2019 Alberta budget: Tax highlights

October 25, 2019

Issue 2019-35

In brief

On October 24, 2019, Alberta’s President of Treasury Board and Minister of Finance, Travis Toews, presented the new majority government’s first provincial budget. The budget does not change corporate or personal tax rates. However, it:

  • eliminates five targeted business tax credits, including the Scientific Research and Experimental Development (SR&ED) tax credit
  • revises the eligible dividend tax credit rates for 2021 and 2022
  • temporarily suspends the indexation of personal income tax brackets and personal tax amounts
  • eliminates the education and tuition tax credits

This Tax Insights discusses these and other tax measures in the budget.

In detail

Business tax measures

Corporate income tax rates

The budget did not revise Alberta’s corporate income tax rates, but reminds us of the previously‑announced reductions to the province’s general and M&P tax rate, as noted below.

  • General and M&P income tax rate – This rate decreased from 12% to 11% on July 1, 2019, and will decrease by one percentage point on January 1 of each year until it reaches 8% on January 1, 2022. Combined federal/Alberta general and M&P rates follow:

General and M&P income

Alberta

Federal + Alberta

 

 

 

Taxation
year ending

December 31, 2018

12%

27%

December 31, 2019

11.5%

26.5%

December 31, 2020

10%

25%

December 31, 2021

9%

24%

December 31, 2022

8%

23%

  • Small business income tax rate (on the first $500,000 of active business income) – This rate remains 2%. Combined federal/Alberta small business rates follow:

Small business income

Alberta

Federal + Alberta

 

Taxation year ending

December 31, 2018



2%1

12%

December 31, 2019


11%2

December 31, 2020

1. Alberta’s small business rate was reduced from 3% to 2% on January 1, 2017, to help small businesses offset the additional cost of Alberta’s carbon tax. Despite the repeal of the province’s carbon tax, effective May 30, 2019, the budget confirms that the small business rate will remain 2%.
2. The combined rate reflects the decline in the federal small business tax rate from 10% to 9% on January 1, 2019.

Capital cost allowance (CCA)

The budget reminds us that Alberta has paralleled the federal CCA measures introduced in the 2018 Federal Fall Economic Statement (for more information, see our Tax Insights2018 Federal Fall Economic Statement: Tax highlights”).

The increased first year CCA deduction on eligible depreciable property acquired after November 20, 2018, and available for use before 2028, is as follows:

  • a 100% CCA deduction – eligible manufacturing and processing (M&P) and specified clean energy equipment are eligible for a 100% CCA deduction in the first year that it becomes available for use
  • the Accelerated Investment Incentive (AII) –  other eligible depreciable capital property is generally eligible for a maximum first-year CCA deduction on the net additions to a CCA class that is 1.5 times the standard CCA deduction for that class, subject to a maximum of 100% (effectively suspending the half-year rule and providing a CCA deduction that is up to three times the usual first-year maximum)

In addition, the resource sector can also claim an enhanced first-year deduction of up to 1.5 times the amount of qualifying development expenses otherwise deductible.

The increased first-year CCA and resource deductions will be phased out for property that becomes available for use after 2023 and before 2028.

Scientific Research and Experimental Development (SR&ED) tax credit

The SR&ED tax credit will be eliminated starting in 2020. Eligible expenses incurred after December 31, 2019 will no longer qualify for this credit.

Other business tax credits

The budget announces that the following business tax credits will be eliminated, with no new approvals to be granted after October 24, 2019:

  • Alberta Investor Tax Credit (AITC)
  • Community Economic Development Corporation Tax Credit (CEDCTC)
  • Capital Investment Tax Credit
  • Interactive Digital Media Tax Credit

Businesses already approved under the AITC or the CEDCTC have until December 31, 2019 to raise capital for these credits. Unused credits can be carried forward and claimed under the existing rules. 

Personal tax measures

Personal taxes on eligible dividends

The budget announces that the dividend tax credit (DTC) rate for eligible dividends will be adjusted on January 1, 2021 and January 1, 2022; this was expected because of the previously-announced reductions to the province’s general corporate income tax rate (see above). The budget states that “[t]hese adjustments are to ensure that the combined corporate and personal income tax paid on dividend income approximately equals the individual’s personal tax rate.” Although the budget did not specify the DTC rates, we expect that the DTC rate will decrease, thereby increasing personal taxes on eligible dividends after 2020.

Personal income tax brackets and personal amounts

The indexation of Alberta’s personal income tax brackets and personal tax amounts (used for the province’s non‑refundable tax credits) will be suspended, starting 2020 “until economic and fiscal conditions improve.” Therefore, the tax brackets and personal amounts for 2020 will be the same as for 2019.

Personal income tax rates

The budget does not change personal income tax rates (except for eligible dividends, as discussed above). The top two personal income tax rates are shown in the next table.

Combined federal/Alberta rates

Taxable income

Ordinary income

Capital gains

Canadian dividends

Eligible

Non-eligible

2020

 

Top
bracket

 

> $314,928

 


48.00%

 


24.00%

 


31.71%

 

42.31%1

2019

2018

> $307,547

41.54%

2020

 

2nd from
top bracket

 

$210,371 to $314,928

 


47.00%

 


23.50%

 


30.33%

 

41.16%1

2019

2018

$205,842 to $307,547

40.38%

1. The combined non-eligible dividend tax rates reflect:
– the federal non-eligible dividend tax credit rate decreasing from 10.0313% in 2018 to 9.0301% in 2019 (which resulted from the decrease to the federal small business tax rate, as noted above) 
– Alberta’s non-eligible dividend tax credit rate increasing from 2.16% in 2018 to 2.18% in 2019

Education and tuition tax credits

Alberta will eliminate its education and tuition tax credits effective 2020. Unused credits can be carried forward for use after 2019.

Alberta Investor Tax Credit (AITC) and Community Economic Development Corporation Tax Credit (CEDCTC)

As noted above, the AITC and CEDCTC will be eliminated. No new approvals will be granted after October 24, 2019, and businesses already approved for these credits will have until December 31, 2019 to raise capital for these credits. Unused credits can be carried forward and claimed under the existing rules.  

Alberta Child and Family Benefit (ACFB)

The budget introduces the ACFB, beginning July 2020, which will replace the Family Employment Tax Credit and Alberta Child Benefit. The ACFB includes a base component and a working component, and low-income families are eligible for both components (maximum combined benefit of $5,120 per family). The amount that families can receive will depend on family net income and the number of children in the family. To encourage families to join or remain in the workforce, the working component of the ACFB provides higher benefit amounts as families earn more employment income. The ACFB amounts will be paid quarterly, be non-taxable and will not affect eligibility for other benefit programs. 

Other measures

Carbon tax

The budget reminds us that Alberta's carbon tax was repealed effective May 30, 2019.

Royalty credits

The budget reaffirms Alberta's support for the petrochemical industry and notes that the province "will extend the royalty credit model to incent future projects."

Regulated Rate Option program

In conjunction with the previously-announced return to an energy-only market for electricity, the budget announces that the electricity price rate cap program (which caps electricity rates for consumers on the Regulated Rate Option) will end this fall.

Tobacco tax

Effective 12:01 am on October 25, 2019, the tobacco tax will increase:

  • for a carton of 200 cigarettes, by $5 to $55 per carton
  • for loose tobacco, by 3.75¢ to 41.25¢ per gram
  • for cigars, from 129% to 142% of the taxable price of the cigar, with the minimum and maximum tax per cigar increased to 27.5¢ and $8.61, respectively

Vaping products

Alberta intends to implement a tax on vaping products. Details will be announced in the 2020 budget.

Tourism levy

The budget notes that legislation will be introduced in spring 2020 to ensure that short-term rentals offered through online marketplaces (e.g. Airbnb, HomeAway) charge and collect the 4% tourism levy that currently applies to most types of temporary accommodation rentals.

Education property tax

Education property tax rates will remain, for the 2019-20 fiscal year, at:

  • for residential/farmland - $2.56 per $1,000 of equalized assessment
  • for non-residential - $3.76 per $1,000 of equalized assessment

Film industry

The government intends to begin issuing payments (i.e. grants) that support Alberta’s film industry through the income tax system, beginning in spring 2020. The Ministry of Economic Development, Trade and Tourism will be responsible for managing approvals of these grants and will issue the necessary certificates to approved corporations, who will then include those certificates when filing their corporate tax returns.

Canada Workers Benefit

Alberta will reconfigure the federal Canada Workers Benefit to better align this benefit with the province’s programs and priorities.

Contact us

Suzanne Peever

Suzanne Peever

Calgary Tax Leader, PwC Canada

Tel: +1 403 509 6377

David Yee

David Yee

Edmonton Tax Leader, PwC Canada

Tel: +1 780 441 6811

Kelvin Jones

Kelvin Jones

Partner, PwC Canada

Tel: +1 403 509 7485

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