"Alberta Budget Highlights The Right Plan for Today and"
2008 Alberta Budget Highlights The Right Plan for Today and Tomorrow April 22, 2008 Key Tax Measures From the 2008 Budget Alberta Minister of Finance, Iris Evans presented Alberta’s 2008 Provincial Budget on April 22, 2008. This is Alberta’s 15th consecutive balanced budget. Below are highlights of the major tax changes that were announced. I. PERSONAL INCOME TAX MEASURES Elimination of Health Care Premiums Effective January 1, 2009 health care insurance premiums will be eliminated in its entirety. Ending these premiums will equate to a savings of up to $1,056 each year for families (and up to $528 for single Albertans). Indexing of the Personal Income Tax Credit Amounts In 2008, personal income tax credit amounts will be indexed by 4.7%. The Basic Personal Amount / Spousal Amount / Eligible Dependant Amount tax credits will increase to $16,161 effective January 1, 2008 ($15,435 in 2007). Caregivers and Individuals with Disabilities – Increase in Tax Credits Effective for the 2008 taxation year, each of the following credits have been enhanced, over and above inflation indexing. 2007 2008 Maximum Income Maximum Income Amount Threshold Amount Threshold Infirm dependant amount $4,160 $5,902 $9,355 $15,535 Disability amount $7,131 n/a $12,466 n/a Disability supplement $4,160 n/a $9,355 n/a Caregiver amount $4,160 $14,206 $9,355 $24,229 Alberta Family Employment Tax Credit (AFETC) The AFETC is a refundable credit that provides assistance to working families. Budget 2008 provides an enhancement to the AFETC credit beginning in July 2008. The maximum benefit will increase 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. The credit will start to phase out at an income threshold of $32,633. 2 2008 - ALBERTA BUDGET HIGHLIGHTS Key Tax Measures From the 2008 Budget II. CORPORATE INCOME TAX MEASURES Dividend Tax Credit and Small Business Threshold Budget 2008 confirms a previous announcement that the small business threshold in which a reduced rate of tax applies will increase to $500,000 effective April 1, 2009 ($460,000 beginning April 1, 2008). Issues surrounding the treatment of investment income and different Federal and provincial small business thresholds relating to the taxation of dividends still exist. Budget 2008 discusses the mismatch when a small business generates income which is taxed at the small business rate provincially, but taxed at the federal general corporate rate. When this income is withdrawn from the business in the form of a dividend it is eligible for the enhanced dividend tax credit. This results in a portion of personal income that is only taxed at an effective rate of 3%. Alberta plans to propose legislation to increase tax on this income to 10%. The technical details on this proposed legislation have yet to be released. Scientific Research and Experimental Development (SR&ED) Credit To encourage Alberta companies to do more research and development, Budget 2008 has introduced a new refundable credit. The credit will be available for all expenditures incurred after December 31, 2008 which also qualify for the Federal SR&ED credit. The credit amount is equal to 10% of eligible expenditures to a maximum of $4 million (for a maximum credit of $400,000). Because the SR&ED credit is refundable, start-up and early-stage companies will benefit even though their income may be too low initially to be paying any income taxes. III. MEASURES THAT PARALLEL FEDERAL BUDGET 2008 GOVERNMENT PROPOSALS Accelerated Capital Cost Allowance (CCA) for M&P Machinery and Equipment Paralleling the Federal budget, Alberta will temporarily increase the CCA for eligible M&P equipment (acquired on or after March 19, 2007) for an additional 3 years. Specifically, the 50% straight-line treatment will apply for one additional year for M&P machinery and equipment purchased in 2009 and the accelerated treatment will then be provided on a declining balance basis in 2010 and 2011. Budget 2008 also extends the accelerated CCA treatment to clean energy generation equipment, railway locomotives and carbon dioxide pipelines and related equipment. Alberta will parallel these changes for provincial tax purposes. 3 2008 - ALBERTA BUDGET HIGHLIGHTS Key Tax Measures From the 2008 Budget Tax- Free Savings Account (TFSA) The Federal government proposed a new savings vehicle that would allow Canadian residents to earn tax-free investment income. Beginning in 2009, individuals age 18 and older will be permitted to contribute up to $5,000 annually (indexed) to a TFSA. Income earned in the savings plan will not be subject to Federal or provincial income tax and all withdrawals will be tax-free. IV. ROYALTY SYSTEM FOR OIL AND GAS A new royalty framework is scheduled to take effect January 1, 2009. When implemented, it will generate approximately $1.8 billion in additional royalties per year as compared to the current system. Key elements of Alberta’s new royalty framework include the following: Conventional Oil Elimination of the specialty royalty programs and “old” and “new” tiers. Royalties will be set by a single sliding royalty rate formula including separate elements that account for oil price and well production. Overall increase of royalty rates will range up to 50% and rate caps will be raised to Cdn$120 per barrel from the current maximums of 30% and 35% for the “old” and “new” tiers, respectively. Natural Gas Natural gas royalties will be set by a single sliding royalty rate formula accounting for price, production volume and well depth. Royalty rates will range from 5% to 50% (currently 5% to 35%), with rate caps at Cdn$16.59 per gigajoule. Oil Sands Existing “revenue minus cost” royalty structure will be retained. Base or startup royalty rate will change to a variable, price-sensitive rate from a 1% flat rate under the old system. The base rate will start at 1% and increase for every dollar the oil is priced above Cdn$55/barrel to a maximum of 9% when oil is priced at Cdn$120 or higher. Net royalty will also change to a variable price-sensitive rate from a flat rate under the old system. The government will not grandfather existing oil sands projects. By June 30, 2008, the government will adopt a permanent generic “bitumen valuation methodology” which will apply to projects with insufficient third party sales of bitumen. The government is considering taking bitumen royalty in kind, rather than cash to encourage upgrading of bitumen in Alberta. 4 2008 - ALBERTA BUDGET HIGHLIGHTS