On Oct. 24, 2019, Alberta’s President of Treasury Board and Minister of Finance, Travis Toews, delivered the province’s 2019 Budget. The budget preamble states the government’s commitment to job creation, the delivery of public services and the development of infrastructure to support private sector investments and a vibrant society.
With an aim to achieve a balanced budget over the next four years, the measures in the United Conservative Party (UCP) government’s first budget are in contrast to the measures implemented in the past decade - “this is not a boom-time scenario” said Toews. The tax measures contained in the budget focus on reducing the tax burden on corporations, significant cutting of public spending and by moving towards a low-rate, broad-based approach with the intention of benefiting a broader segment of corporations and consequently individuals. The budget features spending restraint in line with many of the recommendations of the MacKinnon Panel, with a goal of gradually reducing per capita expenditures to levels more consistent with those in other provinces.
Business tax measures
With the stated goal of achieving sustainable economic growth and making Alberta one of the most competitive places to invest in North America, the following business tax measures will be implemented.
CORPORATE TAX RATE (JOB CREATION TAX CUT)
As promised in the Job Creation Tax Cut (Alberta Corporate Tax Amendment) Act tabled in May 2019, the provincial corporate tax rate will be decreased from 12 per cent to 8 per cent over the next four years in order for businesses to grow and create more jobs. Accordingly, the provincial corporate tax rate will be reduced to 11 per cent on July 1, 2019, and will be reduced by one per cent on January 1 of each year thereafter until January 1, 2022. The measure will result in Alberta having the lowest general corporate tax rate in the country.
ENHANCED CAPITAL COST ALLOWANCE
To promote competitiveness and encourage investment, Alberta will follow federal measures to enhance the capital cost allowance (CCA) by allowing corporations to claim tax depreciation at an accelerated rate. Specifically, corporations will be able to fully expense the costs of manufacturing and processing equipment (Class 53) and clean energy generation equipment (Class 43.1 and 43.2) in the first year when assets are available for use. Eligible property currently subject to the half-year rule will qualify for enhanced CCA equal to three times the normal first-year cost allowance.
The resource sector will be able to claim a first year deduction of 1.5 times the amount of qualifying development expenses they would otherwise be able to claim. Consistent with the federal measures, the enhanced CCA program will begin to phase out in 2023 and will be completely phased out by 2027.
ELIMINATION OF TAX CREDITS
The move towards a low-rate, broad-based corporate tax system intends to create a more competitive environment for businesses in all sectors and better promote economic growth than the existing tax credits. As such, in order to reduce inefficiencies and red tape and improve Alberta’s competitiveness, the Alberta Investor Tax Credit, the Community Economic Development Corporation Tax Credit and the Capital Investment Tax Credit, previously introduced on a temporary basis until 2021-22, are being eliminated ahead of schedule. The Interactive Digital Media Tax Credit will be eliminated as well. The aforementioned measures can be implemented with no additional compliance or administrative burden.
The Scientific Research and Experimental Development Tax Credit (SR&ED) will be eliminated starting in 2020, with expenses incurred after Dec. 31, 2019 no longer being eligible. For the other targeted credits, no new approvals will be granted after Oct. 24, 2019. Businesses already approved under the Alberta Investor Tax Credit or the Community Economic Development Tax Credit have until Dec. 31, 2019 to raise capital for these credits. Corporations and individuals will still be able to claim any unused credits, where applicable.
ELIMINATION OF CARBON TAX
The government views this tax as creating a significant drag on economic growth, and disproportionately penalizing Albertans for living in a geographically massive region, with a cold climate, and a resource driven economy. Thus, the carbon tax will be eliminated while the small business rate will be maintained at 2 per cent, making Alberta the second-lowest small business rate among all the provinces and territories.
TOURISM LEVY
Currently, most types of temporary accommodation rentals (other than short-term rentals offered through online marketplace such as Airbnb, HomeAway and Vacation Rental by Owner) are subject to a tourism levy of 4 per cent, giving online providers an unfair advantage. As such, the budget proposes to require online marketplaces to collect and remit a tourism levy to the government. The legislation is expected to be introduced in spring 2020.
Personal tax measures
The budget does not propose any changes to personal income tax rates. The budget does propose changes to certain benefit and credit programs that will impact individuals and families.
NEW ALBERTA CHILD AND FAMILY BENEFIT
On the personal benefits measures, the budget proposes to replace The Alberta Family Employment Tax Credit (AFETC) and the Alberta Child Benefit (ACB) programs with a single program, called Alberta Child and Family Benefit (ACFB), beginning in July 2020. Under the new program, a lower-income family with two children can receive up to $593 more per year, while a family with four children can receive up to $889 more per year.
The ACFB program parameters for 2020-21 are listed in the table below:
Benefits Amount |
Base Component |
Working Component |
1 child |
$1,330 |
$681 |
2 children |
$1,995 |
$1,301 |
3 children |
$2,660 |
$1,672 |
4 or more children |
$3,325 |
$1,795 |
Income phase-in threshold |
N/A |
$2,760 |
Phase-out threshold |
$24,467 |
$41,000 |
The ACFB will be paid quarterly, in August, November, February and May. These benefits are non-taxable and will not affect eligibility for other benefit programs.
DIVIDEND TAX CREDIT
In accordance with the corporate tax rates cut, the dividend tax credit rate for dividends paid out of income taxed at the general corporate income tax rate (eligible dividends) will be adjusted on Jan.1, 2021 and Jan. 1, 2022. These adjustments are intended to ensure that the combined corporate and personal income tax paid on eligible dividends approximately equals the individual’s personal tax rate, eliminating the double taxation of dividend income. With the decline in corporate tax rates, this is expected to consequently increase the effective tax rate on eligible dividends once the dividend tax credit adjustments are implemented.
CANADA WORKERS BENEFIT
The Working Income Tax Benefit (WITB) is a federal refundable tax credit available for low-income individuals and families who have earned income from employment or business. This credit was replaced by the Canada Workers Benefit (CWB) in the 2018 Federal Budget, applicable for 2019 and subsequent taxation years, which provides higher amount of benefits and higher phase-out thresholds for eligible individuals. Alberta has a reconfiguration agreement with the federal government on the design of the benefit. As such, Alberta will reconfigure the CWB to align the phase-in income level with the Income Support earning exemption threshold ($2,760) to help offset the impacts of Alberta Income Support benefits being clawed back and shift more benefits to single individuals without children.
PAUSE INDEXATION
Given the commitment to reducing tax expenditures in order to restore budget balance, the budget proposes to pause the annual indexation of non-refundable tax credits (such as basic personal and spousal amounts) and tax bracket thresholds for 2019 and future tax years. The indexation may resume once economic and fiscal conditions have improved and are better able to support it.
EDUCATION AND TUITION TAX CREDITS
To align with recent changes in Ontario and Saskatchewan, Alberta will focus on exploring broader revenue streams for post-secondary institutions to reduce reliance on government. As such, the education and tuition tax credits will be eliminated beginning with the 2020 tax years.
Other measures
TOBACCO TAX
To further discourage tobacco use and align with the rates in neighbouring provinces, the tobacco tax on a carton of 200 cigarettes will be increased $5 to $55 per carton effective at midnight on Oct. 25, 2019. The tax on other tobacco related products will also be increased accordingly by the same proportion. The government also intends to apply a tax on vaping projects to reduce youth access to this fast-growing market.
EDUCATION PROPERTY TAX
The education property tax will be kept the same in 2019-20 at $2.56 per $1,000 of equalized assessment for residential or farmland and $3.76 for non-residential properties.
CONTINUED SUPPORT FOR FILM INDUSTRY
The budget proposes to convert the existing grant program to a benefit payment through the income tax system. Eligible companies will be able to receive assistance worth 22 per cent of eligible expenditures to a maximum payment of $10 million and the amount will continue to be capped.
