2008 Alberta Budget Report
April 22, 2008
Highlights
- Budget Surplus of $4 Billion Now Projected for 2007-08
- Budget Surplus of $1.6 Billion Estimated for 2008-09
- New SR and ED Credit Announced
- Health Premiums Eliminated
Overview
“The Right Plan for Today and Tomorrow"
On April 22, 2008, the Honourable Iris Evans presented her first budget as Minister of Finance for Alberta. With an economy that at the moment seems immune to fears of recession that plague much of the rest of the country, the province continues to generate large surpluses, which is allowing the province to provide tax relief, increase spending and save for the future, all at the same time.
The projected surplus for the 2007-08 fiscal year, originally budgeted to be $2.3 billion, is now forecast to be just over $4 billion. This surplus will be eliminated with a net transfer to the Sustainability Fund and the Capital Account. The estimated budget surplus for the 2008-09 fiscal year is expected to be approximately $1.6 billion and takes into account the province's new royalty system which is scheduled to take effect on January 1, 2009. The budget assumes an average oil price of $78 US per barrel for the upcoming year which seems very conservative based on today's prices. If oil prices remain high, it can be expected that the surplus for the 2008-09 year will be much higher than projected.
The budget contained plans to increase spending in a number of key areas including health care, the environment, agriculture, education and infrastructure. There was some good news in the budget for taxpayers as well. A new Scientific Research and Experimental Development Credit will benefit businesses who invest in research and development. And all Albertans will benefit with the long over-due elimination of provincial health-care premiums, effective January 1, 2009.
The following is a summary of the more important items of interest to our clients.
|
Alberta Budget Projections
|
|
(in millions $) |
|
|
Original
Estimate
2007/2008 |
Revised
Forecast
2007/2008 |
Projected
2008/2009 |
|
Revenue |
$35,332 |
$37,757 |
$38,571 |
|
Program Expenses |
(32,826) |
(33,501) |
(36,783) |
|
Debt Servicing Costs |
(235) |
(225) |
(220) |
|
Net Revenue |
2,271 |
4,031 |
1,568 |
|
Transfers (net) to Sustainability Fund and
Capital Account |
(1,956) |
(4,031) |
(1,243) |
|
Contingency Allowance |
$315 |
- |
$325 |
Personal Tax Changes
Caregiver/Infirm Dependant/Disability/
Disability Supplement Amounts
The Minister announced that the following non-refundable personal tax credit amounts will each be enhanced by $5,000 on top of inflation indexing: the caregiver amount, the infirm dependant amount, the disability amount and the disability supplement amount. The caregiver, infirm dependant and disability supplements amounts will increase to $9,355 while the disability amount will increase to $12,466, effective for the 2008 tax year. The income thresholds will also be increased by $5,000 to $24,229 for the caregiver credit and to $15,535 for the infirm dependant credit.
Health Care Insurance Premiums Eliminated
Currently, full and partial premium subsidies are available to reduce the cost of health care insurance premiums for all seniors and for lower income individuals, couples and families. In the budget, the government announced that health care insurance premiums will be completely eliminated for all Albertans on
January 1, 2009. Eliminating premiums will benefit Alberta families by up to $1,056 each year. Single Albertans will benefit by as much as $528. The elimination of premiums will not affect funding for health care.
Alberta Family Employment Tax Credit
The Alberta Family Employment Tax Credit is a refundable tax credit that provides support to low and middle income families and encourages work effort. The Minister announced that beginning in July 2008, the government will enhance the credit, over and above annual inflation adjustments, by increasing benefits and making more families eligible for the credit. The maximum benefit will be increased by 10% to $669 for one child, $1,277 for two children, $1,642 for three children and $1,764 for four or more children. As well, the point at which the credit starts to phase out will be increased by $5,000 to $32,633.
Business Tax Changes
New Scientific Research and Experimental Development Credit
A new scientific research and experimental development (SR&ED) credit was introduced in today's budget. This new credit will be available for expenditures incurred after December 31, 2008 that are also eligible for the federal SR&ED credit. The credit will be worth 10% of a company's eligible expenditures up to
$4 million, for a maximum credit of $400,000 and will be refundable for all companies.
Update on Corporate Tax 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 again confirmed today that increases in the Alberta small business threshold previously announced will continue on schedule. Under the previously announced change, the threshold was increased to $460,000 on April 1, 2008 and will be increased to $500,000 on April 1, 2009.
The Minister also noted that where small business income is between $400,000 and $500,000 (once the limit is fully increased), corporations will get the benefit of the Alberta small business rate on the incremental income while being able to pay much of that income after tax out as an eligible dividend to shareholders. This means that some personal income is only taxed at an effective rate of 3%. The Minister announced that changes will be made to increase tax on this income to 10% to ensure that employment income and active small business income are ultimately taxed to the same extent. Further technical details will be available when the legislation is introduced.
Capital Cost Allowance
It was announced that Alberta will follow the capital cost allowance changes in the 2008 federal budget, which included an extension of the existing accelerated rate for manufacturing and processing equipment, and increases to the rates for certain types of equipment used in clean energy generation, railway locomotives and carbon dioxide pipelines and related equipment.
Corporate Tax Avoidance Update
In the 2007 budget, the government noted its intention to take steps to fight several tax avoidance schemes. The Minister reported today that the government has devoted more audit resources to this task and will continue to take the steps necessary to protect the provincial tax base.
Other Changes
Education Property Taxes
Alberta has reduced or frozen education property tax rates for the last 15 years, for total reductions of about 46%. In 2008, rates will be reduced again, by 10.6%. The residential/farm property rate will fall from $4.52 to $4.04 per $1,000 of equalized assessment. The non-residential rate will fall from $6.64 to $5.94 per $1,000 of equalized assessment.
Royalty Review Update
Last year, the government assembled an independent panel of experts to ensure Albertans are receiving a fair share from energy development through royalties, taxes and fees. This panel reported back last fall and the government responded with the release of the New Royalty Framework report on October 25, 2007. The report deals with comprehensive changes to royalties for conventional oil, natural gas and oil sands which are scheduled to take effect on January 1, 2009. The report is available at: http://www.energy.alberta.ca/About_Us/1293.asp.
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 22, 2008.
|
|
Top 2008
Personal Rates
% |
Top Corporate Rates |
|
|
|
General
% |
M&P
% |
Small Business
% |
Retail Sales
Tax
% |
|
BC |
43.70 |
31.5 (1) |
31.5 (1) |
15.5 (1) |
7.0 |
|
Alta. |
39.00 |
29.5 |
29.5 |
14.0 |
- |
|
Sask. |
44.00 |
32.5 (2) |
29.5 |
15.5 |
5.0 |
|
Man. |
46.40 |
33.5 (3) |
33.5 |
13.0 |
7.0 |
|
Ont. |
46.41 |
33.5 |
31.5 |
16.5 |
8.0 |
|
Qué. |
48.22 |
30.9 |
30.9 |
19.0 |
7.5 (6) |
|
NB |
46.95 |
32.5 |
32.5 |
16.0 |
8.0 (7) |
|
NS |
48.25 |
35.5 |
35.5 |
16.0 |
8.0 (7) |
|
PEI |
47.37 |
35.5 |
35.5 |
14.2 (4) |
10.0 (6) |
|
Nfld. |
45.50 |
33.5 |
24.5 |
16.0 |
8.0 (7) |
|
Yukon |
42.40 |
34.5 |
22.0 |
15.0 (5) |
- |
|
NWT |
43.05 |
31.0 |
31.0 |
15.0 |
- |
|
Nunavut |
40.50 |
31.5 |
31.5 |
15.0 |
- |
- (1) The general tax rate will be reduced to 30.5% and the small business rate will be reduced to 14.5% on July 1, 2008.
- (2) The general tax rate will be reduced to 31.5% on July 1, 2008.
- (3) The general and the M&P tax rates will be reduced to 32.5% on July 1, 2008.
- (4) The small business rate was reduced from 15.3% on April 1, 2008.
- (5) The tax rate for M&P profits eligible for the small business deduction is 13.5%.
- (6) Provincial sales tax applies on GST. Effective combined rate is 12.875% in Québec and 15.5% in PEI.
- (7) As part of the HST (combined rate is 13% with GST).
Alberta Budget Report 2008 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.
