement in the Ontario electricity distribution sector, the time‑limited tax relief measures that had been scheduled to expire on December 31, 2018, were extended until December 31, 2022, as announced in the 2018 Ontario Economic Outlook and Fiscal Review.

To help electricity rate mitigation initiatives, the Province intends to use any transfer tax collected for electricity rate relief.

Ontario's recent efforts to encourage consolidation through tax incentives have resulted in a modest number of proposed mergers.

For this reason, the government will continue to review sector activity and will consider additional ways to promote efficiency and modernization of the electricity distribution sector in consultation with consumers and other stakeholders.

PILs Deemed Disposition Rules

MEUs, and Ontario Power Generation Inc. and the corporation's subsidiaries, that are exempt from federal and Ontario income tax, must make PILs under the Electricity Act, 1998 to the Ontario Electricity Financial Corporation. PILs are equal to the federal and Ontario income tax the MEU would pay if it were a taxable corporation.

A MEU that ceases to be exempt from federal and Ontario income tax is deemed to dispose all its assets at fair market value, with any tax gain arising on the deemed disposition being subject to PILs (PILs deemed disposition rules). Ontario Power Generation Inc. and the corporation's subsidiaries are also subject to PILs deemed disposition rules.

Any MEUs' capital gains arising under the PILs deemed disposition rules were exempt from PILs for the period beginning January 1, 2016 and ending December 31, 2018.

The exemption will continue and remain in effect for any MEUs with a related Merger, Acquisition, Amalgamation and Divestiture application before the OEB before January 1, 2023, and a written agreement completed before January 1, 2023 provided the agreement is not materially changed thereafter.

PILs and dispositions of partnership interests

O. Regs. 124/99, 162/01 and 207/99 to the Electricity Act, 1998 have been amended to adopt federal anti‑avoidance measures set out in section 100 of the Income Tax Act (Canada). The measures are intended to prevent the avoidance of PILs through dispositions of partnership interests made directly, or indirectly, as part of a series of transactions to a person who is not subject to PILs, or to a partnership whose members are not all subject to PILs.

Holding companies

Past payments in lieu of federal and provincial tax may apply to reduce the transfer tax liability of a municipal corporation or municipal electricity utility.

Amendments recently made to the Electricity Act, 1998 now avail a municipal electricity utility's PILs credits to reduce the transfer tax payable by a municipal corporation's intermediary holding company that disposes of the municipal corporation's indirect interest in the municipal electricity utility.


As part of the restructuring of the electricity sector, municipalities were given ownership of their MEUs, which has provided them with a source of income and the potential to realize significant proceeds if they sell their MEUs.

Historically, the government has encouraged consolidation of the electricity sector through exemptions from the transfer tax for public to public sales or mergers of local distribution companies.

Ontario has since implemented additional time-limited relief on taxes pertaining to transfers of electricity assets for all MEU PILs payers, including transfers to the private sector to encourage further consolidation.

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