2015 Alberta Budget Tax Highlights
The Alberta government delivered its 2015-16 provincial budget yesterday. After years and years of status quo (from an income tax rate perspective), yesterday’s budget included changes that will have a direct impact on income taxes payable by Alberta residents, beginning next year. Below, I have summarized some of the key provisions that are integral for financial advisors and their client’s. Please feel free to pass this along to your family and friends.
- Minister Robin Campbell anticipates a $5B budget deficit for 2015-16, $3B for 2016–2017 with a return to a balanced budget in 2017–2018.
- Drop in global oil prices has significantly decreased Alberta’s revenue forecast.
- Without revenue initiatives, revenue would have been over $7B lower than forecast
- Instead, consolidated revenue will be $43.4B in 2015-16, $5.6B less than anticipated
- In 2015, population growth is forecast to moderate as a result of lower interprovincial migration, but remain solid at 2.0%,or 84,500.
- The Budget 2015 Capital Plan supports $29.5 billion in infrastructure projects, including $4.8 billion for maintenance and renewal of existing infrastructure.
- Despite changes to personal income taxes (described below), Alberta will maintain the lowest overall taxes and the most competitive tax system in Canada.
The following is a discussion of the changes to corporate income tax as well as personal income taxation
“ We are holding the line on corporate taxes so that corporations will keep existing jobs here in Alberta, not move them to some other province or some other country.”
Alberta Finance Minister Robin Campbell
No announced changes to corporate income taxes or to the $500,000 small business limit. As a result, Alberta corporate tax rates for Canadian-controlled private corporations remains at 3% on income up to $500,000, and 10% on income over and above the small business income threshold. As a result, the 2015 Income in a Corporation remains effective and highlights the benefits for business owner clients in Alberta in retaining after-tax business income within their corporations (a 25% tax deferral!!). This tax deferral will only increase when personal tax rates begin to rise.
With respect to corporate tax rates on investment income (which also remain unchanged in Alberta), we continue to see a tax cost of investing tax inefficiently through Alberta corporations.
Personal Tax Rates
“…our tax system will be adjusted so those who can afford to pay more, will pay more.”
Alberta Finance Minister Robin Campbell
The budget indicated that one of the revenue initiatives will be to increase tax rates to a more progressive structure (as is the case both federally as well as across all provinces and territories) where higher income earners pay a higher rate of Alberta tax.
Budget 2015 introduces two new tax brackets starting January 1, 2016. Beginning with taxable income below $100,000, there will be no changes to personal income tax rates. They will remain at 10%. However, for taxable income over $100,000, personal tax rates will rise to 11.5%, phased in slowly over the next couple of years. It is expected that this change will impact about 330,000 Albertans, representing 11% of provincial tax filers. For Albertans earning taxable income over $250,000, there will be an additional 0.5% tax rate added to the tax rate applicable to the $100,000 bracket. This will be a temporary tax measure, which is intended to raise additional revenue until the budget is balanced and is expected to impact about 44,000 of Alberta’s highest income earners, or about 1.5% of tax filers.
Both the $100,000 bracket and the $250,000 bracket will be indexed to inflation starting in 2017. Below is a summary of the proposed changes to personal income tax rates over the next few years.
Source: E&Y Tax Alert: 2015 Issue No 21
Strategy: As a result of these changes, we’ll see the top marginal tax rate on income rise from the current 39% on regular employment income / interest income, up to 40.5% in 2019. Work with your high income earning clients to reduce taxable income, by considering strategies such as maximizing RRSP contribution room, creating interest tax deductions, or taking advantage of various income splitting strategies to shift income into the hands of a lower income family member.
Charitable Donation Tax Credit
Currently, the Alberta donation tax credit on donations in excess of $200 is a generous 21%. This was increased back in 2007 from 12.75% and designed to encourage more charitable donations to charity. The government felt this was not an effective tax measure as it had little success in encouraging more donations to charity. As a result Charitable Donations Tax Credit rate will be reduced from 21% back to 12.75% for total donations over $200, beginning in 2016
Strategy: The proposal is designed to take effect in 2016, meaning that clients will still benefit from the higher 21% Alberta donation tax credit for the remainder of 2015. This is an opportunity for those who have been thinking about making a donation, to act before the end of the year before the tax credits are slashed. Currently, a charitable donation provides a federal tax credit of 29% (on donations in excess of $200), plus the 21% Alberta tax credit for a total of 50%. Therefore, a $25,000 contribution provides generous tax savings of 50% ($12,500) under the current tax structure. The tax savings will be even higher if the client is eligible for the federal First Time Donor’s Super Credit. An equivalent contribution in 2016 will provide tax savings of $8,440. That’s over a $4,000 difference in tax savings!!
Alberta Family Employment Tax Credit
The Alberta Family Employment Tax Credit, which provides credits for lower and middle income families who are seeking employment while raising children, has been enhanced. Starting on July 1st, 2015, payments will increase to $754 for one child up to a maximum of $1,987 for four or more children. The rate at which benefits are phased in will be increased from 8% to 11% on working income over $2,760. Further, the phase-out threshold will be increased from $36,778 to $41,250, allowing families to earn more before the benefits phase out.
Alberta Working Family Supplement
A new refundable tax credit aimed at supporting Alberta’s working families was also introduced starting July 1st, 2016 known as the Alberta Working Family Supplement (AWFS). The AWFS targets working families earning between $2,760 and $41,220. Such families with one child will be eligible for a maximum annual payment of $1,100, with an additional $550 per child for the next three children. In effect, families with four or more children will be able to receive a maximum annual benefit of $2,750.
Alberta Personal Tax Credits
Alberta tax credits are indexed to inflation. Credit amounts for all 2014 credits will increase by 2.4% in 2015. This means that the basic personal and spousal amounts will rise from $17,787 in 2014 to $18,214 in 2015. As a result, the following marginal tax rates are in effect for 2015 as outlined in our 2015 Tax Facts Card.
Other Measures of Note – The New Health Care Contribution Levy
A new Health Care Contribution Levy was introduced and will take effect on July 1st, 2015. Individuals with taxable income below $50,000 a year will not be subject to the Health Care Contribution Levy. Those with taxable income over $50,000 will begin to pay the levy, and will reach a maximum levy of $1,000, applicable to individuals with $130,800 or more in taxable income. The new levy will be paid when client’s file their personal income tax return. Here’s a summary (from the Alberta Budget Documents) highlighting the calculation of the new Health Care Contribution Levy
The phase-out of ACES program – Important to Note from 2013 Budget:
March 31, 2015:
- The last eligibility date for the ACES Plan grants. This means children born after March 31, 2015, are not eligible for the ACES grant.
- Children who turn 8, 11, or 14 after March 31, 2015 will not be eligible to claim the subsequent $100 grants.
July 31, 2015:
- The last day a Subscriber can submit a completed ACES grant application form to their promoter.
January 1, 2016:
- All ACES Plan grants held in an RESP must be converted into accumulated income on this day.
What do you think of the budget, leave a comment below!
If you have any questions, please feel free to contact me by phone (403) 457-4142