The COVID-19 pandemic is having a devastating global economic impact. To boost the Alberta economy and attract more business, the Alberta Government has recently announced several measures.
A. Repealing Residency Requirement for Directors
U.S. and other foreign‑based businesses looking to incorporate a Canadian subsidiary will have another option where there will be no Canadian director.
On July 23, 2020, the Red Tape Reduction Implementation Act, 2020 (the “RTRIA”), which made amendments to several pieces of legislation, received royal assent. For corporations incorporated in Alberta, the Business Corporations Act (Alberta) (the “ABCA”) previously mandated that one quarter of corporate directors be resident in Canada. The RTRIA amended the ABCA by repealing this requirement. While Alberta joins other provinces and territories that do not require a Canadian resident director, the Ontario and federal legislation, among others, still have corporate director residency requirements.
For U.S. businesses looking to structure their expansion into Canada using an unlimited liability corporation (“ULC”), Alberta becomes a more viable option. A ULC is a unique corporate structure in which the shareholders may be held directly liable for an act or default of the corporation. A ULC is treated like a corporation for tax purposes in Canada but like a partnership for U.S. tax purposes. It is typically used in cross‑border planning with U.S.‑owned businesses because of its hybrid tax treatment. While the rules regarding liability differ between the “ULC provinces” (being British Columbia, Alberta and Nova Scotia), there may be ways to mitigate this risk. Further, the corporate registry fee for incorporating an Alberta ULC is significantly less than the fees in British Columbia and Nova Scotia.
B. Reduction to the General Corporate Tax Rate
On June 29, 2020, the Government of Alberta introduced Alberta’s Recovery Plan (the “Recovery Plan”).
Originally, under the Job Creation Tax Cut, the general corporate tax rate in Alberta was set to be reduced to 8% by 2022. This plan was accelerated under the Recovery Plan. Instead, the general corporate tax rate was cut from 10% to 8%, effective July 1, 2020. Now, Alberta has a combined federal‑provincial general corporate tax rate of 23%, making it the lowest in Canada.
This is good news for foreign‑owned businesses and public corporations with a permanent establishment in Alberta or with a subsidiary incorporated in Alberta. This corporate tax reduction will also reduce the corporate tax liability of Canadian‑controlled private corporations with active business income over the small business deduction limit (currently $500,000 in Alberta, subject to any reductions or “grinds”).
In addition, Premier Jason Kenney confirmed in a letter to the Canadian Taxpayer Federation dated June 8, 2020 that a provincial sales tax would not be implemented unless the idea is approved by a referendum. While the federal GST (5%) applies in Alberta, Alberta and the territories are the only Canadian jurisdictions that do not have a separate or harmonized provincial sales tax in addition to the GST. Further, Alberta does not have other taxes or premiums that are levied on employers like some other provinces.
Corporations should consider how carrying on business in Alberta may reduce its operating costs, cash‑flow issues or compliance costs given the low general corporate tax rate and relatively less indirect taxes.
C. Other Measures to Kick-Start the Alberta Economy
Other measures in the Recovery Plan include attracting foreign investment to Alberta and providing support to businesses in their start‑up phase.
Bill 33, the Alberta Investment Attraction Act, passed on July 29, 2020. This legislation establishes the Invest Alberta Corporation. Its mandate is to attract foreign investment into Alberta’s primary and high‑potential sectors: energy, agriculture, tourism, technology, aviation, aerospace and financial services.
The Government of Alberta has also introduced an Innovation Employment Grant with the objective of supporting smaller Alberta‑based companies. The grant will provide a refundable tax credit to companies that invest in research and development. By providing this refundable tax benefit, the goal is to support such businesses in employing more people within Alberta.
As society figures out the “new normal,” governments are having to balance protecting the individual health of their residents with the economy. Time will tell whether the measures announced by the Alberta Government will adequately address the challenges faced by Alberta.