2007 Alberta Budget Report
April 19, 2007
Highlights
- Budget Surplus of $7.4 Billion Now Projected for 2006-07
- Budget Surplus of $2.2 Billion Estimated for 2007-08
- Tax Credit for Charitable Donations Significantly Enhanced
Overview
"Managing Our Growth"
Today, the Honourable Dr. Lyle Oberg presented his first budget as Minister of Finance for Alberta. With a booming economy largely due to the oil and gas industry, the province continues to be flush with cash. The challenge for the government is to manage this economic growth without sacrificing the quality of life of Albertans.
The projected surplus for the 2006-07 fiscal year, originally budgeted to be $4.1 billion is now forecast to be a staggering $7.4 billion. This surplus, together with $2.5 billion taken from the capital account to fund capital spending, will enable $9.9 billion to be transferred to the province's Sustainability Fund. The estimated budget surplus for the 2007-08 fiscal year is expected to be
$2.2 billion. This assumes an average oil price of $58 US per barrel.
In the budget, Dr. Oberg announced four steps designed to achieve more disciplined fiscal management. First, the Treasury Board will review existing government programs to identify ways to achieve program goals more efficiently. Second, emergency spending will not be funded out of operational spending but out of the Sustainability Fund. Third, the government will allocate one-third of future surpluses to savings and investments with the remaining two-thirds being allocated to capital spending (with two-thirds of that targeted at capital maintenance). And lastly, the government will look at ways to address the unfunded liability of public-sector pension plans.
The government announced that a review of the royalty and tax regimes, with a goal of maintaining an internationally competitive oil and gas system, should be completed by this fall. The government is also setting up a commission to ensure that the province's savings are wisely invested and is undertaking a thorough review of the Employment Pension Plans Act.
The following is a summary of the more important items of interest to our clients.
Alberta Budget Projections
|
(in millions $) |
|
Original
Estimate
2006/2007
|
Revised
Forecast
2006/2007
|
Projected
2007/2008
|
Revenue |
$32,408 |
$37,059 |
$35,332 |
Program Expenses |
(28,067) |
(29,450) |
(32,914) |
Debt Servicing Costs |
(245) |
(221) |
(235) |
Net Revenue |
4,096 |
7,388 |
2,183 |
Transfers from (to)
- Sustainability Fund
- Capital Account |
(5,692)
1,896
|
(9,896)
2,508
|
(4,433)
2,564
|
Contingency Allowance |
$300 |
- |
$314 |
Personal Tax Changes
Personal Exemption Indexation
Under current rules, most Alberta tax credits are indexed for inflation - for 2007, these tax credits were increased by 3.6% when compared with the corresponding amounts for 2006. For example, with indexing, the basic, spousal/partner and eligible dependant amounts for 2007 will increase to $15,435 from $14,899.
Charitable Donation Credit
Enhanced
A non-refundable tax credit of 10% on the first $200 of a taxpayer's total donation and 12.75% on donations over $200 is currently provided. Today, the Minister announced a major enhancement to the credit on donations over $200 by increasing the credit to 21% from 12.75%, effective for 2007 and subsequent taxation years. With the federal credit, the combined credit on gifts over $200 will be 50%.
Education Amounts Increased
One type of government support for post-secondary education is provided to students in the form of non-refundable tax credits for tuition fees and education amounts. The education amount is provided to compensate students for their other costs of living while a student. Today's budget will increase this education amount to $600 from $475 per month for
full-time students and to $180 from $143 per month for part-time students.
Update on Dividend Taxation
The Minister confirmed that reductions in the Alberta personal tax rate that applies on eligible dividends announced last fall will continue on schedule. When combined with federal taxes, the top marginal rate on eligible dividends for Alberta residents will be 17.45% in 2007. This rate will be reduced to 16% in 2008 and 14.55% in 2009.
In addition, the tax rate on ineligible dividends will increase as previously announced. The top combined marginal tax rate on ineligible dividends for 2007 will be 25.20%. This rate will increase to 26.45% for 2008 and 27.70% for 2009.
Corporate Tax Changes
Update on Corporate Changes
Under corporate tax rules, Canadian-controlled private corporations pay tax on active business income, up to an income threshold, at lower small business rates. The Minister confirmed today that increases in the Alberta small business threshold announced last fall will continue on schedule. Under the previously announced change, the threshold was increased to $430,000 on April 1, 2007. In addition, the threshold will be increased to $460,000 on
April 1, 2008 and to $500,000 on April 1, 2009.
Corporate Tax Avoidance
The Minister disclosed that the province is aware of at least four schemes that corporations operating in Alberta have used to avoid provincial taxes. Over the next year, Alberta Finance states that it will take steps to protect the provincial tax base by dedicating more resources to address these types of schemes. No further details were provided.
Other Measures
Royalty Review
The government has assembled an independent panel of experts to ensure Albertans are receiving a fair share from energy development through royalties, taxes and fees. This panel will review all aspects of the oil and gas royalty system, including oilsands, conventional oil and gas, and coalbed methane, and will consult with Albertans and key stakeholders. They are to report their recommendations to the Minister by August 31, 2007.
Tobacco Taxes
Effective midnight tonight, taxes on cigarettes will be raised $5.00 to $37.00 per carton of 200 cigarettes, an increase of 16%. For each pack of 25 cigarettes, the tax will rise from $4.00 to $4.63.
The tax rate on loose tobacco and cigars will also be raised at the same time to ensure that the tax on all tobacco products is comparable. The tax rate on loose tobacco will be increased to 18.5 cents per gram from 16 cents per gram. Taxes on cigars are currently 95% of the taxable price, with a maximum tax of $5.00. With these changes, the maximum tax will rise to $5.80.
Education Property Taxes
Alberta has reduced or frozen education property tax rates for the last 14 years, for total reductions of about 40%. In 2007, rates will be reduced again, by 5.8%. The residential/farm rate will fall from $4.80 to $4.52 per $1,000 of equalized assessment. Rates for commercial property will fall from $7.05 to $6.64 per $1,000 of equalized assessment.
Fuel Tax
On April 1, 2007, Alberta's new Fuel Tax Act and associated regulations came into effect. The new Act puts into effect policy changes that were announced last fall in the government's new bioenergy strategy. As of April 1, 2007, ethanol and pure biodiesel are taxed at 9 cents per litre, the same rate as gasoline and diesel. Rather than provide tax exemptions, the government will focus its efforts on encouraging the production of alternative fuels through the Renewable Energy Producer Credit Program, which gives companies 14 cents for every litre of ethanol and pure biodiesel they produce.
Federal Harmonization
As Alberta uses federal tax rules for calculating income for both individuals and corporations, many of the federal tax changes that have been announced recently will apply automatically. The budget documents highlighted that Albertans will benefit from the following initiatives:
- The new pension income-splitting measure will apply effective January 1, 2007.
- The age limit for maturing Registered Pension Plans and Registered Retirement Savings Plans is increased from 69 to 71.
- The introduction of Registered Disability Savings Plans.
- The capital gains exemption will increase to $750,000 for dispositions after March 18, 2007.
- The introduction of capital cost allowance (CCA) initiatives involving certain buildings, manufacturing and processing equipment and other changes.
- The federal government also announced the phased elimination of the accelerated CCA for oilsands investments. Alberta's royalty review panel will examine the provincial accelerated allowance as part of its mandate.
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 19, 2007.
|
|
Top 2007
Personal
Rates
%
|
Top Corporate
Rates
|
Retail
Sales
Tax
%
|
|
|
General
%
|
M&P
%
|
Small Business
%
|
|
BC
|
43.70
|
34.12
|
34.12
|
17.62
|
7.00
|
|
Alta.
|
39.00
|
32.12
|
32.12
|
16.12
|
-
|
|
Sask.
|
44.00
|
36.12
(1)
|
32.12
|
17.62
|
5.00
|
|
Man.
|
46.40
|
36.12
|
36.12
|
16.12
|
7.00
|
|
Ont.
|
46.41
|
36.12
|
34.12
|
18.62
|
8.00
|
|
Qué.
|
48.22
|
32.02
|
32.02
|
21.12
|
7.50
(2)
|
|
NB
|
46.95
|
35.12
|
35.12
|
18.12
|
8.00
(3)
|
|
NS
|
48.25
|
38.12
|
38.12
|
18.12
|
8.00
(3)
|
|
PEI
|
47.37
|
38.12
|
38.12
|
17.42
(4)
|
10.00
(2)
|
|
Nfld.
|
48.64
|
36.12
|
27.12
|
18.12
|
8.00
(3)
|
|
Yukon
|
42.40
|
37.12
|
24.62
|
17.12
(5)
|
-
|
|
NWT.
|
43.05
|
33.62
|
33.62
|
17.12
|
-
|
|
Nunavut
|
40.50
|
34.12
|
34.12
|
17.12
|
-
|
- The general tax rate will be reduced to 35.12% on July 1, 2007.
- Provincial sales tax applies on GST. Effective combined rate is 13.95% in Québec and 16.6% in PEI.
- As part of the HST (combined rate is 14% with GST).
- The small business tax rate was reduced from 18.52% on April 1, 2007.
- The tax rate for M&P profits eligible for the small business deduction is 15.62%.
Alberta Budget Report 2007 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.
