Alberta Budget 2018

The 2018 budget for Alberta focuses on the diversification of its post-recession economy, with the aim of creating more stability and less vulnerability to future fluctuations in oil prices. Here are some of the highlights:

Corporate

Interactive Digital Media Tax Credit

Alberta intends to bring in a new Interactive Digital Media Tax Credit with a maximum funding of $20 million per year, which aims to offer eligible companies with a benefit of 25% of eligible labour costs. This benefit relates to costs incurred after April 1, 2018 and is aiming to better support the interactive digital media sector in the province.

Alberta Investor Tax Credit

The 2018 budget extends the existing Alberta Investor Tax Credit until 2012-22. The existing program offers a 30% tax credit to both individuals and corporations who commit to making equity investments in eligible Alberta businesses, such as those involved in research, development, digital animation and various others.

Diversity & Inclusion Credit

Relating to the Interactive Digital Media Tax Credit and Alberta Investor Tax Credit, the budget notes a 5% diversity and inclusion credit enhancement which could be claimed if the company offers employment to an individual from an under-represented group.

Capital Investment Tax Credit

The budget announces that the Capital Investment Tax Credit, a 10% non-refundable tax credit of up to $5 million for a corporation’s eligible capital expenditures on manufacturing, processing and tourism infrastructure, will also be extended until 2021-22.

Personal

Alberta Child Benefit

The 2018 budget details increases to these benefits for families with 1, 2, 3 and 4 plus children, as well as increasing the phase-out threshold for family net income from $41,786 to $42,287.

Alberta Family Employment Tax Credit

Increases have also been announced in the budget to offer more benefits for working families who have income from employment of more than $2,760 per year. The phase-out threshold has been extended from a family net income of $41,786 to $42,287, as well as increases to the benefit amounts for each family size.

Cannabis Tax

The budget covers the agreement made by Alberta to adhere to a structured tax framework with the Canadian government for a period of two years after the legalization of cannabis for recreational purposes. Specifically, either $1 per gram or 10% of the producer price (whichever is greater) will be collected and the province will receive 75% of this tax room, both to be collected by the federal government. In addition, an additional tax of a maximum of 10% of the retail price may also be collected by the province.

Education Property Tax

A freeze has been set on education property tax collection, but the current rates have increased as follows:

·      From $2.48 to $2.56 per $1,000 or equalized assessment for residential/farmland property.

From $3.64 to £3.76 for non-residential property

2018 Federal Budget Highlights for Business

The government’s 2018 federal budget focuses on a number of tax tightening measures for business owners. It introduces a new regime for holding passive investments inside a Canadian Controlled Private Corporation (CCPC). (Previously proposed in July 2017.)

 Here are the highlights:

Small Business Tax Rate Reduction Confirmed

Lower small business tax rate from 10% (from 10.5%), effective January 1, 2018 and to 9% effective January 1, 2019.

Limiting Access to the Small Business Tax Rate

A key objective of the budget is to decrease the small business limit for CCPCs with a set threshold of income generated from passive investments. This will apply to CCPCs with between $50,000 and $150,000 of investment income. It reduces the small business deduction by $5 for each $1 of investment income which falls over the threshold of $50,000. This new ­regulation will go hand in hand with the current business limit reduction for taxable capital.

Limiting access to refundable taxes

 Another important feature of the budget is to reduce the tax advantages that CCPCs can gain to access refundable taxes on the distribution of dividends. Currently, a corporation can receive a refundable dividend tax on hand (known as a RDTOH) when they pay a particular dividend, whereas the new proposals aim to permit such a refund only where a private corporation pays non-eligible dividends, though exceptions apply regarding RDTOH deriving from eligible portfolio dividends.

The new RDTOH account referred to “eligible RDTOH” will be tracked under Part IV of the Income Tax Act while the current RDTOH account will be redefined as “non-eligible RDTOH” and will be tracked under Part I of the Income Tax Act. This means when a corporation pays non-eligible dividends, it’s required to obtain a refund from its non-eligible RDTOH account before it obtains a refund from its eligible RDTOH account.

Health and welfare trusts

The budget states that it will end the Health and Welfare Trust tax regime and transition it to Employee Life and Health Trusts. The current tax position of Health and Welfare Trusts are linked to the administrative rules as stated by the CRA, but the income Tax Act includes specific rules relating to the Employee Life and Heath Trusts which are similar. The budget will simplify this arrangement to have one set of rules across both arrangements.

Updated Small Business Tax Reforms

It has certainly been a busy week in terms of announcements regarding financial policies for small businesses. Following the series of proposed tax reforms that the government announced back in July, various tweaks and changes have subsequently been made, owing, perhaps in part, to confusion and frustration expressed among the small business community. This week Finance Minister, Bill Morneau, has made further clarifications and adjustments to his original set of proposals, aiming to bring more of a sense of balance to the plans. Like all policy changes, the detail can be a little overwhelming, so here is a summary of the key points for your reference: 

  • The government intends to honor a commitment made prior to the election, to reduce the small business tax rate from 10.5% to 9% by the year 2019. 
  • Morneau confirmed that the government has scrapped the proposal to limit access to the Lifetime Capital Gains Exemption. 
  • The plans announced earlier in the year to reduce the value of passive investments made by corporations will continue in principle, but with few key changes. There will be a threshold of $50,000 of income per year, which will be excluded from the newly set higher rate of tax. 
  • The government has agreed to “simplify” the rules related to the new plans, to prevent income splitting for family members, who are not active in a business, but the plan will still move ahead in principle. 
  • Morneau has confirmed that the government will still provide good entrepreneurial incentives for venture capitalists and angel investors. The criteria for which still needs to be established. 
  • The proposed rules to limit the conversion of income to capital gains have been abandoned due to the concerns that many related to intergenerational transfers and insurance policies were held inside corporations. 

Of course, this is one area of government policy which is not only constantly changing, but particularly controversial in the current climate, so keep yourself updated regularly on new announcements and news, to ensure your understanding in this area and its potential impact on your family and business. If you have any questions, please talk to us.