Tax and Revenue Administration Alberta Corporate Tax Act Special Notice Vol. 5 No. 26

Vol. 5 No. 26 / December 2008

ALBERTA CORPORATE TAX ACT SPECIAL NOTICE:
Bill 48 - Alberta Corporate Tax Amendment Act, 2008

NOTE: This special notice is intended to explain legislation and provide specific information. Every effort has been made to ensure the contents are accurate. However, if a discrepancy should occur in interpretation between this special notice and governing legislation, the legislation takes precedence.

Bill 48 – the Alberta Corporate Tax Amendment Act 2008 received Royal Assent on December 2, 2008.  Major changes to the Alberta Corporate Tax Act (the Act) include the following:

Alberta Scientific Research and Experimental Development (SR&ED) Tax Credit

The Alberta SR&ED tax credit will be paid for eligible expenditures incurred in Alberta after December 31, 2008 that are also eligible for the federal SR&ED investment tax credit.  The Alberta credit is 10 per cent of eligible expenditures up to $4 million and refundable for all corporations.  Key elements of the Alberta SR&ED tax credit are:

• To qualify for the Alberta credit, expenditures must also qualify for the federal SR&ED investment tax credit. 
  
  
• Eligible expenditures of a corporation will not include amounts for research and development incurred by a partnership.
  
  
• Associated corporations will be required to share the annual expenditure limit of $4 million.
  
  
• As a corporate program, the credit will not be available to individuals, income trusts, or partnerships. 
  
  
• Unless they are prescribed by legislation, tax-exempt corporations will not qualify for the credit.
  
  
• As amounts eligible for Alberta’s credit are directly linked to amounts that qualify for the federal SR&ED investment tax credit, corporations will be able to appeal the determined qualifying expenditures only under the Income Tax Act (Canada) through the federal courts and not through Alberta courts.
  
  
• Alberta eligible expenditures will be reduced by other government assistance, such as the federal SR&ED investment tax credit, received on the same expenditure.
  
  
• The Income Tax Act (Canada) provides that the federal SR&ED investment tax credit is repayable if a corporation disposes of property that qualified for the credit or converts that property to commercial use within 20 years from the year of acquisition.  Alberta’s legislation provides for a recapture of the SR&ED tax credit in these circumstances over the same period and when property is relocated out of Alberta.

Over-integration Tax

Because Alberta’s small business threshold is higher than the federal government’s, some small businesses will generate income which is taxed at the small business rate provincially, but eligible for the enhanced dividend tax credit when it is withdrawn from the company.  This means that some personal income is only taxed at a combined Alberta corporate and personal tax rate of 3 percent.

Effective January 1, 2009, an over-integration tax will apply to ensure that combined corporate and personal taxes on this income total 10 percent.  Essentially, corporations will be required to track the notional amount of tax needed to increase to 10 percent the tax rate on income eligible for the Alberta small business deduction but not the federal deduction.  The over-integration tax will become payable when a corporation with a notional tax account pays an eligible dividend.

The actual amount of tax payable at that time will be based on the balance in the notional tax account, referred to in the legislation as the over-integration tax adjustment, the corporation’s income allocation to Alberta and the amount of the eligible dividend.

General Anti-avoidance Rule (GAAR)

A number of offence and penalty provisions have been amended to adopt the same level of fines and penalties as provided under the Income Tax Act (Canada), subject to an Alberta allocation factor.  The legislation also parallels the federal penalty for third party tax planners and preparers who knowingly make, or participate in the making of, false statements on income tax returns. 

The reassessment period is extended for an additional three years where the return is reassessed under the general anti-avoidance rule.

Additional Information

Alberta Finance and Enterprise, Tax and Revenue Administration (TRA), is currently preparing forms and information circulars on the calculation and filing requirements for the SR&ED tax credit and the over-integration tax. The forms and information circulars will be posted on our website once they are available.