Late in 1978 and early 1979, the Peter Lougheed government embarked on a mission to lower the “small business” income tax in Alberta. This move accompanied Alberta’s withdrawal from a federal tax collection agreement, marking a significant milestone in what we now recognize as The Alberta Advantage. The historical context of Alberta’s departure from the federal corporate tax collection scheme bears relevance to our present, particularly when considering parallels with the desire to exit the Canada Pension Plan (CPP).
I don’t typically write much about taxes, but during my ongoing exploration of the Provincial Archives of Alberta (PAA), I uncovered some documents that intrigued me. Ordinarily, the topic of tax reductions or tax anything might not make for exciting reading. However, the documents stood out for me because their context seemed in many ways similar to the present. Put differently, it’s the story that caught my eye and not the numbers, even if the numbers are also important. And if you’re in my age group, speaking of stories, you might even recall what you were doing back in 1978-79, when Alberta’s ministers were crafting a strategy to counter Ottawa’s corporate income tax hikes.
Alberta’s plan involved some friction with the federal government. Quelle surprise! By early 1979, Peter Lougheed had been premier for over 7 years and there had been no shortage of conflict, especially given the contentious energy-related issues, between Alberta and Ottawa. At the start of 1979, Alberta’s Minister of Finance was Lou Hyndman, while Ottawa’s was Jean Chrétien.
At that time, the federal income tax rate for small businesses stood at 20 percent, whereas Alberta’s was at 11 percent. However, Ottawa, under Pierre Elliot Trudeau, hungry for more revenue intended to redefine the tax boundaries, effectively removing professional corporations like dentists and doctors from the “small business” category. This shift would have them paying a total of 47 percent income tax (36 percent federal and 11 percent provincial) starting in January 1980.
Changing the small business definition was being done to suit Ottawa’s hunger and did not serve Alberta’s strategic goals. The Alberta government aimed to get ahead of this change to protect Albertans and their interests.
Rather than simply eliminating its 11 percent corporate income tax to cushion the blow for Alberta’s small businesses, the provincial government chose a different path. It opted to overhaul its corporate tax regulations, assert its constitutional authority, introduce new legislation and exit the Federal Tax Collection Agreement.
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