Tax and Revenue Administration Alberta Corporate Tax Act Information Circular CT-3R2

CT-3R2 / November 2004

ALBERTA CORPORATE TAX ACT INFORMATION CIRCULAR:
ALBERTA CORPORATE TAX INSTALMENTS

This Information Circular describes the requirements for and the calculation of Alberta corporate tax instalments and the procedure for remitting instalments to Alberta Tax and Revenue Administration ("TRA"). The topics discussed include:

• When does a corporation pay its Alberta income tax?
• When are instalment payments required to be paid?
• How are instalments calculated?
• What can affect the calculation of instalments?
• How are instalments remitted?

1. Section 38 of the Alberta Corporate Tax Act (the "Act") provides for the payment of Part 5 tax as discussed below.
   
   Section 39 contains provisions for charging interest to the corporation if its instalments are late or deficient and on assessed balances outstanding. See Information Circular CT-4, "Interest and Penalties" for a discussion of interest and penalty provisions and policies.

WHEN DOES A CORPORATION PAY ITS ALBERTA INCOME TAX?

2. There are 3 different payment patterns for the payment of Part 5 tax under the Act:
   
   a) Part 5 tax must be paid in equal monthly instalments with any balance due by the end of the second month following the taxation year (the corporation's balance-due day). This is applicable to any corporation not qualifying under (b) or (c) below.
   
   b) A Canadian-controlled private corporation is exempt from paying instalments throughout the taxation year and is permitted to defer payment of its tax, in total, to the end of the third month following the taxation year end (its balance-due day) if:

(i) it claims the Alberta Small Business Deduction and has taxable income not greater than $500,000 in the current year;

(ii) it claimed the Alberta Small Business Deduction and had taxable income not greater than $500,000 in the immediately preceding year; or,

(iii) for taxation years commencing after 1994, its tax for the year or its first instalment base is not greater than $2,000. (First instalment base is defined in paragraph 6).

c) A corporation that is not a Canadian-controlled private corporation is also exempt from paying instalments throughout the taxation year and permitted to defer payment of its tax, in total, to the end of the second month following the taxation year end (its balance-due day) if its tax for the year or its first instalment base is not greater than $2,000.

3. A new corporation, other than one formed by amalgamation, is not required to pay instalments during its first taxation year. Payment of its tax in total must be made by its balance-due day.

WHEN ARE INSTALMENT PAYMENTS REQUIRED TO BE PAID?

4. A corporation that is not exempt from paying tax instalments during the taxation year is liable to pay interest charges if the instalments are not paid on or before the last day of each month in the taxation year.
   
   The last day of each month is determined as follows:

a) Twelve-month taxation year ending on the last day of a calendar month:

The last day of each month is the last day of each calendar month. For example, the instalment dates for a corporation with a taxation year from October 1 to September 30 would be October 31, November 30, etc.

b) Twelve-month taxation year ending on a day other than the last day of a calendar month:

The instalment for a month is due on or before the date in that month that corresponds to the year-end date. For example, instalments for a corporation with a taxation year that ends on April 15 are due on or before May 15, June 15, etc.

c) Floating tax year-ends and short taxation years - taxation years commencing after June 30, 1995:

Instalment dates are determined by forward-counting from the begining of the year. A final instalment will be required at year-end if the last day of the year is more than 27 days after the preceding instalment date.

For example, assume a year with a floating year-end from October 29, 2004 to October 26, 2005. Instalments are considered to be due on November 28 (a full month less a day from the year beginning) and on the 28th day of each subsequent month up to September 28, 2005. A final instament will be due on the last day of the year, October 26, 2005.

In the second example, assume a short taxation year starting on January 1, 2005 and ending on August 21, 2005. Instalments will be due on the last day of each calendar month up to July 31. No instalment will be due in August as the period from the last instalment date (July 31) to the end of the year is less than 28 days.

HOW ARE INSTALMENTS CALCULATED?

5. The Alberta tax used in the calculation of instalments is the tax determined under Part 5 of the Act. No deduction may be made for refundable tax credits provided for under Part 6 of the Act.

6. Instalments paid over a twelve-month taxation year may be computed under any one of the following options:

Option 1:

12 instalments, each 1/12 of the estimated Alberta tax payable for the year.

Option 2:

12 instalments, each 1/12 of the corporation's "first instalment base".

Option 3:

2 instalments, each 1/12 of the corporation's "second instalment base" followed by 10 instalments, each 1/10 of the amount by which the "first instalment base" exceeds the sum of the first two instalments.

In general, the "first instalment base" of a corporation is its Part 5 Alberta tax payable for the immediately preceding taxation year and its "second instalment base" is its Part 5 Alberta tax payable for the second preceding taxation year. Refinements to this general rule are discussed in paragraphs 9 through 15 below.

7. For purposes of calculating interest on deficient instalments, actual tax payable for the year is used in option 1 of the paragraph above.
   
   Therefore, a corporation will be assessed interest on deficient instalments only if it bases its instalments on an estimate less than the actual tax payable and the resulting instalments are less than those that would have been required under either of the other two options.

WHAT CAN AFFECT THE CALCULATION OF INSTALMENTS?

8. The monthly instalment amount determined in paragraph 6 can be affected by various situations as described in the following paragraphs.

Instalments for a short taxation year

9. A corporation with a current taxation year of less than 12 months should remit its instalments over the shorter period. The instalment for each month in the year may be calculated as if the taxation year were 12 months long. An example is provided in paragraph 10.

10. In this example, it is assumed that the corporation has applied for, and obtained, permission from Canada Revenue Agency (CRA, formerly Canada Customs and Revenue Agency [CCRA]) for a change in its taxation year-end. The following data are given:

For each month of the six-month taxation year, the corporation would calculate its instalments as if the year were twelve months long. Its minimum instalments would be the lowest of the following:

Option 1:

6 instalments, each $1,000  ($12,000/12)

Option 2:

6 instalments, each $1,500  ($18,000/12)

Option 3:

(i) 2 instalments, each $1,250  ($15,000/12); and

(ii) 4 instalments, each $1,550  ([$18,000-$2,500]/10)

Assuming the corporation chose option 1 above, it would remit $6,000 in instalments during the year. The remaining $6,000 balance would be due by its balance-due day.

Instalments based on a short preceding year

11. The first instalment base, described in paragraph 6, is subject to adjustment if the immediately preceding year was less than 365 days. Similarly, the second instalment base is subject to adjustment if the second preceding year was less than 365 days. If the short year was greater than 182 days, the tax for that year is annualized by multiplying it by the ratio that 365 is to the number of days in the short year. If the short year was less than 183 days, the tax for that year is substituted by the greater of the tax for:

    a) that year annualized; and
    
    b) the last preceding year that did exceed 182 days. (If that year was not 365 days, the tax for that year must also be annualized.)

    Amalgamations

12. In the calculation of instalments, a corporation formed by amalgamation will be treated as a continuation of the predecessor corporations. In its first year, its first instalment base is the sum of the Alberta taxes payable by the predecessor corporations for their last taxation year and its second instalment base is the sum of the Alberta taxes payable by the predecessor corporations for their second last taxation year. If a relevant taxation year of a predecessor corporation was less than 365 days, its tax for that year must be adjusted according to the rules in paragraph 11.

    Wind-ups

13. Where a subsidiary is wound up into a parent corporation and subsection 88(1) of the federal Income Tax Act (the "federal Act") applies, the parent corporation must, in the calculation of instalments subsequent to the wind-up distribution, take into account the instalment bases of the subsidiary. In the taxation year in which the wind-up distribution occurs, the parent's first instalment base and second instalment base must include the first and second instalment bases, respectively, of the subsidiary. In the following year:

a) the parent's first instalment base is determined by the formula:

P + (S x N/12)

where,

P = the parent's Part 5 tax payable for the year in which the wind-up distribution occurred;

S = the subsidiary's Part 5 tax payable for the year preceding the year of wind-up distribution; and

N = the number of months preceding the wind-up distribution in the parent's taxation year in which the wind-up occurred; and

b) the parent's second instalment base will be the amount that was its first instalment base for the year in which the wind-up distribution occurred.

Rollovers

14. Where all or substantially all, of the property of one corporation has been transferred to a non-arm's length corporation and subsection 85(1) or (2) of the federal Act applies, the transferee must take into account the instalment bases of the transferor. The rules are parallel to those for wind-ups.

    Mutual Fund Corporations

15. To determine each instalment to be paid during the taxation year, a mutual fund corporation may deduct 1/12 of its capital gains refund for the year from each instalment otherwise determined.

HOW ARE INSTALMENTS REMITTED?

16. A corporation that is subject to the Alberta Corporate Tax Act must remit its Alberta income tax to TRA. No mechanism exists for crediting the corporation's Alberta account with any portion of instalments remitted to the federal authorities.

17. The following payment options are available for remitting Alberta corporate income tax to TRA:

    a) at most financial institutions in Canada, if accompanied by a Remittance Advice;

    b) by cheque or money order payable to the Minister of Finance, mailed, delivered by courier, or hand-delivered to TRA between the hours of 8:15 a.m. and 4:30 p.m., Monday to Friday, except government holidays;

    c) by wire transfer; and

    d) through Internet payment services provided by major financial institutions in Canada.

    For information on option c), contact TRA at (780) 427-3044 or 310-0000/(780)427-3044 (Alberta toll free). For option d), contact your financial institution for further details or call TRA.

18. TRA prefers that payments be made in Canadian funds, but will accept payments in certain other currencies, such as American funds. The payment will be converted to its equivalent in Canadian funds at the exchange rate in effect on the date of receipt.

19. Each remittance paid directly to TRA or through a bank or designated financial institution should be accompanied by a Remittance Advice. TRA sends a pre-printed remittance advice (form AT10) with a Statement of Account to a corporation in any month in which there is a transaction or an assessed balance in the corporation's account. On the Remittance Advice, the corporation should specify the taxation year to which the payment is to be applied; if this is not done, the payment will be applied first to outstanding assessed balances, beginning with the oldest taxation year. Any remainder will be applied to the most recent unassessed taxation year.

20. A royalty tax credit instalment to which a corporation is entitled will be applied to outstanding assessed balances owing by the corporation. Any remainder of the royalty tax credit instalment will, at the request of the corporation, be applied, in whole or in part, to its account as an instalment of Part 5 tax. For corporations that make monthly applications for royalty tax credit instalments, the account will be credited as of the later of: the date that the application for the royalty tax credit instalment is received by TRA and the last day of the month for which the application is made.
    
    Corporations that received the maximum royalty tax credit in the previous taxation year and will receive the maximum credit in the current year may file one application for instalments at the beginning of the year, rather than monthly. In this case, the corporation's account will be credited as of the last day of the applicable month.

21. TRA will, upon request, provide:

    a) a detailed statement of account summarizing the transactions in the corporation's account over the period specified by the corporation, including all instalment transactions; and/or
    
    b) a statement of interest calculations, including interest on instalment transactions, over a period of time.