2005 Alberta Budget Report
April 13, 2005
Highlights
- $5.523 Billion Transfer to the Sustainability Fund
- Increased Spending
- No Tax Relief
Overview
Investing in the Next Alberta
Today, the Honourable Shirley McClellan presented her first budget as Minister of Finance for Alberta. With operating surpluses and enough money set aside in the province's Debt Retirement Fund to repay accumulated debt as it matures, the province is in the most enviable financial position of any government in the country. As expected, the government disappointed taxpayers and has deferred any tax relief for Albertans. Instead, the government has increased government spending in programs that suffered during the years of government cutbacks.
The projected surplus for the 2004-05 fiscal year, originally forecast to be $260 million after a $784 million transfer to the Alberta Sustainability Fund, is now projected to be a balanced budget. However, the transfer to the Sustainability Fund is now expected to be a staggering $5.523 billion. 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 estimated budget surplus for 2005-06 is $248 million, but this includes an expected transfer to the Sustainability Fund of $2.546 billion.
With all this wealth, the province has decided to invest in government programs. Operating spending will increase in the next fiscal year by 5.9%. The main beneficiaries of this spending will be education, health care and social services. The Capital Plan of the province expects to support $9.2 billion worth of infrastructure projects over the next three years.
The following is a summary of the more important items of interest to our clients.
Alberta Budget Projections
|
(in millions $) |
|
Original
Estimate
2004/2005 |
Revised
Forecast
2004/2005 |
Projected
2005/2006
|
Revenue |
$22,952 |
$28,753 |
$27,346 |
Program Expenses |
(22,286) |
(24,114) |
(25,535) |
Debt Servicing Costs |
(363) |
(325) |
(291) |
Net Revenue |
303 |
4,314 |
1,520 |
Transfers from (to)
- Sustainability Fund
- Capital Account |
(784)
741
|
(5,523)
1,209
|
(2,546)
1,274
|
Contingency Allowance |
$260 |
$0 |
$248 |
Corporate Tax Changes
Capital Cost Allowance (CCA)
The capital cost allowance (CCA) system provides for the depreciation of assets at rates intended to approximate the economically useful life of the asset. The 2005 federal budget proposed increases to CCA rates for electrical turbines and distribution systems, oil and gas pipelines, and telecommunications infrastructure to better match their economically useful lifespan. Alberta will parallel these changes in order to encourage investment by Alberta companies.
Personal Tax Changes
Alberta Family Employment Tax Credit Enhanced
The Alberta Family Employment Tax Credit (AFETC) is a refundable tax credit that provides support to low and middle income families and encourages work effort. Currently, the credit is $500 per child and $1,000 per family. The credit is phased in at a rate of 8% once families earn at least $6,500 in annual working income. The credit begins to be phased out at a rate of 4% once annual family net income reaches $25,000. The credit is fully phased out when annual family net income reaches $37,500 for families with one child and $50,000 for families with two children.
In this budget, the government has announced that the program will be expanded to include up to four children, and the maximum credit for the first child will be increased. Families will now receive up to $550 for their first child, $500 for their second, $300 for their third and $100 for their fourth. The qualifying income threshold will also be reduced to $2,760 from $6,500, extending the credit to more families. These enhancements are effective July 1, 2005. Further, the government announced that the benefits and phase-out threshold will be indexed at the same rate as the personal non-refundable tax credits, beginning in July 2006.
Adoption Expense Tax Credit
In February 2005, a new tax credit for adoption expenses was introduced in the federal budget. The federal budget proposed a non-refundable tax credit for eligible adoption expenses for the adoption of a child under the age of 18 years, beginning in 2005. The credit applies to a maximum of $10,000 of eligible expenses and is to be claimed in the year the adoption is completed. Alberta announced today that it will parallel this change.
Medical Expense Tax Credit
Taxpayers paying medical or disability-related expenses on behalf of a dependent relative may claim those expenses under the medical expense tax credit. In the 2005 federal budget, it was proposed that the eligible maximum amount be increased to $10,000 from $5,000 for 2005 and subsequent years. Alberta announced that it will also parallel this change.
Other Measures
School Property Tax Rates Cut
The government will reduce school property tax rates by about 5.0% for 2005. Rates for residential and farm property will fall to $5.17 from $5.44 per $1,000 of equalized assessment. Commercial property rates will be reduced to $7.59 from $7.99 per $1,000 of equalized assessment.
To assist seniors with year-to-year increases in school property taxes, the government will provide a rebate to seniors who choose to stay in their current homes. The annual refund will be equal to the increase in school property taxes from 2004. Note that seniors will still be subject to any increases in municipal property taxes.
Health Insurance Premiums
As announced in August 2004, all Alberta seniors are exempt from paying health care insurance premiums effective October 1, 2004.
Hotel Room Tax Reduced
As announced in March 2005, Alberta's hotel room tax was reduced to 4% from 5% and converted into a tourism levy, effective April 1, 2005. Provincial spending on tourism marketing and development in a year will now be determined by the amount the levy raised two years previously.
How Alberta Compares
The following chart compares top personal and corporate tax rates and sales taxes for all provinces and territories, as announced to April 13, 2005.
|
Top 2005 |
Top Corporate Rates |
|
|
Personal Rates
% |
General
% |
M&P
% |
Small Business
% |
Retail Sales
Tax
% |
BC |
43.70 |
35.62 |
35.62 |
17.62 |
7.0 |
Alta. |
39.00 |
33.62 |
33.62 |
16.12 |
- |
Sask. |
44.00 |
39.12 |
32.12 |
18.12 |
7.0 |
Man. |
46.40 |
37.12 |
37.12 |
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 (1) |
N.B. |
46.84 |
35.12 |
35.12 |
15.62 |
8.0 (2) |
N.S. |
48.25 |
38.12 |
38.12 |
18.12 |
8.0 (2) |
P.E.I. |
47.37 |
38.12 |
38.12 (3) |
19.62 (3) |
10.0 (1) |
Nfld. |
48.64 |
36.12 |
27.12 |
18.12 |
8.0 (2) |
Yukon |
42.40 |
37.12 |
24.62 |
17.12 (4) |
- |
N.W.T. |
43.05 |
36.12 |
36.12 |
17.12 |
- |
Nunavut |
40.50 |
34.12 |
34.12 |
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).
- Prior to April 1, 2005, the M&P rate and the small business rate were 29.62% and 20.62% respectively.
- The tax rate for M&P profits eligible for the small business deduction is 15.62%.
Alberta Budget Report 2005 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. For additional information, contact your BDO advisor or visit us at www.bdo.ca.
