Albertans continue to pay the lowest
taxes in Canada.
The general corporate income tax
rate will be reduced to 10 per cent on April 1, 2006.
Income thresholds for health care
insurance premium subsidies will be increased by $5,000.
School property tax rates will be
reduced by over 7 per cent.
Personal, spousal and eligible dependant
amounts will rise by an additional $100 above indexation.
INTRODUCTION
Alberta has no general sales tax,
no payroll tax, no capital tax, and low personal and corporate income
taxes. If Albertans and Alberta businesses lived or were located
in any other province, they would pay an additional $7.2 billion
in taxes. In addition, over $1.3 billion was provided to Albertans
earlier this year through the Alberta 2005 Resource Rebate. Our
low tax environment means more money to spend and invest, helping
to sustain the strongest economy in Canada.
The government has focused on building
Alberta's tax advantage. From 1999 to 2001, the government phased
in substantial cuts to personal taxes, including the introduction
of the single rate tax and the highest income exemptions in Canada.
We indexed our tax system in 2001, ensuring that the benefits of
those cuts would not be eaten away by inflation. In 2005, the Alberta
Family Employment Tax Credit was enhanced, increasing benefits to
working families. The government has provided assistance to seniors,
exempting them from health care insurance premiums and protecting
them from any increases to school property taxes.
After making the large cuts to personal
taxes, the government began to take steps to create a more competitive
tax environment for business. Between 2001 and 2004, we reduced
our general corporate income tax rate from 15.5 per cent to 11.5
per cent. The small business rate was cut in half, to 3 per cent,
and the small business income threshold was doubled to $400,000.
Budget 2006 further strengthens
the Alberta tax advantage. It includes measures to address emerging
competitive pressures and to further enhance the fairness of the
tax system, while meeting the government's commitment to reduce
taxes in a sustainable, fiscally responsible manner.
TAX
REVIEW
“...other countries are not standing
still. The German government has proposed a cut in the federal
corporate income tax rate from 25 to 19 percent. The U.S.
will be cutting corporate income tax rates by 3 percentage
points by 2010... As several other countries have reform proposals
in mind that will lead to substantial changes to their corporate
tax systems, effective tax rates around the world could be
sharply lower by 2010.”
C. D. Howe Institute, “The 2005 Tax Competitiveness
Report: Unleasing the Canadian Tiger”
The government undertook
an internal review of the province's tax system in 2005 to assess
whether our tax system remains competitive and fair and encourages
economic growth. The review examined a wide range of issues, including
our competitiveness with other jurisdictions, ongoing revenue needs,
priorities for future tax cuts and whether certain taxes should
be eliminated entirely.
The review concluded that, for the
most part, our tax system serves Alberta well. We are competitive
within North America in attracting investment and skilled workers.
Alberta's tax system is also fair, with the highest basic and spousal
amounts in the country, allowing people to earn more money before
paying any provincial income tax. Last, our tax system is simple
and transparent, resulting in lower administrative and compliance
costs for taxpayers and improved accountability to Albertans.
However, with no general sales tax,
payroll taxes or capital taxes, Alberta's tax base is relatively
narrow compared to other jurisdictions. While this is a benefit
to Albertans, it also comes with some risks. A broader range of
taxes means more stable revenues. With relatively fewer revenue
sources, predictable funding for key public services is at more
risk in the event of an economic slow-down. Consequently, it is
inadvisable to eliminate or dedicate more taxes.
The review identified priorities for
future tax cuts. A top priority for the government should be to
reduce the general corporate income tax rate. While Alberta’s economy
is strong now, cutting corporate income taxes will benefit the province
for years to come. On the personal side, the focus should be on
providing tax relief that is directed primarily towards lower and
middle income Albertans. Our low-rate, broad-base policy provides
a level playing field, letting the market, not government, determine
the best places to spend and invest. The tax review reaffirmed that
this approach to tax policy is the best way to attract investment
and promote economic growth.
CORPORATE
INCOME TAXES
Cutting the general corporate income
tax rate to 10 per cent will save Alberta businesses $265
million in 2006-07.
The government recognizes the importance
of low corporate taxes in developing a strong economy. Low taxes
help Alberta businesses compete in the global marketplace and attract
investment to Alberta, meaning more jobs, stronger communities and
a better quality of life for all Albertans. Since 2001, the government
has made significant reductions to corporate income taxes.
Other countries are also recognizing
the benefits of low corporate taxes, which makes it even more important
that Alberta take steps to maintain its competitive advantage. Effective
April 1, 2006, we will reduce the general corporate income tax rate
to 10 per cent, lowering taxes for Alberta businesses by $265 million
in 2006-07.
CORPORATE
INCOME TAX CUTS SINCE 2000
HEALTH
CARE INSURANCE PREMIUMS
Health
care insurance premiums serve as a reminder that health care is
not free and that it has a substantial cost. In 2006-07, health
care insurance premiums are forecast to raise $882 million for the
health care system. Rates are $528 per year for individuals and
$1,056 for couples and families.
A single mother with two children
and a taxable income of $32,000 will now receive a full premium
subsidy instead of a partial subsidy, saving her $719 each
year.
To reduce the cost for lower income
individuals, couples and families, the government provides full
and partial premium subsidies. Currently, full premium subsidies
are available to all seniors regardless of income, individuals making
less than $12,450, couples earning less than $21,200 and families
earning less than $27,210. People above those income amounts may
qualify for a partial premium subsidy.
A couple with a taxable income of
$29,000 will be eligible to receive a partial subsidy. Instead
of paying a full premium of $1,056, they will pay $420, saving
them $636 each year.
As of April 1, 2006, the government
will raise the income level under which non-senior individuals,
couples and families qualify for full or partial premium subsidies
by $5,000. About 30,000 couples and families and 50,000 individuals
will benefit from these changes, saving Albertans $30 million.
An individual with taxable income
of $16,000 will now be eligible for a full premium subsidy,
saving $528 each year.
INCOME
THRESHOLDS FOR HEALTH CARE INSURANCE PREMIUM SUBSIDIES
PERSONAL
INCOME TAXES
Albertans
pay low personal income taxes, with the lowest top marginal income
tax rate and the highest basic and spousal amounts in Canada. This
is due in part to the cuts to personal income taxes made between
1999 and 2001, worth $1.5 billion at the time.
Over 1 million of Alberta’s
2.36 million taxfilers pay no provincial income tax.
Albertans also benefit from not having
to pay a general provincial sales tax. This particularly helps Albertans
with lower incomes, who spend a higher portion of their income.
In comparison, other provinces generate over 25 per cent of tax
revenues from a general sales tax.
Alberta indexes its personal income
tax system to offset inflation, protecting taxpayers. Tax credit
amounts will increase by 1.9 per cent in 2006. We will also increase
the basic, spousal and eligible dependant amounts by an additional
$100, raising the amounts to $14,899 for 2006, up from $14,523 in
2005.
As was announced in Budget
2005, annual indexing of the Alberta Family Employment Tax
Credit will begin in July 2006. Payments in July 2006 and January
2007 will rise to $560 for the first child, $510 for the second,
$306 for the third and $102 for the fourth. The income level at
which the credit begins to be phased out will rise from $25,000
to $25,475.
With these increases,
a typical single Albertan can earn $15,800 without paying any provincial
income taxes. A typical working family with two children can earn
up to $37,000 before paying provincial income taxes, as the Alberta
Family Employment Tax Credit offsets any taxes paid to that level.
BASIC
PERSONAL AND SPOUSAL AMOUNTS, 2006
ALBERTA
NON-REFUNDABLE TAX CREDIT BLOCK
DIVIDEND
TAX CREDIT
In
November 2005, the previous federal government announced changes
its dividend tax credit in order to reduce the disparities in tax
treatment of distributions from income trusts compared to dividends
from corporations. The federal proposal creates a two-tier dividend
tax credit. Individuals will be permitted to claim a dividend tax
credit at a higher rate to the extent that the dividend income was
paid from corporate income taxed at the general corporate income
tax rate. This is intended to eliminate “double taxation” of income
taxed at the general corporate rate.
In principle, any change
that removes distortionary tax treatment is good. However, Alberta
will wait for more details from the new federal government before
announcing, later this year, whether it will adopt a similar treatment.
SCHOOL
PROPERTY TAXES
Albertans
pay among the lowest property taxes in Canada. Since the province
took over responsibility for the school property tax in 1994, tax
rates have been either reduced or frozen each year, for total reductions
of over 36 per cent. School property tax rates will be reduced further
in 2006, by about 7.1 per cent. Rates for residential property and
farm land will be reduced to $4.80 from $5.17 per $1,000 of equalized
assessment. Commercial property rates will fall to $7.05 from $7.59
per $1,000 of equalized assessment.
Revenue from the school property tax
goes to support basic education in Alberta. In 2006-07, revenue
from the school property tax is expected to be $1.475 billion, including
revenue of $169 million for opted-out school boards. Provincial
government revenue will be $1.306 billion, an increase of 1.7 per
cent from 2005-06. School property tax revenues will account for
30 per cent of the total funding for basic education (excluding
capital) in 2006-07, compared to 51 per cent in 1994-95.
HOW
BASIC EDUCATION IS FUNDED
While revenue from the school property
tax has increased in recent years, the province's record of rate
reductions means that the province takes proportionately less revenue
from the total combined provincial/municipal property tax every
year. In 2004, the last year for which statistics are available,
school property tax revenue accounted for 38 per cent of total property
tax revenue, compared to 51 per cent in 1994. This record of rate
cutting has benefitted municipalities by freeing up tax room, providing
them with the ability to obtain additional revenue from the property
tax base. Taxpayers have benefitted from lower property tax rates
to the extent that municipal tax increases have been lower than
the provincial reductions.
INCOME
TRUSTS
Income
trusts have become a popular investment vehicle, and the number
of corporations transforming themselves into income trusts has grown
in recent years. When corporations change themselves into income
trusts, the way in which they are taxed also changes. When income
is earned through a corporation, it is subject to corporate income
tax in the province where the business is located. With the shift
to income trusts, no corporate income tax is paid on the income.
As a consequence, some businesses that operate in Alberta, using
Alberta's infrastructure, do not contribute to the costs of that
infrastructure.
Rather than paying tax at the business
level, investors pay personal income tax on the income in their
province of residence. Alberta has 10 per cent of Canada's population,
yet over 60 per cent of Canada's market capitalization for income
trusts. The shift from corporate income tax, which is taxed in Alberta,
to personal income tax, which is taxed in the jurisdiction where
the investor lives, means that Alberta has lost revenue, and will
continue to do so. A recent estimate puts Alberta’s net revenue
loss at about $400 million per year. As part of its ongoing review
of the tax system, Alberta is examining this issue.
2006-07
TAX REVENUE
2006-07
REVENUE FROM TAX SOURCES
INTERPROVINCIAL
TAX AND HEALTH CARE INSURANCE PREMIUM COMPARISON, 2006
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