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:
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.
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.
|$125,001 – $150,000||10.5%||12%|
|$150,001 – $200,000||10.75%||13%|
|$200,001 – $300,000||11%||14%|
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|
|Top bracket||2019||> $300,0001||44.00%||22.00%||26.19%||37.17%2|
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:
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|
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%.
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|
|CCPC rates: Active business income to $500,000|
|CCPC rates: Investment income|