Canada: Alberta Introduces Two New Tax Credits For Industry-Specific Investment And Job Creation

Last Updated: February 24 2017
Article by John A. MacDonald and Darian Khan

 As part of its Alberta Jobs Plan, the Government of Alberta ("Government") recently introduced two new tax credits—the Alberta Investor Tax Credit ("AITC") and the Capital Investment Tax Credit ("CITC"). These tax credits, which came into force on January 1, 2017 under the Investing in a Diversified Alberta Economy Act1("Act"), aim to incentivize economic growth and create jobs outside of the energy sector in Alberta.

This article highlights key criteria and benefits of the AITC and CITC and how to apply for these credits.

ALBERTA INVESTOR TAX CREDIT

Overview and Purpose

The AITC is a three-year, $90 million program that provides a 30% tax credit to eligible investors who provide capital to small businesses operating in certain "non-traditional" sectors of the Alberta economy: research, development or commercialization of new technology, new products or new processes, interactive digital media development, video post-production, digital animation or tourism.

Eligible Investors

Individuals and corporations paying tax in Alberta qualify for the AITC. In either case, the investor must be an "eligible investor". For individuals, this means being an Alberta resident or having business income in the province. For corporations, this means having a permanent establishment in Alberta.

In order to qualify as eligible investors, individuals must also own less than 50% of the equity in corporations in which they invest.

Eligible Investments

The AITC applies to the purchase of shares of "eligible business corporations" ("EBCs"), which are generally small businesses that:

  • are registered under the Alberta Business Corporation Act;
  • employ no more than 100 employees, including affiliates;
  • have more than 80% of their assets in Alberta and at least $25,000 in equity capital;
  • pay at least 75% of wages to employees in Alberta, if non-exporting (50% if exporting); and
  • have 50% or more of their business activities in the designated non-traditional sectors.

Investors may invest in an EBC directly by purchasing its shares or indirectly by purchasing shares of a venture capital corporation ("VCC"). The requirements for VCCs are:

  • incorporation under the Alberta Business Corporations Act;
  • no previous business carried on;
  • equity capital of at least $25,000;
  • limited special rights and restrictions on shares; and
  • articles of incorporation restricting the business to that of assisting the development of small businesses.

Publicly-traded corporations may also qualify as EBCs or VCCs, but eligible share purchases in public companies may only occur on the primary market.

How to Apply

EBCs and VCCs seeking to use the AITC to attract investors must register online with the Government. Registration for the AITC opened on January 16, 2017, but investments made as of April 14, 2016 may be retroactively eligible for the AITC. The AITC is available on a first-come, first-served basis until the $30 million annual funds are fully deployed.

Receipt of the AITC and Conditions

Upon receiving equity from eligible investors, registered EBCs and VCCs apply for tax credit certificates on behalf of their investors. The EBCs and VCCs then distribute these certificates to their investors who may claim the AITC.

Individuals are eligible for a maximum tax credit of $60,000 per year (on a $200,000 investment). There is no yearly maximum for corporations, but the maximum eligible investment in a single corporation is $5 million per tax year and $10 million in total under the program. The AITC is refundable for individual investors and non-refundable for corporations. For both individual and corporate investors, the AITC may be carried forward for up to four years. Investments in EBCs or VCCs must be for at least five years—otherwise, the Government may revoke the AITC.

Additionally, EBCs and VCCs must satisfy a number of reporting requirements throughout the period of investment.

CAPITAL INVESTMENT TAX CREDIT

Overview and Purpose

The CITC is a two-year, $70 million program that provides a 10% non-refundable tax credit on a corporation's eligible capital expenditures. The CITC targets the manufacturing, processing and tourism industries to "encourage companies to make timely capital investments by returning a percentage of the company's costs, including the purchase of machinery, equipment and buildings."2

Eligible Corporations

The CITC is available to corporations who meet the requirements in the Act and its regulations. Eligible corporations must generally be registered under the Alberta Business Corporations Act and involved in one of the specified industries.

Eligible Investments

The CITC applies to purchases of "Eligible Qualified Property"—such as machinery, equipment and buildings—to be used for manufacturing or processing goods, or providing or operating tourism infrastructure. The eligible costs for these purchases align closely with the Capital Cost Allowance rules in the federal Income Tax Act.

The minimum amount of an eligible CITC investment is $1 million, and the maximum total tax credit a company may obtain from the program is $5 million (on a $50 million investment).

How to Apply

To participate in the CITC program, corporations must apply online and go through a competitive selection process. The first of three intake periods runs from January 16 to February 15, 2017. As part of its application, a corporation must submit an economic impact assessment, including:

  • the dollar value of the investment and its timeline;
  • the employment impact and inclusion of under-represented people or groups;
  • any novel product or service development;
  • modernization or productivity improvements, including supply chain impacts; and
  • the community and regional impact, including environmental performance.

If satisfied that a corporation is eligible and its proposed investment is in the public interest, the Government may issue a conditional approval letter to the corporation.

Receipt of the CITC and Conditions

After receiving conditional approval of its CITC investment proposal, a corporation has two years to acquire the eligible capital property. The corporation then applies to the Government for a tax credit certificate in respect of the acquired property. The tax credit is non-refundable but may be carried forward for 10 years.

The CITC program also requires participants to self-report the status of their investment plan to the Government every 180 days, as well as any contravention of the Act or specified corporate change, such as an amalgamation or dissolution.

Footnotes

1 SA 2016, c I-10.5.

2 Government of Alberta Press Release, "Alberta Jobs Plan supports businesses and encourages investment to create jobs", (April 21, 2016) online: https://www.alberta.ca/release.cfm?xID=416023CD6CCA9-CF41-0794-85236A2E44A687EC

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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