On June 29, 2020, the Alberta Government introduced Alberta’s Recovery Plan which reduced the general corporate income tax rate to 8%, effective July 1, 2020. This follows previously scheduled reductions in Alberta’s corporate income tax rates which have reduced the corporate rate from 12%. As a result, the combined Federal-Alberta general corporate tax rate is 23%. Alberta now has the lowest general corporate tax rate in Canada, for comparison, the second-lowest is Ontario and Quebec at 26.5%.
Why did the Government take these steps? Because this is in response to the COVID-19 pandemic which as we know, has resulted in many businesses having to temporarily shut down. The pandemic also drove down the price of oil last year, unfortunately affecting many Albertans. The tax cut was largely a way to attract new business investment and in turn, create more jobs (yeah!).The Job Creation Tax Cut is estimated to positively impact more than 100,000 businesses, 75% of those are small businesses.
So, what does this all mean and how can it benefit you? For prospective business owners, it’s a great time to possibly start a business and take advantage of the extremely low corporate tax rates. In particular, small business owners are now paying 2% provincial corporate income tax, which is incredibly beneficial to start-ups who require the majority of their income to be reinvested into the company. Although the economic climate remains difficult, the lower tax rates will persist for several years allowing prospective business owners time to take advantage of these rates. Now that’s good news if you ask us.
In addition, it is now an opportune time to incorporate and begin that business you have been thinking about starting.
If you’re looking for advice on how to get started, please reach out to our corporate lawyers at Hayes Fry Law who can guide you through the process and answer any questions you may have.