The Government of Alberta is looking to attract national and foreign investments by making the province a more competitive jurisdiction to form and operate a business in. To aid these efforts, Alberta has amended numerous statutes, reduced its corporate tax rate and is in the process of establishing an arm's length entity to promote investments in the province, all as described further below.
RED TAPE REDUCTION IMPLEMENTATION ACT
The Red Tape Reduction Implementation Act, 2020 (Act) was introduced in the legislature as Bill 22 and received royal assent on July 23, 2020. It will come into effect on various dates by proclamation.
The Act is omnibus legislation that, among other matters, amends the following 15 pieces of Alberta legislation:
- Business Corporations Act
- Companies Act
- Partnership Act
- Oil Sands Conservation Act
- Mines and Minerals Act
- Surface Rights Act
- Public Lands Act
- Marketing of Agricultural Products Act
- Vital Statistics Act
- Recreation Development Act
- Wills and Succession Act
- Municipal Government Act
- Safety Codes Act
- Emergency Management Act
- Emissions Management and Climate Resilience Act
This bulletin focuses on specific amendments to the Business Corporations Act (ABCA) and the Partnership Act that demonstrate the aforementioned efforts of the Alberta government to incentivize economic growth in Alberta by making the province a simpler and more attractive jurisdiction to set up and operate for-profit businesses.
While not discussed herein, the Act also introduces a number of amendments to the Companies Act that are intended to make Alberta a more attractive jurisdiction for not-for-profit organizations formed thereunder.
Removal of the Canadian Director Requirement
Currently, corporations formed under the ABCA are required to have at least 25 per cent of their directors be resident Canadians. The residency requirement has been viewed as an unnecessary impediment to foreign investment in Alberta, driving foreign investors to set up businesses or investment vehicles in jurisdictions with less prescriptive organizational and governance requirements, such as British Columbia.
The Act removes this requirement. Once the applicable section of the Act is in force, Alberta corporations may have all non-resident directors, or directors selected for solely for their expertise and subject-matter acumen, rather than their place of residence.
Removal of the residency requirement brings Alberta in line with B.C., Quebec, the Maritimes and the Territories, where foreign investors can form and establish a business without the need to retain a Canadian resident director.
Reduction of Certificate Filing Requirements for Limited Partnerships
Limited partnerships formed in Alberta are currently required to file and maintain a limited partnership certificate with the Alberta Registrar of Corporations (Registrar).
The certificates have been perceived to be an administrative burden, as the Partnership Act requires these certificates to include and summarize extensive information from the underlying limited partnership agreements, such as: the term of the partnership, the nature and value of contributions, certain distribution rights and information regarding governance. Furthermore, a certificate generally had to be updated—via filing with the Registrar—every time the underlying partnership agreement was amended in any significant way.
The Act significantly reduces the information required to be included in such certificates. Once the applicable section of the Act is in force, the certificate will only be required to include the firm name (i.e., partnership name), the contact information of each general partner and any other information required by the regulations. While future regulations may require additional information to be included, the expectation is that any such information will be minimal in comparison to the breadth of information required to be included up to this point.
As limited partnerships are common vehicles for investment, removal of these prescriptive public filing requirements is a welcome change and will allow Alberta to be more inviting to businesses over a large cross-section of industries and geographical origins.
In addition, eliminating extensive public filings will allow a limited partnership to adapt to the changing needs of its business more efficiently. This is particularly important for long-term projects, which may see the project scope, capital requirements or the identify of the partners change over time. As the project evolves, the partners can simply amend the partnership agreement to reflect these changes without having to then also update the certificate filed with the Registry.
A notable absence from the Act is an ownership or control transparency amendment to the ABCA. This is significant in light of recent amendments to the Canada Business Corporations Act (CBCA) and the Business Corporations Act (British Columbia) (BCBCA) coming into effect October 1, 2020.
Post-amendment, the CBCA and BCBCA generally require that all private corporations maintain a register identifying individuals that, for example, hold a significant beneficial ownership interest and have the right to appoint directors.
The decision to refrain from introducing similar transparency provisions appears to highlight the Alberta government's commitment to make Alberta a more business-friendly jurisdiction. In addition to administrative simplicity, there may be commercial or privacy reasons to prevent the disclosure of beneficial ownership details in such a register.
This approach appears to be consistent with the changes to the Partnership Act, described above, that will no longer require the disclosure of limited partners in the limited partnership certificate.
Corporations that were incorporated under the BCBCA and CBCA may now wish to continue into Alberta under the ABCA to avoid disclosure of beneficial ownership information or other transparency requirements, and to also avoid potential penalties for non-compliance with such requirements under the BCBCA and CBCA. As already mentioned, the Canadian resident director requirement will soon no longer be an impediment to such a continuance.
For more information on the recent transparency changes under the BCBCA and the CBCA, please see our April 2020 Blakes Bulletin: BCBCA Amendments: Transparency Register to Track Significant Individuals and November 2018 Blakes Bulletin: Beneficial Ownership: New Developments, respectively.
CORPORATE TAX RATE AND OTHER CHANGES
As part of Alberta's Recovery Plan, the Alberta government announced it would accelerate the timing of previously announced corporate tax rate reductions. Effective July 1, 2020, the general corporate tax rate was reduced from 10 per cent to eight per cent, which drops the combined Federal-Alberta general corporate tax rate from 25 per cent to 23 percent.
The small business tax rate is maintained at two per cent.
While Alberta already had the lowest provincial corporate tax rate in Canada, the difference between Alberta and the other provinces has increased even further. The provincial tax rate in Ontario and Quebec is 11.5 per cent and 12 per cent in B.C. and Saskatchewan.
In addition to corporate tax cuts, the Alberta government also announced the Innovation Employment Grant (Grant) as part of Alberta's Recovery Plan. The Grant will support small and medium-sized businesses that invest in research and development, with a grant worth up to 20 per cent of eligible expenditures.
This program is expected to be similar to the former Alberta Scientific Research and Experimental Development (SR&ED) credit and be delivered through the corporate tax system. Eligible expenditures will be the same as those that qualify for SR&ED under the Income Tax Act (Canada). The Grant will be phased out for businesses between C$10-million and C$50-million in taxable capital.
Draft legislation is expected in the fall of 2020 and the Grant is expected to launch January 1, 2021.
INVEST ALBERTA CORPORATION
Bill 33: Alberta Investment Attraction Act, which creates Invest Alberta Corporation (Invest Alberta) received royal assent on July 23, 2020.
The mandate of Invest Alberta will be to promote, identify and pursue investment in Alberta, facilitate targeted and customized investment attraction services, and support the Alberta government in trade promotion.
The goal of the Alberta government is to build investor confidence in Alberta's primary business sectors (i.e., energy, agriculture and tourism) and to promote Alberta domestically and internationally as a prime investment location in industries such as technology, aviation, aerospace and financial services. The Alberta government announced that Invest Alberta's footprint will include key foreign markets, beginning with Houston, Texas.
The original Bill 33 provided Invest Alberta with the ability to make or acquire existing loans, issue loan guarantees, purchase equity and enter into joint ventures or partnerships to fulfill its mandate—provided that such actions were authorized by regulation—but the Bill has since been amended to eliminate such abilities. In carrying out its mandate, Invest Alberta may make grants or contributions, but no additional details have been provided.
Notwithstanding the aforementioned legislative and tax changes, there remain certain considerations as to why a business would prefer a jurisdiction other than Alberta.
For example, B.C. remains an attractive jurisdiction for shareholders who incorporate an unlimited liability corporation (ULC). A shareholder's exposure to liability is more expansive under the ABCA compared to the BCBCA; under the BCBCA, the liability of a shareholder only arises if the ULC itself is unable to satisfy its debts and liabilities on dissolution or liquidation. However, under the ABCA, shareholders may be liable at any time.
Please note that at the time of publication, Bill 22 received royal assent but proclamation is still forthcoming for the sections of the Act amending the ABCA and the Partnership Act.
For further information, please contact:
Monica Cheng 403-260-9624
Anna McKilligan 403-260-9764
Ashton Menuz 403-260-9638
or any member of our Energy or Tax group.