Changes to Personal Income Tax - Questions and Answers

Index


What changes are being made to Alberta’s personal income tax system?

Five new personal income tax brackets were implemented on October 1, 2015. For the 2015 tax year, prorated tax rates will be applied to all taxable income earned from January 1 to December 31, 2015, as follows:

2015
Tax Rate
Taxable Income
Bracket
10%
On first $125,000 of taxable income (no change)
10.5%
On next $25,000, from $125,000 to $150,000
10.75%
On next $50,000, from $150,000 to $200,000
11%
On next $100,000, from $200,000 to $300,000
11.25%
On taxable income above $300,000

Once fully implemented in 2016, the rates will be as follows:

2016
Tax Rate
Taxable Income
Bracket
10%
On first $125,000 of taxable income (no change)
12%
On next $25,000, from $125,000 to $150,000
13%
On next $50,000, from $150,000 to $200,000
14%
On next $100,000, from $200,000 to $300,000
15%
On taxable income above $300,000

Albertans will continue to enjoy the highest basic personal amount among provinces. In 2015, this means that no personal income tax will be paid on the first $18,214 of taxable income. See Alberta’s non-refundable tax credit block below.

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Do the new rates apply to me?

The majority of Albertan tax-filers (about 93%) will not pay more as their taxable income falls into the first tax bracket (taxable income up to $125,000) and will continue to be taxed at the 10% rate.

About 7% of tax filers will be impacted by the introduction of the new personal income tax rates. The following table compares the amount of personal income tax payable (in dollars) by Albertans under the single 10% rate and under the new rate structure, once fully implemented in 2016.

Comparison of amount of personal income tax payable (in dollars) by Albertans under single 10% rate and new rate structure (once fully implemented in 2016)


Alberta will continue to have the highest basic personal and spousal amounts in Canada
, meaning that Albertans will still be able to earn more before they have to start paying provincial income tax (see Alberta’s non-refundable tax credit block below). When all taxes are taken into consideration, Albertans across all income ranges will generally continue to pay lower overall taxes compared to other provinces.

Alberta Non-Refundable Tax Credit Block (2015)

In general, credit amounts are multiplied by 10% to arrive at the reduction in Alberta tax. In the case of total donations and gifts over $200, the credit rate is 21%.

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If I have taxable income over $125,000, will I be taxed at 12% on the full amount?

No, the rates are marginal. This means that rates are applied incrementally on each bracket. For example, in the 2016 tax year, if you earn $350,000 of taxable income, you will not pay 15% on all your taxable income. Instead, you will pay a rate of 10% on your first $125,000 of income, 12% on the next $25,000, 13% on the following $50,000, 14% on the $100,000 after that, and 15% on the remaining $50,000.

The following table shows the additional Alberta personal income tax that a tax filer in the highest bracket, with $350,000 in taxable income, would pay in the 2016 tax year.

Additional tax payable by a single individual
with $350,000 in taxable income
Taxable Income
Bracket
2016
Tax Rate
Additional Tax Compared to
Single 10% Rate
On first $125,000 of taxable income
10%
$0 (no change)
On next $25,000, from $125,000 to $150,000
12%
$500
On next $50,000, from $150,000 to $200,000
13%
$1,500
On next $100,000, from $200,000 to $300,000
14%
$4,000
On taxable income above $300,000
15%
$2,500
Increase in tax payable compared to
single 10% rate:
$8,500
Note: Albertans will continue to benefit from the
highest basic personal and spousal amounts in Canada.

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Why are you increasing personal income tax?

The increase in the personal income tax rates will help Alberta deal with the current revenue shortfall. Albertans were clear in the last election that they supported the idea of a more progressive, multi-rate personal income tax system to generate additional revenue while protecting those with lower ability to pay higher taxes.

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Are these changes retroactive?

The new rates and brackets were implemented on October 1, 2015.  However, annual provincial income tax rates must come into effect on January 1 of the respective year, as the personal income tax system only supports annual rates. As a result, lower prorated rates were introduced effective January 1, 2015 to reflect an October 1 introduction of the full rates.

When filing taxes for 2015, tax filers will be assessed based on their total 2015 taxable income and the prorated tax rates. Tax credit and deduction amounts for the 2015 tax year will remain unchanged.

Alberta has asked the federal government to begin administering these changes October 1, 2015. As a result, the withholding tables used by employers will be changed to reflect the new higher rates. The result of this, for those impacted, is that the taxes withheld from individual paycheques after October 1 will reflect the new rates ranging from 12% to 15%. However, the prorated rates for 2015 will appear on the 2015 income tax forms. Updated withholding tables can be found on the Canada Revenue Agency website. The tax rate changes are shown below:

Taxable Income
Bracket
2014
(single rate)
2015

2016
and later

Changes to Alberta's Personal Income Tax Structure by Year
On first $125,000 of taxable income
10%
10%
10%
On next $25,000, from $125,000 to $150,000
10%
10.5%
12%
On next $50,000, from $150,000 to $200,000
10%
10.75%
13%
On next $100,000, from $200,000 to $300,000
10%
11%
14%
On taxable income above $300,000
10%
11.25%
15%

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If I have taxable income over $125,000 in 2015, will I likely have tax owing for 2015?

Alberta has asked the federal government to begin administering these changes October 1, 2015. As a result, the withholding tables used by employers have been changed to reflect the new higher rates. The result of this, for those impacted, is that the taxes withheld from individual paycheques after October 1 will reflect the new rates ranging from 12% to 15%.

If the withholding adjustments do not withhold the full amount of the additional taxes that will be owing on an individual’s total 2015 taxable income, there may be additional taxes owing upon filing their 2015 income tax return.

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Still have questions?

Email us at budget.taxes@gov.ab.ca.

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Page last updated:  April 2, 2016