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Taxes in Alberta

Sep. 11, 2020

Taxation in various geographical locations varies. This is dependent on the government or laws binding in that setting.

Taxing in Alberta is a fair, efficient and effective source of revenue to the government of Alberta.

Alberta has the highest personal and spousal tax amounts in Canada and residents have the opportunity to earn more before beginning payments of provincial income tax.

Before the tax policy changes, Alberta enjoyed a substantial advantage over all Canadian provinces.

In Alberta, there is no provincial sales tax as existing in other provinces in Canada.

Nevertheless, in 2015, there was an increase in its cooperate income tax rate

What Are The Types of Taxes in Alberta?

small business income tax in Canada

There are various types of taxes in Canada. The common ones are income tax, sales tax, property tax, and business tax for business owners.

In Alberta, the small business tax rate is 2% while the corporate income tax rate is 8% and it uses a progressive tax rate structure.

A progressive taxincreases as the taxable base amount increases.

It describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate.

This form of taxes is aimed at reducing the tax incidence of people with a lower ability-to-pay and increasing responsibility on those with the ability to pay.

Their tax rate is determined by income during each year. This is why the Alberta tax is not static.

Differences Between The Federal and Alberta Provincial Taxes

small business income tax in Canada

The federal income tax is the tax levied by the Internal Revenue Service (IRS) on the annual earnings of individuals, corporations, trusts, and other legal entities.

They are applied to all forms of earnings that make up a taxpayer’s taxable income, such as employment earnings or capital gains, and collected from individuals and corporations by the city, state, or country in which the entity resides or operates.

When the taxes are collected and credited to the government of the country’s account, it is referred to as a federal tax.

Property Taxes in Alberta, Canada

In Alberta, properties are taxed based on the ‘ad valorem’ principle.

This means according to the value of the property and is used to finance local programs and services.

There are two major standards that are used to measure property value for property taxation purposes in Alberta.

  1. The market value based standard
  2.  The regulated procedure based standard.

The market value based standard is used to determine the assessed values for the majority of properties in Alberta. It evaluates the price a property might be sold for.

Market value recognizes the present use and potential use of the property. The assessment of a property is assumed to be the sale price of an individual property.

The sale price of a property refers to the amount a purchaser agrees to pay and the seller agrees to accept under the circumstances surrounding the sale.

The regulated procedure based standard on the other hand is used to evaluate the value of properties that are unique in nature.

Some types of properties are difficult to assess using a market value based assessment standard. These types of properties are referred to as ‘regulated property’.

There are four types of regulated properties; Farmland, Linear property, Machinery and equipment, Railway property.

However, not all property is assessable for property tax purposes. The Municipal Government Act outlines what property is assessable for taxation.

Property taxes in Alberta are paid continuously through one’s homeownership on an annual basis.

Business Taxes in Alberta, Canada

Business taxes are taxes levied on businesses in Alberta. Currently, there has been a reduction of Alberta’s general income tax rate on businesses from 12% to 8%. While small business tax rate is 2%.

Can you Claim Child Support on Your Taxes in Alberta?

You can claim child support on your taxes in Alberta if you are a low income earner with at least one child below 18years.

Child support and spousal support are reported together on line 230. Spousal support payments remain deductible, while child support payments may or may not be so line 220 reports what portion of the amount in line 230 is deductible.

Child support is considered paid first before spousal support if both are filled.

The child support amount remains subject to the May 1997 provisions, but the recipient declares no taxable spousal support income and the payer may not deduct spousal support payments.

What Can You Claim on Your Tax Returns in Alberta

There are various deductions and tax credits available to help you maximize your tax refund.

  1. Family tax benefits

The Child Benefit (CCB) was designed to help Canadian families with their child care expenses. From July 2019 to June 2020, the amount a parent can claim per child aged six and under is $553.25 per month.

For children aged 6 to 17 years old, parents are eligible to claim $466.83 per month.

This amount will vary depending on your family net income.

If you’re supporting a spouse, common-law partner, or a dependent with a physical or mental impairment, the Canada caregiver credit (CCC) may be available to you.

  • Moving expense deductions

If you moved for a new job or full-time academic course recently, you might be eligible to deduct your moving expenses from your tax claim

  • Disability Tax Credit

This was designed to relieve unavoidable expenses for Canadians with disabilities. To be approved for the credit, a medical practitioner must fill out and certify your condition.

  • Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) incentives

Canadians who contribute to an RRSP can claim a tax deduction on the annual amount of money that is deposited in an RRSP account.

Maximizing your RRSP contribution can help lower your tax bill because it reduces your taxable income.

  • Medical expenses

The Canada Revenue Agency provides a list of medical expenses that may be tax-deductible.

This list conveniently highlights what medical expenses require a prescription from your doctor.

  • Avoid late tax-filing penalties

When you file your taxes as at when due, you successfully avoid certain tax penalties.

The late penalty is 5% of your balance owing, plus 1% of your balance owing for each month your return is late to a maximum of 12 months.

  • Student loan interest tax deductions

As a student, you can claim interest paid on student’s loan in your tax returns. Your student loan interest claim is a non-refundable tax credit.

It can only be used to lower your tax bill and cannot be used to receive a tax refund.

However, a student can only claim interest payments on loans received under the Canada Student Financial Assistance Act, the Canada Student Loans Act, and equivalent provincial or territorial programs.

Personal Income Taxes in Alberta

Individual income tax is also referred to as personal income tax. It is state imposed and levied on an individual’s wages, salaries, and other types of income.

Personal Income Tax (PIT) is a direct tax levied on personal income including wages and salaries, director’s fees, dividends, royalties and rental income, amongst others.

Preparing your tax returns demands that you report your overall income received in the year from all sources, both inside and outside Canada as this makes up your personal income tax.

Personal income taxes are collected for the Government of Alberta by the Canada Revenue Agency, at the same time federal income tax is collected.

How To Calculate Personal Income Tax in Alberta

If you make $52,000 a year living in the region of Alberta, Canada, you will be taxed $12,035. That means that your net pay will be $39,965 per year or $3,330 per month. Your average tax rate is 23.14% and your marginal tax rate is 35.80%.

Personal Income Tax Rates in Alberta

$0 – $131,220 = 10%,

$131,220 – $157,464 = 12%,

$157,464 – $209,952 = 13%   

$209,952 – $314,928 = 14%    Over $314,928 = 15%

Other Taxes in Alberta

There are tons of taxes existing in Alberta and the terms and conditions for each tax varies as well as the price percentage.

Some other taxes are; Education property tax, Freehold Mineral Right Tax, Insurance Premium tax, fuel tax, tobacco tax and corporate income tax.

There are also certain tax exemptions existing in Alberta.

What is the Education Property Tax?

The education property tax was designed to provide Alberta’s education system with a stable and sustainable source of revenue.

The tax supports all public and separate school students and helps pay for basic instruction costs, including teacher salaries, textbooks, and other classroom resources.

Who pays the Education Property Tax?

All property owners are expected to pay the education property tax to fund the education system.

How does the Education Property Tax work in Alberta?

Your share of the education property tax payment is allocated based on the assessment value of your property and the local education property tax rate.

What is Freehold Mineral Tax?

This is an annual tax levied on petroleum and natural gas mineral rights within provincial boundaries, not owned by the Government of Alberta.

The freehold mineral tax is calculated annually on calendar year production collected in March of the following calendar year.

What is the Insurance Premium Tax?

An insurance premium is the amount of money an individual or business pays for an insurance policy and are paid for policies that cover healthcare, auto, home, and life insurance.

As of April 1, 2016, insurance premiums tax rates are: 3% on premiums receivable on contracts of life, accident and sickness insurance and 4% on all other contracts of insurance.

What is Fuel Tax?

A fuel tax is an excise tax imposed on the sale of fuel. In Alberta, generally fuel tax is reported and remitted by refiners and large wholesalers, who are designated as full direct remitters.

The full direct remitter recovers the fuel tax when the fuel is sold, tax-included, to the next entity in the distribution chain. The consumer pays the fuel tax, which is included in the price at the pump

What is the Tobacco Tax?

A tobacco or cigarette tax is imposed on all tobacco products by various levels of government to fund healthcare programs.

Plans have been made to raise the tax on loose tobacco to 41.25 cents per gram, cigars to 142% of the taxable price of the cigar, with a minimum tax per cigar of 27.5 cents and a maximum of $8.61. Registered tobacco tax collectors are expected to comply with these changes.

What is Corporate Income Tax?

A corporate tax is a levy placed on a firm’s profit by the government and is used as a nation’s source of income.

Simply put, it is a levy that is imposed on the net profits of corporations, computed as the excess of receipts over allowable costs.

What is Alberta’s Corporate Income Tax Rate?

Corporate income tax rate in Alberta is 8%.

General—>provincial tax=8%, federal and provincial= 23%

M&P—>provincial=8%, federal and provincial=23%

Small businesses —>provincial=2%, federal and provincial=11%

What is The Alberta Indian Tax Exemption (AITE)?

This is a privilege given to those with Indian status. The Indian Act contains certain tax exemptions for those with Indian status.

‘Indian Status’ refers to a specific legal identity of an Aboriginal person in Canada.

Under section 87 of the Indian Act, those with Indian status do not pay taxes for most purchases on reserve lands.  If their property is located on reserve lands, that property is tax exempt.

Nevertheless, the characteristics of a property will determine whether, through the appropriate statutory and regulatory process, a property tax exemption is possible.

Who are exempted under AITE?

You will be exempted if you have an AITE card. To get this, you have to;

  1. Be an Indian  as defined in the Indian Act (Canada), who is 16 years of age or older
  2. You are a ‘band’ whose reserve is partially or totally located in Alberta

Note: No incorporated entity is eligible for the AITE program.

What is Alberta’s Tax Advantage?

Alberta’s tax advantage is an estimate of the total additional provincial taxes individuals and businesses would pay if Alberta had the same tax system as other provinces. For 2020-21, it is $14.4 billion

How does Alberta’s Tax Advantage work?

Albertans across all income ranges continue to pay the lowest overall taxes when compared to other provinces.

What is The Innovation Employment Grant?

The Innovation Employment Grant is an upcoming grant which focuses on encouraging economic growth by supporting small and medium-sized businesses that invest in research and development (R&D) with a grant worth up to 20% of qualifying expenditures.

The program is currently under development and is expected to launch January 1, 2021, as part of Alberta’s Recovery Plan.

How to Qualify For the Innovation Employment Grant?

This grant is targeted at small and medium sized businesses that make up the bulk of the startup sector.

To qualify for the grant of up to 20% for businesses that are investing in research and development, you should have a small or medium-sized firm in the earlier stages of operation, when they may not yet be profitable.

Who Can Get Child and Family Benefits?

To be eligible to receive the Alberta Child and Family Benefit (ACFB), you must be a parent of one or more children under the age of 18, be a resident of Alberta, have filed a tax return and meet the income criteria.

Can I have other Tax Exemptions with Child Benefit?

The benefits you receive from ACFB are not taxable. After filing your tax, you can qualify to receive it. Nevertheless, the Canadian child benefit provides monthly tax-free benefits tied to your income.

For those earning over $31,120 and up to $67,426;

1 child= 7.1%

2 children= 13.5%

3 children= 19.0%

4+= 23.0%

For those earning over $67,426;

1 child= 3.2%

2 children= 5.7%

3 children= 8.0%

4+= 9.5%

Compared to other provinces, Alberta still has the lowest provincial sales tax in Canada.

Categories : Small Business Tax

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