In the first provincial budget released by Alberta’s NDP government last April, Economic Development and Trade Minister Deron Bilous announced the creation of two new tax credits aimed at encouraging investment in the technology and tourism industries. The NDP has predicted that the Alberta Investment Tax Credit and the Capital Investment Tax Credit will result in the creation of thousands of new jobs and reduce Alberta’s dependence on oil and gas revenue. Legislation setting out the details of the tax credits (the Investing in a Diversified Alberta Economy Act) was introduced in the Legislative Assembly on November 8, 2016 and received Royal Assent on December 9, 2016.
Alberta Investment Tax Credit
The Alberta Investment Tax Credit (the AITC) is an investor-level tax credit available for utilization against Alberta provincial income taxes otherwise payable by the investor. The credit is refundable with utilization capped at $60,000 annually per investor. Unutilized credits may be carried forward for up to four years. The AITC program is scheduled to expire at the end of 2019. The Alberta government has budgeted $30 million annually over the course of the three-year AITC program (i.e. $90 million in aggregate), with credits awarded on a first-come, first-served basis each year until the annual budgeted amount has been allocated.
In order to qualify for the credit, the investor must acquire shares in an “eligible business corporation” or a “venture capital corporation,” each as defined in the legislation.
Eligible business corporations
An “eligible business corporation” (EBC) is a corporation that: (i) is incorporated or continued under the Business Corporations Act (Alberta) (the BCA); (ii) has no more than 100 employees and that meets certain prescribed conditions, including conditions regarding the percentage of wages paid to employees working in Alberta (50-75% depending on the circumstances); (iii) has more than 80% of its assets located in Alberta; and (iv) has at least $25,000 in equity capital. Further, at least 50% of the corporation’s activities must consist of:
research, development and commercialization of proprietary technology, products and processes;
development of interactive digital media and game products;
post-production, visual effects and digital animation; or
- tourism activities – such as resorts, skiing facilities, amusement and recreation industries, hunting and fishing camps, scenic and sightseeing transportation.
An equity investment in an EBC entitles the investor to a tax credit against Alberta provincial income taxes equal to 30% of the equity investment. Application for the tax credit must be made by the EBC through an online application portal starting January 16, 2017.
Venture Capital Corporations
A “venture capital corporation” (VCC) is a corporation that: (i) is incorporated under the BCA, (ii) has not previously carried on any business, (iii) has or will have equity capital of at least $25,000 at the time of registration; (iv) has a share structure consisting of only common shares that have no special rights or restrictions; (v) has articles of incorporation that restrict its business to assisting the development of eligible small businesses, as directed in the AITC Regulations; and (vi) is registered with the Minister as a venture capital corporation.
A VCC’s activities are restricted to making equity investments in Alberta corporations that meet the EBC eligibility requirements but may or may not be registered as EBCs. An equity investment in a VCC entitles the investor to the same 30% tax credit against Alberta provincial income taxes that the investor would gain if investing in an EBC directly. As such, a VCC is essentially a pooling vehicle for investors, and an attractive single source of capital for small businesses that meet the EBC eligibility criteria. Application for an investor’s AITC must be made by the VCC.
Both EBCs and VCCs will be subjected to annual reporting requirements and must continue to meet their respective eligibility criteria or they may be required to repay to the Minister all or part of any AITC awarded.
It is also important to note that the AITC appears to be aimed at encouraging a diversification of the investor base in Alberta’s emerging companies space. Accordingly, the legislation and accompanying regulations generally restrict availability of the AITC to arm’s length investments.
Applications for the AITC may be submitted beginning on January 16, 2017. The application window will remain open until the annual budget is allocated. For VCCs or EBCs that register in 2017, investments made after April 13, 2016 may be retroactively eligible for the AITC.
Capital Investment Tax Credit
The Capital Investment Tax Credit (CITC) is a 10% non-refundable tax credit available to corporations continued or registered under the BCA that invest in property to be used and located in Alberta primarily for manufacturing or processing goods for sale or lease or for providing or operating tourism infrastructure. Conditional approval must be sought prior to making the investment, in which the application must include a proposed investment plan describing the property to be acquired as well as an economic impact assessment detailing potential economic, social and environmental impacts of the investment. Once conditional approval has been received, the applicant corporation should complete the investment within two years and apply for the CITC.
Applications for conditional approval may be submitted through an online application portal during four application intake windows, and conditional approval will be granted on a competitive selection basis. The first application intake window is January 16, 2017 to midnight on February 15, 2017. The maximum tax credit available to a corporation is $5 million per year. Since the CITC is non-refundable, it can only be utilized by corporations in years in which they have Alberta taxes owing. Any CITC grant may be carried forward by the recipient corporation for 10 years.
The foregoing summary is intended to highlight the key aspects of the new Alberta tax credits discussed above and does not provide an exhaustive list of the eligibility criteria or reporting requirements contained in the enacting legislation.