2004 Alberta Budget Report
March 24, 2004
Highlights
- $3.608 Billion Transfer to the Sustainability Fund
- Education Savings Plan Implemented
- Corporate Tax Cuts on Course
Overview
On Route On Course
Today, the Honourable Patricia Nelson presented her fourth budget as Minister of Finance for Alberta. With operating surpluses and rapidly shrinking provincial debt, the province is in the most enviable position of any government in the country. This budget allows the Minister to stay the course with previously announced tax cuts while increasing government spending - all with money left over to contribute to the Alberta Sustainability Fund and to keep on track with plans to repay the remaining provincial debt.
The projected surplus for the 2003-04 fiscal year, originally forecast to be $268 million, is now projected to be a balanced budget. However, this includes a transfer of a staggering $3.608 billion to the Sustainability Fund. This fund, introduced in the 2003 budget, is designed to be built up when resource revenues are high and will be drawn on when there are downturns in resource prices, enabling the province to remove the unpredictability of resource revenues from the budgeting process. The original amount budgeted for transfer to this fund for 2003-04 was only $1.276 billion. The estimated budget surplus for 2004-05 is $260 million, again after a budgeted transfer to the Sustainability Fund of $784 million, which means that the Alberta government's finances are in excellent shape.
The government will increase operating spending in the next fiscal year by 6.1%. The main beneficiaries of this money will be in the areas of education, health care, infrastructure and communities.
The following is a summary of the more important items of interest to our clients.
Alberta Budget Projections |
(in millions $) |
|
Original
Estimate
2003/2004 |
Revised
Forecast
2003/2004 |
Projected
2004/2005
|
Revenue |
$21,928 |
$25,338 |
$22,952 |
Program Expenses |
(20,335) |
(21,731) |
(22,286) |
Debt Servicing Costs |
(465) |
(280) |
(363) |
Net Revenue |
1,128 |
3,327 |
303 |
Transfers from (to)
- Sustainability Fund
- Capital Account
Other requirements |
(1,276)
416
--
|
(3,608)
416
(135)
|
(784)
741
--
|
Contingency Allowance |
$268 |
-- |
$260 |
Business Tax Changes
Corporate Income Tax Cuts
In 2001, the government proposed an ambitious corporate tax reduction schedule, but scaled back the schedule two years ago due to a worsening economic climate. With a positive forecast for Alberta this year, the government has confirmed that they will go ahead with the corporate income tax reductions announced last year for 2004. On April 1, 2004, the general rate now falls to 11.5% and the small business rate drops to 3%. The small business threshold remains at $400,000. A history of recent tax cuts is set out in the chart below. The rates are prorated for taxation years that straddle April 1st.
Alberta Corporate Tax Cuts |
Effective Date
|
General Rate
|
M & P Rate
|
Small Business Rate |
Small Business Threshold |
April 1, 2002 |
13.0% |
13.0% |
4.5% |
$350,000 |
April 1, 2003 |
12.5% |
12.5% |
4.0% |
$400,000 |
April 1, 2004 |
11.5% |
11.5% |
3.0% |
No Change |
Personal Tax Changes
Education Savings Plan
As announced in the 2004 Throne Speech and as subsequently passed into law on March 11th, the government has implemented the new Alberta Centennial Education Savings Plan to help parents save for their children's post-secondary education. Beginning in 2005, this plan will provide $500 for every child born to, or adopted by, Albertans. The child will need to have a registered education savings plan (RESP) account and to have had an application submitted on their behalf for the grant funds.
In addition to the $500 grant, the government will provide $100 to an RESP for children attending school in Alberta at ages 8, 11 and 14. The $100 grants will begin to apply to children born in 2005. Therefore, the first $100 grants will be issued in 2013. A child will not have to receive previous grants in order to qualify for subsequent grants.
The grant payments will be deposited into the child's RESP. These payments will not be taxable and will not affect RESP contribution limits.
Political Contribution Tax Credit
Alberta offers corporations and individuals a non-refundable tax credit for donations to registered political parties, constituency associations and individual candidates. It was announced today that for the 2004 tax year, the maximum credit for both corporations and individuals will increase to $1,000, and the maximum contribution eligible for the credit will rise to $2,300. Under the new credit structure, the first $200 of donations will be credited at 75%, the next $900 at 50%, and the next $1,200 at 33 1/3%.
School Property Tax Rates Cut
The government will reduce school property tax rates by about 2.3% for 2004. Rates for residential and farm property will fall to $5.44 from $5.57 per $1,000 of assessment. Non-residential rates will be reduced to $7.99 from $8.17 per $1,000 of assessment. This cut will help offset criticism levelled after last year's budget. Although the rates were frozen in 2003, property values increased, resulting in increased tax revenue.
How Alberta Compares
The following chart compares top personal and corporate tax rates and sales taxes for all provinces and territories, as announced to March 24, 2004.
|
Top 2004 |
Top Corporate Rates |
Retail Sales |
|
Personal Rates
% |
General
% |
M&P
% |
Small Business
% |
Tax
% |
BC |
43.70 |
35.62 |
35.62 |
17.62 |
7.5 |
Alta. |
39.00 |
33.62 (1) |
33.62 (1) |
16.12 (1) |
- |
Sask. |
44.00 |
39.12 |
32.12 |
18.62 |
6.0 |
Man. |
46.40 |
37.62 |
37.62 |
18.12 |
7.0 |
Ont. |
46.41 |
36.12 |
34.12 |
18.62 |
8.0 |
Qué. |
48.22 |
31.02 |
31.02 |
22.02 |
7.5 (2) |
N.B. |
46.84 |
35.12 |
35.12 |
16.12 |
8.0 (3) |
N.S. |
45.69 |
38.12 |
38.12 |
18.12 |
8.0 (3) |
P.E.I. |
47.37 |
38.12 |
29.62 |
20.62 |
10.0 (2) |
Nfld. |
48.64 |
36.12 |
27.12 |
18.12 |
8.0 (3) |
Yukon |
42.40 |
37.12 |
24.62 |
19.12 (4) |
- |
N.W.T. |
42.55 |
36.12 |
36.12 |
17.12 |
- |
Nunavut |
40.50 |
34.12 |
34.12 |
17.12 |
- |
- Effective April 1, 2004, the Alberta corporate rates are reduced. Prior to the reduction, the combined general rate and M&P rate was 34.62% and the combined small business rate was 17.12%.
- Provincial sales tax applies on GST. Effective combined rate is 15.025% in Québec and 17.7% in P.E.I.
- As part of the HST (combined rate is 15% with GST).
- The tax rate for M&P profits eligible for the small business deduction is 15.62%.
Alberta Budget Report 2004 is a publication of BDO Dunwoody LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. Additional information can be obtained from your nearest BDO Dunwoody LLP office or through our Internet World Wide Web home page at www.bdo.ca.
