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Tax
and Revenue Administration
Alberta
Corporate Tax Act
Information
Circular CT-17R4 |
Last Reviewed: |
September 2006
|
Produced by: |
Alberta Finance,
Tax and Revenue Administration |
For more information: |
tra.revenue@gov.ab.ca |
CT-17R4 / September
2006
NOTE: This Information Circular 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 Information
Circular and governing legislation, the legislation takes precedence.
ALBERTA
CORPORATE TAX ACT INFORMATION CIRCULAR:
ALBERTA SMALL BUSINESS DEDUCTION
This Information Circular explains the Alberta Small
Business Deduction in its application to 1985 1998 and subsequent
taxation years. The topics discussed include:
- Only corporations that are Canadian-controlled
private corporations throughout the taxation year may claim the
Alberta Small Business Deduction. The deduction is a specifiedpercentage
of the qualifying amount. The percentages are listed in the following
table:
Period |
Alberta
Corporate
Tax
Rate |
Small Business Threshold
|
Threshold
as a Multiple of Base Amount of $200,000 |
Small Business Deduction
Rate |
Alberta
Small Business Tax Rate |
January 1, 1998
to March. 31, 2001 |
15.5% |
$200,000 |
100% |
9.5% |
6.0% |
April 1, 2001
to March 31, 2002 |
13.5% |
$300,000 |
150% |
8.5% |
5.0% |
April 1, 2002
to March 31, 2003 |
13.0% |
$350,000 |
175% |
8.5% |
4.5% |
April 1, 2003 to March 31, 2004 |
12.5% |
$400,000 |
200% |
8.5% |
4.0% |
April 1, 2004 to March 31, 2006 |
11.5% |
$400,000 |
200% |
8.5% |
3.0% |
After March 31, 2006 |
10.0% |
$400,000 |
200% |
7.0% |
3.0% |
- The Alberta Small Business Deduction
is patterned on the federal small business deduction. For 1998
and subsequent taxation years, the only differences between the
two programs are the deduction rate and the amount of income from
an active business that qualifies for the deduction.
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- In general, the Alberta Small Business
Deduction is the small business deduction rate times the least
of three amounts:
- For taxation years that straddle changes to either the Alberta
small business threshold or the small business deduction rate,
the calculation described in paragraph 3 above must be done separately
for each part of the taxation year over which a different threshold
or rate applies.
For each part, the least of the three amounts described in paragraph
3 above is calculated, then the amount that is least is prorated
by multiplying it by the proportion that the number of days in
that part of the taxation year is of the total number of days
in the taxation year .
The prorated amount is then multiplied by the applicable small
business deduction rate to obtain the Alberta Small Business Deduction
for that part of the taxation year.
The resulting amounts are added together to obtain the Alberta
Small Business Deduction for the taxation year.
-
The least of the three amounts described in paragraph 3 above
is subject to adjustment if the corporation has permanent establishments
in Alberta and elsewhere, and allocates only a portion of its
income to Alberta. Under these circumstances, the least of the
three amounts is prorated by the Alberta Small Business Allocation
Factor.
If all of the corporation's permanent establishments are in Canada,
the Alberta Small Business Allocation Factor will be the same
as the Alberta Allocation Factor obtained from Schedule 2, the
ratio that taxable income allocated to Alberta is of total taxable
income.
If the corporation has permanent establishments located outside
Canada, the Alberta Allocation Factor must be adjusted to obtain
the Alberta Small Business Allocation Factor. The Alberta Small
Business Allocation Factor is then the ratio of taxable income
allocated to Alberta over taxable income from all permanent establishments
in Canada (income allocated to jurisdictions outside of Canada
is not taken into account).
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- In most cases, the amount of income
from an active business income used in the calculation of the
Alberta Small Business Deduction will be the same as that used
in the calculation of the federal small business deduction. A
difference may arise if, for instance, the corporation has claimed
a different amount for a discretionary expense for Alberta versus
federal purposes and that expense is a component of income from
an active business income .
- The definition of "active
business" in section 22(1)(a) of the Act means any business
carried on by the corporation other than a "personal
services business" or a "specified investment business",
and includes an adventure or concern in the nature
of trade.
- A "personal services business"
is one carried on by a corporation where an employee of the corporation
performs services for another entity through the corporation and
who, in the absence of the corporation, would reasonably be regarded
as an employee or officer of the other entity for which the services
are provided. A corporation does not carry on a personal services
business if it has more than five full-time employees throughout
the year or renders its services to an associated corporation.
- A "specified investment business"
is one whose principal purpose is to derive income from property
(including interest, rents, dividends, and royalties). A specified
investment business does not include the business
of: a credit union, property leasing other than real property,
or a corporation that employs more than five full-time employees
in the business throughout the year. Also excluded from the definition
of specified investment business is the business of a corporation
that receives managerial or similar services from an associated
corporation and that would otherwise reasonably require more than
five full-time employees. This exclusion only applies to situations
where the associated corporation provides the services in the
course of carrying on an active business itself.
- Income from an active business excludes
income from a source in Canada that is property, unless that property
pertains to, or is incidental to, an active business carried on
by the corporation.
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Specified
Partnership Income
- Specified partnership income is from an active business carried
on by a corporation through a partnership that is eligible for
the Alberta Small Business Deduction. It is included in the corporation's
calculation of its Alberta Small Business Deduction.
- The rules for determining the specified partnership income
of a corporation for purposes of calculating the Alberta Small
Business Deduction parallel the federal rules. The federal calculation,
however, must be adjusted as described in paragraph 13 below to
account for recent increases to the Alberta small business threshold.
-
If the corporation has specified partnership income and the
fiscal period of the partnership ends after March 31, 2001,
paragraph (b) of “A” in the definition of “specified partnership
income” in subsection 125(7) of the federal Income Tax Act
(the "federal Act") is calculated as the sum
of the amounts determined by the following formulas:
K/L x P,
K/L x Q,
K/L x R, and
K/L x S
“K” and “L” have the meaning assigned to them in the definition
of specified partnership income in subsection 125(7) of the
federal Act, and
"P" is the lesser of
- $200,000, and
- the product obtained when $548 ($200,000 divided by 365)
is multiplied by the total of all amounts each of which is
the number of days contained in a fiscal period of the partnership
ending in the year that were before April 1, 2001,
"Q" is the lesser of
- $300,000, and
- the product obtained when $822 ($300,000 divided by 365)
is multiplied by the total of all amounts each of which is
the number of days contained in a fiscal period of the partnership
ending in the year that were after March 31, 2001 and before
April 1, 2002,
“R” is the lesser of
- $350,000, and
- the product obtained when $959 ($350,000 divided by 365) is
multiplied by the total of all amounts each of which is the
number of days contained in a fiscal period of the partnership
ending in the year that were after March 31, 2002 and before
April 1, 2003,
and
"S" is the lesser of
- $400,000, and
- the product obtained when $1,096 ($400,000 divided by 365)
is multiplied by the total of all amounts each of which is the
number of days contained in a fiscal period of the partnership
ending in the year that were after March 31, 2003.
SMALL
BUSINESS THRESHOLD
- The Alberta small business thresholds for a corporation that
is not associated with another corporation, and the periods
over which they are applicable, are set out in the table above.
- The Alberta small business threshold is subject to downward
adjustment for short taxation years and large corporations. Those
adjustments are described below.
Associated Corporations
-
If two or more Canadian-controlled private corporations are
associated with each other in a taxation year because of rules
contained in section 256 of the federal Act, those associated
corporations must share the Alberta small business threshold.
The associated corporations may allocate the small business
threshold among themselves in any way they like by completing
the Agreement Among Associated Corporations on Schedule 1.
-
For taxation years ending on or before December 4, 2002, associated
corporations may choose to allocate the Alberta small business
threshold either in the same manner as they allocate the federal
business limit or differently . For taxation years ending after
December 4, 2002, corporations must allocate
the Alberta small business threshold by using the same percentages
as those used to allocate the federal business limit.
- Once the Alberta small business threshold has been allocated
among associated corporations, the amount allocated to each corporation
is subject to downward adjustment for short taxation years and
large corporations. Those adjustments are described in paragraphs
19 and 20 below.
Short Taxation Years and Large Corporations
- If the corporation's taxation year is less than 51 weeks, the
applicable Alberta small business threshold for non associated
corporations or the allocated amount for associated corporations
must be prorated . The small business threshold or the allocated
amount is prorated by multiplying it by the number of days in
the corporation's taxation year divided by 365. The amount obtained
from the proration is then used in the calculation in paragraph
3 above.
- The Alberta Small Business Deduction is gradually phased out
for larger Canadian-controlled private corporations. A corporation's
Alberta small business threshold or the allocated amount is reduced
or eliminated if it or any corporations associated with it paid
the Large Corporations Tax under Part I.3 of the federal Act.
The reduction of the corporation 's small business
threshold or the allocated amount is determined by using the following
formula:
where:
"A" is the small business threshold, or the allocated
amount of threshold, otherwise determined, adjusted if necessary
for a short taxation year; and
"B" is the total Large Corporations Tax to a maximum
of $11,250, calculated before proration for short taxation years
and before the credit for federal corporate surtax, that would
be payable:
- where the corporation is not associated
with any other corporations in the taxation year,
by the corporation in its preceding taxation year; or
- where the corporation is associated with
other corporations in the taxation year, by the corporation
and all associated corporations (whether or not Canadian-controlled
private corporations) for their latest taxation years ending
in the preceding calendar year.
The amount remaining after reduction is then used in the calculation
in paragraph 3 above.
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