Tax Insights: Alberta hikes personal and corporate taxes

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In brief

As expected, Alberta’s NDP government has not proceeded with the level of personal tax increases, health levy and other tax initiatives proposed by its Conservative predecessors. Instead, the new government will increase:

  • income taxes for individuals with incomes exceeding $125,000, starting 2015
  • the general or manufacturing and processing corporate tax rate from 10% to 12%, on July 1, 2015
These changes were initially mentioned in Alberta’s Throne Speech delivered on June 15, 2015. Alberta’s Bill 2, An Act to Restore Fairness to Public Revenue, which received first reading on June 18, 2015, provides the details.

In detail

Personal tax measures

Personal income tax rates

Alberta currently has a flat tax rate of 10%. Alberta’s NDP government proposed that the increases apply commencing in 2015, notwithstanding federal legislation governing the timing of increases. This is discussed further below.

The proposals increase the 10% rate when taxable income exceeds $125,000 as shown in the table below.

Taxable income Rate
2015 2016
$125,001 – $150,000 10.5% 12%
$150,001 – $200,000 10.75% 13%
$200,001 – $300,000 11% 14%
>$300,000 11.25% 15%

The 2015 rate increases are ¼ of those for 2016, explaining the government’s statement in its news release that “Changes will begin to be implemented on October 1, 2015.”

Top combined tax rates

The table below provides top combined federal/Alberta tax rates, after taking into account the changes.

Top combined federal/Alberta tax rates
  Taxable income Ordinary income Capital gains Canadian dividends
Eligible Non-eligible
Top bracket 2019 > $300,0001 44.00% 22.00% 26.19% 37.17%2
2018 > $300,0001 44.00% 22.00% 26.19% 36.76%2
2017 > $300,0001 44.00% 22.00% 26.19% 36.30%2
2016 > $300,0001 44.00% 22.00% 26.19% 35.72%2
2015 > $300,0001 40.25% 20.13% 21.02% 30.84%
2014 > $136,270 39.00% 19.50% 19.29% 29.36%
  1. Ignores indexing, which will apply starting 2017.
  2. Non-eligible dividend rates take into account changes announced in the 2015 federal budget, which apply after 2015.

Alberta’s post-2015 top marginal rates compare to those of the other provinces and territories, as follows:

  • Alberta’s top marginal rate on ordinary income of 44% (and on capital gains of 22%) will be:
    • the same as in Saskatchewan and the Yukon
    • higher than in British Columbia, the Northwest Territories and Nunavut
    • lower than in the other provinces
  • Alberta’s top marginal rate on eligible dividends of 26.19% will be:
    • higher than in British Columbia, the Northwest Territories, Saskatchewan and the Yukon
    • lower than in the other provinces and territories
  • Alberta’s top marginal rates on non-eligible dividends, which will range from 35.72% to 37.17%, depending on the year, will be:
    • higher than in Newfoundland and Labrador, Saskatchewan and the three territories
    • lower than in the other provinces

Indexing

The four new taxable income brackets (shown in the first table) will be indexed starting 2017.

The bottom line

The following table shows how much additional tax you will pay, at select income levels, assuming all your income is interest or ordinary income (such as salary).

Taxable income Additional tax1
2015 2016
$1,000,000 $10,250 $41,000
$800,000 $7,750 $31,000
$600,000 $5,250 $21,000
$400,000 $2,750 $11,000
$200,000 $500 $2,000

Can Alberta collect the higher taxes?

Given the timing of Alberta’s provincial election and first reading of Bill 2, the Tax Collection Agreement (TCA) that governs the collection of Alberta’s personal income taxes by the federal government appears to prevent the application of the tax increase for 2015.

This is because, to administer tax changes by July 1, 2015, the TCA requires the federal government to have been notified of those changes by April 15, 2015. (Notification must be given by October 15, 2015, for a January 1, 2016 implementation date.)

PwC contacted an Alberta Finance official about this issue. We understand Alberta's Finance Minister and the federal government discussed the 2015 rate increase. Although there is no written agreement, Alberta's Minister believes the rate increase will proceed, starting October 1, 2015.

We expect employers will need to ensure that their payroll systems calculate the additional income tax remittances required for salaries earned after October 1, 2015.

Employers should be reminded that they may be liable for penalties of at least 10% for failure to withhold and remit timely source deductions. We hope the federal authorities will provide guidance to employees and their employers soon.

Tax on split income

The “tax on split income” limits income-splitting techniques that seek to shift certain types of income from a higher-income individual to a lower- income minor.

Starting 2015, the tax on split income will be calculated using the highest tax rate (i.e. 11.25% for 2015 and 15% after 2015), instead of at a rate of 10%.

Business tax measures

Corporate income tax rates

Alberta’s general or manufacturing and processing (M&P) corporate tax rate will increase from 10% to 12%, on July 1, 2015, as shown in the following table.

The increase in the general and M&P rate will also increase the Canadian-controlled private corporation (CCPC) rate on investment income. Alberta’s rates for CCPCs are also shown.

General and M&P rates
  Alberta Combined Alberta/federal
2014 10% 25%
2015 11.01% 26.01%
2016 12% 27%
 
CCPC rates: Active business income to $500,000
2014-15 3% 14%
2016 3% 13.5%
 
CCPC rates: Investment income
2014 10% 44.67%
2015 11.01% 45.67%
2016 12% 46.67%