Tax Highlights

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Introduction

On April 22, 2008, Alberta's Finance and Enterprise Minister, Iris Evans, presented the province's 2008 budget. Most notably, the budget introduces a refundable tax credit on scientific research and experimental development expenditures. It also eliminates the province's health care premiums on January 1, 2009 (four years earlier than expected). These and other key tax changes are discussed below.

For help determining how these changes affect you or your company, please contact your PricewaterhouseCoopers adviser, or:

• Dale Meister
• Daniel Woodruff

Business Tax Measures

Scientific research and experimental development tax credit

The budget introduces a scientific research and experimental development (SR&ED) tax credit of 10% on up to $4 million of eligible expenditures incurred, for a maximum annual credit of $400,000. The credit will be calculated using the definition of eligible expenditures in the federal SR&ED tax credit program. It will be refundable to all taxpayers, regardless of size or industry, and will apply to eligible expenditures incurred after December 31, 2008.

Corporate income tax rates

General tax rate

Alberta's general corporate income tax rate (which also applies to manufacturing and processing income) will remain 10%. The rate is among the lowest in Canada. No mention was made about Alberta's previously stated long-term goal of reducing the rate to 8%.

Small business tax rate

Alberta's small business income tax rate will remain 3% (one of the lowest in Canada). Previously announced changes to the province's small business thresholds follow.

Corporate tax avoidance

Alberta's 2007 budget announced that the province will dedicate more resources to thwarting provincial tax avoidance schemes. Its 2008 budget confirmed that Alberta will continue to take these steps.

New royalty framework

The budget provides a reminder that Alberta's new royalty framework will apply starting January 1, 2009. For more information, see Energy Tax News: Alberta's New Royalty Framework — Government takes larger share and simplifies rules.

Personal Tax Measures

Personal income tax rates

Top personal tax rates

The budget leaves intact the province's single-rate tax of 10%. As a result, Alberta individual taxpayers will continue to pay tax at Canada's lowest top combined federal/provincial personal tax rate: 39%.

Dividend tax rates

The budget does not revise Alberta's dividend tax credit rate on eligible or non-eligible dividends. However, it cautions that forthcoming legislation will increase to 10% the tax on income that is subject to the small business rate provincially, but benefits from the eligible dividend tax credit rate (an anomaly that occurs because Alberta's small business threshold exceeds the federal threshold).

Eligible dividends

As a result of previously announced provincial changes, as well as federal changes that are effective after 2009, the top combined federal/Alberta tax rate on eligible dividends will change as follows:

Non-eligible dividends

Previously announced changes will increase the top combined federal/Alberta tax rate on non-eligible dividends as shown below.

Personal tax credits

Although most of Alberta's personal tax credits will be indexed by 4.7% for 2008, the following amounts will increase by more than this percentage.

Furthermore, commencing July 1, 2008, the maximum benefit under the Alberta Family Employment Tax Credit will increase to $669 for one child, $1,277 for two children, $1,642 for three children and $1,764 for more than three children. The threshold at which the credit starts to be phased out will increase from $27,633 to $32,633.

Health care premiums

Alberta's health care premiums will be eliminated entirely on January 1, 2009 (instead of over four years, as previously announced). This change will save families $1,056 and individuals $528 annually.

Other Tax Measures

Education property taxes

The residential/farm and the non-residential property tax rates will both fall in 2008. This is the 15^th consecutive year that Alberta has either reduced or frozen its property tax rates.

Federal harmonization

The budget states that Alberta will adopt the following 2008 federal budget measures:

• the Tax-Free Savings Account; and
• capital cost allowance enhancements for:
  • manufacturing and processing equipment;
  • clean energy generation equipment;
  • railway locomotives; and
  • carbon dioxide pipelines and related equipment.

See our Tax Memo: 2008 Federal Budget — Treading Softly in Old Shoes for more information.