Alberta Budget 2019: The Return of the "Alberta Advantage"

November 4, 2019

The release of the 2019 Alberta Budget has signaled that Premier Jason Kenney remains committed to bringing back the "Alberta Advantage" by returning to broad-base low corporate tax rates. Accompanying this return to a pre-2015 corporate taxation model is the elimination of targeted tax credits, including most notably the Scientific Research and Experimental Development ("SR&ED") provincial tax credit and a number of other targeted tax program changes.

The 2019 Budget is lean on new tax incentives and initiatives.  However, this is due in part to the delay in the Alberta Budget's release until after the federal election, by which time the big-ticket partial repeal of the previous NDP Government's carbon tax[1], and the implementation of an annual one per cent reduction in the general corporate income and the manufacturing and processing tax rates over a four-year period had already been announced by the UCP Government.

Corporate Tax Rate Reduction and Corresponding Changes to Dividend Tax Credit

The largest change to Alberta's corporate tax system in 2019 is undoubtedly the return to a low corporate tax rate through the implementation of a tax cut, which will lower the general corporate income tax rate from 12 per cent to eight per cent by 2022 in annual increments of one per cent. This reduction in the general corporate income tax rate commenced on July 1, 2019 with a reduction to 11 per cent, and the next reduction is set to take effect on January 1, 2020. By 2022, an eight per cent general corporate income tax rate will return Alberta to its previous position as the lowest corporate tax jurisdiction in Canada, and one of the lowest corporate tax jurisdictions in North America.

To maintain integration in the corporate tax system, the dividend tax credit will be correspondingly adjusted on January 1, 2021 and January 1, 2022 to ensure that the combined corporate and personal income tax paid approximately equals personal tax rates. However, the dividend tax credit is not being adjusted to accommodate the existing one per cent corporate tax reduction, or the one per cent reduction effective on January 1, 2020, which may lead to a temporary over-integration for dividends paid during these periods.

Capital Cost Allowance ("CCA") Acceleration

The Alberta Government has also paralleled the Federal Government's increased CCA deductions, which were introduced in the 2018 Federal Fall Economic Statement. For eligible property, the increased first year CCA deduction will apply with respect to eligible depreciable property acquired after November 20, 2018 and that becomes available for use before 2028. These increased CCA deductions apply as follows:

  • A 100 per cent CCA deduction will be available for eligible manufacturing and processing and specified clean energy equipment in the first year such equipment becomes available for use;
  • Other eligible depreciable capital property will be eligible for a further 50 per cent maximum first-year CCA deduction on net additions to that CCA class, with a maximum CCA deduction limit of 100 per cent. This effectively suspends the half-year rule and provides a CCA deduction up to three times the usual first-year maximum;
  • Qualifying resource sector property will be eligible to claim an enhanced first-year deduction up to 1.5 times the amount of the current qualifying development expense.

As with the federal changes, these increased CCA and resource deductions will be phased out for property that becomes available for use after 2023, but before 2028

Elimination of Targeted Business Tax Credits

The return to a low corporate tax rate and the implementation of the broad first-year CCA deduction increases has been relied upon by the Alberta Government to justify the elimination of five targeted tax credits:

  1. the Alberta Investor Tax Credit;
  2. the Community Economic Development Corporation Tax Credit;
  3. the Capital Investment Tax Credit;
  4. the Interactive Digital Media Tax Credit; and
  5. the SR&ED Tax Credit.

The elimination of the first four credits is effective as of budget day, October 24, 2019.  The SR&ED tax credit will no longer be claimable for expenses incurred after December 31, 2019. For those corporations already approved under the Alberta Investor Tax Credit and the Community Economic Development Tax Credit, the Alberta Government has implemented a grace period to raise capital until December 31, 2019. Unused credits will be able to be carried forward for future use, where applicable.

Should you have any questions with respect to these changes and their impact on your business, please contact Julie D'Avignon, member of Stikeman Elliott's Calgary tax team at [email protected].

[1] This is expected to be effectively repealed by the federal carbon tax effective January 1, 2020.

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