2021 Alberta Budget commentary
TAX ALERT |
On Feb. 25, 2021, Alberta’s President of Treasury Board and Minister of Finance, Travis Toews tabled the government’s 2021 budget. Toews acknowledged the challenges Albertans and Alberta businesses have faced in 2020, in light of the global pandemic and the crash in oil prices.
Budget 2021 announces no new tax increases across the board, but rather, focuses on economic recovery and growth programs, stating that tax increases would undermine these efforts. To mitigate the provincial deficit, with added program spending and the absence of tax increases, the government commits to making efficient spending of taxpayer dollars a priority.
The budget hints at a future tax reckoning, calling for a review of the “appropriateness and efficiency of Alberta’s revenue structure and tax system”, but stops short of any musings as to what measures might be on the table.
Budget 2021 highlights the competitive advantage Alberta has over other provinces and many U.S. states, boasting the lowest corporate income tax rate in Canada at 23%. Other Alberta tax advantages touted include the lack of a provincial sales tax and provincial health premiums.
The consistent theme of the budget is to stress the competitive Alberta business tax environment along with a few targeted measures, discussed below, to drive investment and job creation and put Albertans on the road to financial recovery after the pandemic.
Credits and incentives
Innovation Employment Grant
The budget revisits the Innovation Employment Grant (IEG), first announced in the summer of 2020. The IEG encourages economic growth and employment by supporting small and medium-sized businesses investing in research and development (R&D).
The previous Alberta Scientific Research and Experimental Development (SR&ED) program, which provided a refundable 10% tax credit on eligible R&D spending, was eliminated effective Dec. 31, 2019. The IEG replaces the former provincial SR&ED program, but provides greater incentive for companies to expand their innovation efforts in Alberta, since the rate of the grant increases as spending increases above a base level.
The IEG provides an 8% grant on a corporation’s base level of R&D spending in a fiscal year. The base level is calculated as the average R&D spending in Alberta over the previous two years. R&D expenditures beyond the base level qualify for an incremental grant at a rate of 20%. Start-up companies and those moving to Alberta will receive the 20% rate on their entire first-year qualifying R&D spending. The government contrasts Alberta’s new program with other provinces:
The IEG applies on up to $4 million in annual qualifying Alberta expenditures made after 2020, for a maximum refund of $800,000. To target small and medium-sized businesses, the expenditure limit is phased out between $10 million and $50 million in taxable capital in a corporate group.
The IEG, combined with support provided through Alberta Innovates and Alberta’s low corporate tax rates, aims to make Alberta one of the most attractive places in Canada for small and medium-sized businesses to conduct research and development activities.
Education property tax
The education property tax was set to increase to 3.4% in 2021, to account for population growth and inflation. In light of the pandemic, the government chose to freeze this tax rate, and has encouraged municipalities to adopt a similar approach.
This freeze reduces the tax burden on Albertans and Alberta businesses for the next two years.
Property tax on oil and gas properties
The property tax assessment model for regulated oil and gas properties, including wells and pipelines, underwent a government review over the past year. The review sought to modernize the assessment model used for these properties, to enhance the sector’s competitiveness while ensuring municipal viability.
While the review produced recommendations, the government chose not to implement comprehensive changes at this time due to the ongoing economic uncertainty facing the sector and the province.
However, several property tax changes have been implemented to encourage new investments in the oil and gas sector and improve the viability of existing assets, including:
• No property tax on new wells and pipelines beginning in the 2022 property tax year and extending until 2025;
• Elimination of the well drilling equipment tax beginning in 2021;
• Lower-producing wells will be further depreciated, resulting in lower assessed values, beginning in 2021; and
• The 35% assessment reduction for shallow gas wells and associated pipelines will continue through the 2023 tax year.
The government estimates these initiatives will save the industry $84 million annually: $70 million from municipal property taxes and $14 million from provincial education property taxes. The benefits of these initiatives will be widespread, providing significant savings to a sector hit hard over the past year.
Tourism levy abatement and application to short term rentals
In the 2020 Alberta Budget, the government proposed relief to tourism operators that had collected the Alberta tourism levy from March 1, 2020 to Dec. 31, 2020.
In early December 2020, the province extended this relief through March 31, 2021. Budget 2021 confirmed these regulations, to be enacted by April 1, 2021.
Further, as announced in Budget 2019, the tourism levy has been extended to be applicable on short-term rentals offered through services like AirBnB, effective in April 2021. Similar to federal proposals around the collection of GST/HST on such rentals, online marketplaces will be authorized to collect and remit the levy on behalf of the property owner.
Tourism operators that have collected the levy from Jan. 1 through March 31, 2021 will now have certainty that they can retain those funds as part of Alberta’s support measures.