New Income tax rates in Alberta

In 2015, Albertans went to the polls twice.  Once to vote for a premier of our province and then for a Prime Minister.  In both cases, the Conservatives went down.  Provincially, orange became the new Blue as the New Democrat Party swept the province in convincing fashion.  Federally, The Liberals won a majority government and Justin Trudeau became our 29th Prime Minister.

Both parties were very vocal about their fiscal platforms and the fact that they wanted to raise income taxes especially for higher income earners.  In my 25 years in the financial industry, the one consistent message I heard from people was that they hated paying income taxes but obviously the vote for change was pretty powerful.

The change in income tax structure for Albertans is pretty significant so here's a review of income taxes in Alberta – past, present and future.

Understanding Marginal Tax

If you are not sure about how the Marginal Tax Rate system works in Canada, you should review the difference between Marginal Tax and Average Tax

The past

Prior to the new provincial and Federal Government in Alberta, here's how the Marginal Tax rates looked for Albertans in 2014 and 2015:

AB_Marginal_Tax_(2014-2015)

The present

As of October 1, 2015, the Provincial NDP Government moved away from a flat tax to a progressive tax system where higher income earners would pay more.  As of October 1, 2015, they introduced a 5 bracket tax system where individuals making less than $125,000 per year will still be taxed at 10% but if you make more, the tax will increase.  Here's the new income tax rates in Alberta:

Income

Marginal Tax Rate (Alberta)

less than $125,000

10.00%

$125,000 to $150,000

10.50%

$150,000 to $200,000

10.75%

$200,000 to $300,000

11.00%

$300,000 and over

11.25%

 

The end result, when you combine Federal and Provincial income tax, looks like this:

AB_Marginal_Tax_(2015-rev)

What does the new income tax rates in Alberta mean financially? The bottom line is that Albertans who make less than $125,000 per year will not be affected one way or another.  Anyone making more than $125,000 per year will pay more.

The Future

In 2016, some Albertans get hit with a double whammy!  Provincial tax rates over $125,000 of income are going up significantly:

Income Marginal Tax Rate (Alberta)
less than $125,000 10.00%
$125,000 to $150,000 12.00%
$150,000 to $200,000 13.00%
$200,000 to $300,000 14.00%
$300,000 and over 15.00%

In addition to these tax hikes by the provincial NDP, the new Federal government also plans on sticking to it's election platform of raising taxes on the highest tax bracket from 29% to 33% but lower taxes in the middle bracket ($44,701 to $89,401) from 32% to 30.5%

Here's what the end result will look like for Albertans:

AB_Marginal_Tax_(2016)

What does this mean to Albertans?

Overall, here's the impact for Albertans who make different amounts of annual income
Past
Present
Future
Income
Total Tax
Average Tax
2015
2016
Average Tax
$90,000
$21,141
23.5%
no change
-$671
22.7%
$100,000
$24,741
24.7%
no change
-$671
24.1%
$125,000
$33,741
27.0%
no change
-$671
26.5%
$150,000
$43,084
28.7%
$125
-$296
28.5%
$200,000
$62,584
31.3%
$500
$2,830
32.7%
$300,000
$101,584
33.9%
$1,500
$9,830
37.1%
Some Albertans will be happy and some will not?  Which camp are you?

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

2 Responses to New Income tax rates in Alberta

  1. An interesting posting. Perhaps I am missing something, but putting the three charts side by side, the biggest jump (from 15% to 25% = a 67% increase) for any category seems to be for folks earning between $18,214 and $44,701. Those ranging between $9.10 an hour, to $22.35 an hour. Not sure about Alberta, but in Canada generally that is a significant number of workers … It’s old data, but the Financial Post reported, “Of the 24.5 million returns filed (for 2009), 18 million Canadians reported total income of $50,000 or less. That’s not a typo. In other words, ignoring individuals who don’t file returns such as children, nearly 75% of tax-filing Canadians earned under $50,000 in total income in 2009.”

    That means a large number of Canadians would see a significant increase in the tax they paid if their tax rate increased from 15% to 25%. One might argue that since this group has far less disposable income (living paycheque to paycheque) the difference they’d face would be more extreme than an increase in tax rate for those earning in the high brackets. Oh, true, the high bracket payers would see their actual dollars paid increase more, but the percentage change in discretionary income might actually be less for the large wage earners than the minimum wage earners.

    Am I missing something?

  2. Hi,
    Does this mean your taxed at the highest tax bracket your in? Or on the first 125,000 your still taxed at the lower rates then anything above that your taxed at the higher rates ?

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