On February 27, 2020, Alberta’s President of Treasury Board and Minister of Finance, Travis Toews introduced the province’s 2020 Budget. The budget preamble states the continued commitment of the government to job creation, the delivery of sustainable public services and the support of private sector growth.
The focus of the 2020 Budget is on spending adjustments and fiscal projections. It includes little in the way of new tax measures, but rather builds on the key measures implemented in the 2019 Budget, with a continued focus on broad-based tax competitiveness. The 2020 Budget includes a discussion of the government’s move to favour broad-based corporate tax cuts (the “Job Creation Tax Cut” discussed below) rather than tax credit programs targeted to specific sectors of the economy. This budget provides more details on two business tax measures announced by the government in the 2019 Budget:
- Extending the tourism levy to short-term rentals listed on online marketplaces, with the intention of leveling the playing field among temporary accommodation providers.
- Introducing a tax on vaping devices and vaping liquids, in hopes of discouraging youth from buying these products.
BUSINESS TAX MEASURES
Tourism levy and short-term rentals
As announced in the 2019 Budget, the government will extend the tourism levy of 4 per cent to apply to all short-term rentals (STRs) listed on online marketplaces such as Airbnb, HomeAway and Vacation Rental by Owner. Previously, these online providers were exempt from this levy, and as such, were perceived to have an unfair advantage over more traditional businesses such as hotels. This reflects trends in other jurisdictions such as British Columbia that introduced similar rules in 2019.
A new exemption will be introduced for properties that are not listed on any online marketplace, where the purchase price of the rental is less than $30 per day or $210 per week, or the operator has annual gross revenue from the STR in Alberta of less than $5,000. This new exemption seeks to alleviate the administrative and compliance costs for owners who do not list their accommodations on online marketplaces and who only occasionally rent out their accommodations.
Legislation implementing these changes will be introduced in the spring of 2020, with the changes expected to take effect in the summer of 2020. Administration of the levy for these online accommodation marketplace providers will be handled through the existing Tourism Levy regime that is administered by the Alberta Tax and Revenue Administration (TRA).
Vaping products tax
With a stated goal of discouraging youth vaping, the government has introduced a 20 per cent tax on the retail sale of vaping products. As promised in the 2019 Budget, retailers of vaping products, including vaping liquids, cannabis liquids and vaping devices, will be required to collect the tax from their customers and remit to the government. Online sales to Albertans from suppliers in other jurisdictions will be subject to this tax, requiring out-of-province retailers to register and collect this new tax. Alberta retailers will not be required to collect the tax on online sales they make to individuals in other jurisdictions, but may be subject to registration and collection of any comparable tax in other provinces such as British Columbia that recently introduced similar rules.
Legislation implementing this tax will be introduced in the spring of 2020. It is not clear how the administration of this new retail tax will be handled through the TRA, but we expect that an entirely new online filing portal may be utilized, since Alberta has not traditionally had such retail sales taxes.
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 eight per cent by 2022 in order for businesses to grow and create more jobs. The first provincial corporate tax rate decrease occurred on July 1, 2019. Accordingly, the rate was further reduced to 10 per cent on January 1, 2020 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. See our previous Tax Alert for more details.
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, 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, were eliminated ahead of schedule. The Interactive Digital Media Tax Credit was eliminated as well. These credits were eliminated effective January 1, 2020.
PERSONAL TAX MEASURES
The budget does not propose any changes to personal income tax rates or changes to any benefit and credit programs. The following measures, previously outlined in the 2019 budget will be implemented in 2020.
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 January 1, 2021 and January 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.
CONCLUSIONS
The 2020 budget projects the elimination of the provincial deficit and generation of a small surplus by fiscal 2022-2023. Should the economic assumptions contained in the budget not materialize, particularly those around oil prices and economic growth, it will necessitate difficult choices between additional spending restraint, raising additional revenue through taxes and fees, or continued deficits. Of further note to our middle market clients is the shift towards broad-based tax relief rather than targeted credits, the impact of which will vary from industry to industry and will depend greatly on the tax situation of the particular corporation. Please reach out to an advisor to discuss the impact on your business in more detail.
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