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Tax and Revenue Administration
Alberta Corporate Tax Act
Special Notice Vol. 5 No.
37


Released: January 8, 2013
Produced by: Alberta Treasury Board and Finance, Tax and Revenue Administration
For more information: tra.revenue@gov.ab.ca

Vol. 5 No. 37 / January 2013

SPECIAL NOTICE - ALBERTA CORPORATE TAX AMENDMENT ACT, 2012

NOTE: This special notice is intended to provide advance information on legislation expected to be introduced in fall 2013. Every effort has been made to ensure the contents reflect the intended legislation. However, if a discrepancy should occur in interpretation between this special notice and the legislation, the legislation will take precedence.

Bill 9, Alberta Corporate Tax Amendment Act, 2012, received Royal Assent on December 10, 2012. Major changes made to the Alberta Corporate Tax Act (the Act) include the following:


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

As described in Special Notice Vol. 5 No. 35, several changes have been made to the Alberta SR&ED tax credit program:

  • The reduction of the Alberta SR&ED tax credit for an amount calculated for the federal investment tax credit received in the prior year (known as the “Grind”) has been eliminated for taxation years ending after March 31, 2012.

  • The formulas for the calculation of eligible expenditures of a qualified corporation and the Alberta SR&ED tax credit have changed to correct certain technical deficiencies in the formulas prior to the removal of the grind. The following formulas are effective as of January 1, 2009.

Eligible Expenditures of a Qualified Corporation

A - B + C + D + E

where

A is the sum of those amounts included in federal expenditures of the corporation that are in respect of scientific research and experimental development carried out in Alberta after 2008,
B is the amount, if any, included in the amounts determined under the definition of A that is in respect of a prescribed proxy amount included in federal expenditures of the corporation,
C is the Alberta proxy amount, if any, for the taxation year,
D is the amount, if any, in respect of an Alberta SR&ED tax credit that reduced federal expenditures of the corporation in the taxation year, and
E is the amount of a repayment, in the taxation year, of either government assistance (other than an Alberta SR&ED tax credit) or a contract payment that can reasonably be considered to relate to amounts referred to in the definition of A in the taxation year or any prior taxation year.

Alberta SR&ED Tax Credit

For taxation years ending on or before March 31, 2012 (but for SR&ED carried out in Alberta after 2008), a qualified corporation will be entitled to an Alberta SR&ED tax credit in a taxation year equal to 10% of the lesser of:

  1. the corporation’s eligible expenditures for the taxation year (i.e., the result of the formula A - B + C + D + E described above), and

  2. the corporation’s maximum expenditure limit for the taxation year,

and if the corporation deducted an amount in respect of the federal investment tax credit for SR&ED in the immediately preceding year, the corporation must repay a portion of the Alberta SR&ED tax credit equal to 10% of the amount H (i.e., the Grind).

H is the product of the formula:

(P + Q) x Y/Z

where

P is the product of the formula R x 35%,
Q is the product of the formula S x 20%,
R is the lesser of T and U,
S is the lesser of V and W,
T is the lesser of:
    1. the amount of eligible expenditures for the immediately preceding taxation year less the amount of the Alberta SR&ED tax credit for that year (before any reduction relating to the Grind for that year), and

    2. the amount of the maximum expenditure limit for the immediately preceding taxation year less the amount of the Alberta SR&ED tax credit for that year (before any reduction relating to the Grind for that year),
U is the product of the federal expenditure limit of the corporation for the immediately preceding year and the ratio of eligible expenditures for the immediately preceding year less the Alberta SR&ED tax credit for that year (before any reduction relating to the Grind for that year) to federal expenditures of the corporation for the immediately preceding taxation year,
V is the greater of:
    1. the amount of eligible expenditures for the immediately preceding taxation year less
    1. the amount of the Alberta SR&ED tax credit for that year (before any reduction in respect of the Grind), and

    2. U,

    and

    1. zero,
W is the greater of:
    1. the amount of the maximum expenditure limit for the immediately preceding taxation year less
    1. the amount of the Alberta SR&ED tax credit for that year (before any reduction in respect of the Grind), and

    2. U,

    and

    1. zero,
Y is the amount of federal investment tax credits for the immediately preceding year that was deducted, or deemed to be deducted, from federal taxes payable for that year, and
Z is the aggregate of the federal investment tax credits for the immediately preceding taxation year.


Where a qualified corporation has applied federal investment tax credits from more than one taxation year to the immediately preceding taxation year, a separate calculation of H is required for each particular taxation year.

For each separate calculation of H:

  • other than the amount of Y, a reference to the amount of eligible expenditures, Alberta SR&ED tax credit, maximum expenditure limit, federal expenditure limit as determined by subsection 127(10.2) and (10.3) of the Income Tax Act (Canada), and federal investment tax credits is a reference to that amount for the particular year, and

  • Y is the amount of federal investment tax credits for the particular year that was applied to reduce federal taxes in the immediately preceding taxation year.
When separate calculations of H are required, H is the total of all the calculations of H calculated for all federal investment tax credits from particular years that were deducted or deemed to have been deducted in the immediately preceding year.

As announced in Special Notice Vol. 5 No. 36, for taxation years ending on or before March 31, 2012, a new form, AT1 Schedule 9 Supplemental, has been developed for calculating the Grind. Claimants are to use it with AT1 Schedule 9 for taxation years ending on or before March 31, 2012. To correctly calculate the Alberta SR&ED tax credit for taxation years ending on or before March 31, 2012, claimants will need to recalculate their Alberta SR&ED tax credit claims previously filed using AT1 Schedule 9 and the new AT1 Schedule 9 Supplemental and submit the recalculated claims to Tax and Revenue Administration (TRA) along with the claim for the current year. Claimants do not need to complete the new AT1 Schedule 9 Supplemental for taxation years ending after March 31, 2012.

Removal of the Grind

For taxation years ending after March 31, 2012, a qualified corporation is entitled to an Alberta SR&ED tax credit in a taxation year equal to 10% of the lesser of:

  1. the corporation's eligible expenditures for the taxation year (i.e., the result of the formula A - B + C + D + E described above), and

  2. the corporation’s maximum expenditure limit for the taxation year.

Anti-avoidance Rules

Anti-avoidance rules have been added to prevent tax planning to avoid the application of the Grind calculation. The following rules are effective as of the start of the program on January 1, 2009:

  • where at the end of the year, the corporation had

    • federal taxes payable or had paid federal taxes for the year or for any of the three prior taxation years, and

    • federal investment tax credits are available to apply against those taxes,

    the corporation is deemed to have deducted the federal investment tax credits to reduce federal taxes payable or to have obtained a refund of the federal taxes paid in those years to the fullest extent possible starting with the earliest taxation year for which they could first have been deducted, and

    • where, in the opinion of the Provincial Minister, the corporation has deducted amounts in calculating income or loss for a taxation year for the purposes of the federal Act rather than applying available federal investment tax credits to reduce the federal taxes that would otherwise have been payable in the year, and one of the main reasons for doing so was to reduce the amount of the Grind for purposes of calculating the Alberta SR&ED tax credit, the corporation is deemed to have applied its federal investment tax credits against any federal taxes that would have been payable had the corporation computed its income or loss for the particular year without making those deductions, and the Provincial Minister may calculate the Alberta SR&ED tax credit as if those federal investment tax credits had been applied.

Additional Changes

  • Additional technical changes have been made effective January 1, 2009:

    • The amount by which a qualified corporation’s Alberta SR&ED tax credit for the year exceeds the corporation’s tax otherwise payable for the year is deemed to have been paid by the corporation on the later of the day on or before which a corporation is required to pay the remainder of its tax payable for the year or the day on which the corporation’s claim for the Alberta SR&ED tax credit was received by the Provincial Minister.

    • The filing deadline by which the Alberta SR&ED tax credit claim is required to be received by TRA has been extended from 12 months to 15 months after the filing due date for the Alberta corporate income tax return for the year.

    • The calculation of the Alberta proxy amount of 65% of salaries and wages is subject to the limits on the calculation of the federal prescribed proxy amount in section 2900 of the federal regulations to the Income Tax Act (Canada) has been clarified; and

    • For the purposes of determining a corporation’s Canadian tax results in a taxation year that is a functional currency year of the corporation, the amount of any Alberta SR&ED tax credit that is paid to the corporation in the taxation year will be converted to the functional currency at the average exchange rate for the year.


Corporations that Previously Had a Permanent Establishment in Alberta

  • A new rule applies for corporations that had a permanent establishment in Alberta within the past six years, but left the province and are now setting up a new permanent establishment in Alberta.

  • If the corporation ceased to have a permanent establishment in Alberta within the past six years and had different discretionary federal and Alberta tax balances, the corporation must start the current taxation year with the Alberta balances at the end of its last year with a permanent establishment in Alberta and adjust for the value of transactions through the intervening period. The value of transactions should be calculated consistent with the calculation of income or loss for federal purposes over the intervening period.

  • This rule comes into effect for taxation years that begin after December 10, 2012.


Other Changes

  • An insurance corporation will be required to claim the same policy reserves federally and for Alberta going forward. If the corporation has claimed higher reserve amounts for Alberta purposes in the taxation year prior to this amendment coming into force, the corporation will have to bring 1/5 of the difference in reserve amounts into income over the next five taxation years. The change will come into effect for taxation years ending after December 10, 2012.
  • Where the Provincial Minister designates an assessment, reassessment or a notice of objection as being based on a federal assessment action, the corporation is not entitled to appeal to the courts if Alberta parallels the federal assessment action on the same basis. For example, a corporation will not be entitled to appeal if Alberta parallels a settlement that the corporation negotiated with the federal government. However, if Alberta assesses or reassesses on a different basis or manner as the federal assessment action, the corporation will retain its right to appeal.
  • The Lieutenant Governor in Council may now make regulations for the collection, use, and disclosure of information, including personal information under the Act. This provision should assist in the recovery of corporate tax debts owed to Alberta.
  • The circumstances under which tax information may be released now include the release of tax information according to the Auditor General Act and the ability to provide information to the Superintendent of Insurance.
  • Except for the change in insurance policy reserves, these changes come into effect as of December 10, 2012.


Insurance Premiums Tax

Several technical amendments have been made to the rules for the calculation of insurance premiums tax (formerly insurance corporations tax) under Part 9 of the Act. Except where indicated, the changes are effective on December 10, 2012. The changes include:

  • Definitions have been amended or added and technical changes made to ensure the calculation of insurance premium tax works harmoniously with the changes made to the Insurance Act and Classes of Insurance Regulation effective July 1, 2012.

  • Amendments and changes to the Act also clarify that insurance premiums tax applies to extended product warranties.
  • A new section has been added to the Act to provide the authority to make regulations exempting any type, class or subclass of insurance from the application of Part 9 of the Act and defining any word or expression that is used but not defined in Part 9.
  • Although marine insurance is exempt from insurance premiums tax, the exemption has been administered on the basis that it does not apply to pleasure craft. An amendment has been made to clarify TRA’s policy that insurance premiums tax is payable on the premiums receivable under contracts for the insurance of pleasure craft. Insurance on pleasure craft is considered to be a type of property insurance.

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