On February 25, 2021, Alberta Finance Minister Travis Toews tabled Alberta’s 2021-24 three-year fiscal plan (Budget 2021). The global pandemic and the crash in oil prices have brought significant challenges to the province. Due to the spending on the province’s COVID-19 response, the government is projecting unprecedented deficits over the next three years.
Budget 2021 announces no new tax increases, instead proposing cuts to spending in the public sector. According to the Finance Minister, a plan to balance the budget would be unveiled after the pandemic is over.
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.
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.
Key takeaway
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.
Dividend tax credit:
To align with the accelerated reduction in the general corporate tax rate, the new legislation passed on December 9, 2020, also includes an accelerated decrease in the provincial dividend tax credit rate on eligible dividends. Starting January 1, 2021, the Alberta dividend tax credit for
eligible dividends are reduced from 13.8% to 11.2%.
Working Parents Benefit:
The government introduced a new Working Parents Benefit (WPB) prior to Budget 2021 which provides a one-time payment of up to $561 per child for parents with children in child care. Starting March 1, 2021, families with a household income of $100,000 or less in 2020 and children (born after February 29, 2008) registered in licensed or unlicensed child care between April 1 and December 31, 2020, can apply for the WPB online.
Property Tax
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 oil 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.
Key Takeaway
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.
Indirect Tax
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.
Key takeaway
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.