I've spent the last few weeks working from a tax haven located only about an
hour's flight from Vancouver's coast. No, I'm not referring to a small, unknown
Pacific desert island, but rather to Canada's own best-kept tax secret, the tax
haven of Alberta.
Alberta leads the provinces when it comes to lower overall taxes. For
example, while all other provinces charge a provincial sales tax ranging from 6%
to 10%, Alberta has no provincial sales tax whatsoever. Nor does it have any
land transfer tax. You can even benefit by dying in Alberta -- the maximum
probate tax you'll pay in the province is $400, compared to 1.5% of the value of
your estate in Ontario, with no maximum.
Just last week, in a pattern of continuing commitment to lower taxes, the
Alberta government announced that its current hotel room tax of 5% would be
eliminated as of March 1, 2005. While a lower "tourism levy" will replace it,
all funds will be specifically earmarked for tourism marketing and development
as opposed to general tax revenues.
But it's in the area of personal income taxes that Alberta really leads the
way. With Canada's average top combined federal and provincial marginal personal
tax rate running at about 45%, Alberta's top marginal rate hovers at a mere 39%,
a consequence of its 10% flat provincial tax.
Unfortunately, being able to benefit from Alberta's low tax regime is not as
simple as maintaining a post-office box or mailing address in Alberta or even
owing a recreational property there.
Under the tax law, Canadians must pay provincial tax on their worldwide
income based on a taxpayer's residence in a particular province on Dec. 31. That
being said, merely choosing to vacation in Banff annually on New Year's Eve
won't make you a "resident" of Alberta. The determination of provincial
residency goes beyond mere "physical presence" on the last day of the year and
also looks to the province where the individual has the "most significant
residential ties."
So, short of moving there, how can the rest of us benefit from Alberta's low
tax regime? A lot of the planning being done today involves the use of either
Alberta trusts or corporations. In fact, an entire session has been devoted to
this topic at the upcoming Canadian Tax Foundation's annual conference in
Toronto this fall. Not surprisingly, it will be presented by an Alberta lawyer.
As Alberta Premier Ralph Klein declared last week, "Taxes in Alberta only go
in one direction, and that's down." Perhaps other provinces ought to take a
lesson from Uncle Ralph or face the risk of lower provincial tax revenues as
taxpayers attempt to restructure their affairs out of Alberta.