Danielle Kubes is a trained journalist and investor who has written about personal finance for the past six years. Her writing has been published in The Globe and Mail, National Post, MoneySense, Vice and RateHub.ca. Danielle writes about investing and personal finance for Wealthsimple. She has a Bachelor of Humanities from Carleton University and a Master of Journalism from Ryerson University.
Canada has a progressive tax system. In the simplest terms, that means: The more money you make the more tax you pay. The amount of tax you pay is also dependent upon the type of income, the province in which you live, and the deductions and credits you claim.
Tax bracket chart can be confusing. Taxpayers sometimes assume that being in a certain tax bracket means paying their bracket’s rate on their entire income. Instead, everyone starts out at the first tax bracket and only pays the higher tax rate on each additional dollar earned. We’re all subject to federal tax rates of:
|Taxable income||Employment, self- employment, interest and other Income||Capital Gains||Eligible Canadian dividends||Ineligible Canadian dividends|
|Over $49,020 up to $98,040||20.50%||10.25%||7.56%||13.19%|
|Over $98,040 up to $151,978||26%||13%||15.15%||19.52%|
|Over $151,978 up to $216,511||29.32%||14.66%||19.73%||23.34%|
On top of this, each province collects tax and determines its own bracket. The combined provincial and federal tax brackets determine your marginal tax rate.
Knowing your tax bracket allows you to make smart financial decisions to reduce your tax burden. Perhaps you’re a high- income earner and moving to a province with wider tax brackets would save you thousands annually. Or maybe seeing how much tax you owe will motivate you to contributing to an RRSP to reduce your taxable income. It could also be that seeing how little tax is paid on eligible dividends will encourage you to funnel surplus income into stocks, instead of an interest-earning investment like a GIC.
Alberta tax brackets
Alberta has perhaps the most unique tax brackets in the country. That’s because Alberta, despite recent tax reforms, still effectively has a flat tax.
Alberta only starts taxing residents once they’re making over $19,369, which is the most generous personal exemption in the country. And if you earn more than that, up to $131,220, you’ll pay just 10% tax. Since the median Albertan income is just $36,000 almost everyone falls into the 0-10% category. For very high-income earners the tax rate tops out at just 15%, and that’s only on the portion of the income you earn over $314,928.
Alberta is one of the best places to live, from a tax perspective, if you’re a very low or very high-income earner.
(Alberta also lacks a sales tax, payroll tax, and health premium, which leaves thousands more in the pockets of its residents).
A comparison of Alberta and other provinces is striking. Ontario, for example, has a personal exemption amount of around just $12,000. In Saskatchewan it’s about $13,300, in British Columbia it’s close to $11,000 and in Quebec it’s roughly $15,300.
So while tax rates in other provinces may begin lower, at about 5% they start taxing lesser amounts. And from there the tax rates climb steadily
In other provinces, if you’re making $100,000 you’ll pay closer to 17.04% (Manitoba), 11.16% (Ontario),16.52% (New Brunswick), 12.5% (Saskatchewan) or 24% (Quebec).
If you manage to make more than $230,000 or so in other provinces, you could be forced to pay percentages as large as 25.75% in Quebec or 21% in Nova Scotia.
Here are the Alberta tax brackets in detail:
10% on the first portion that is $131,220 or less
12% on the portion from $131.220.01 up to $157,464, plus
13% on the portion from $157,464.01 up to $209,952 plus
14% on the portion from $209,952.01 up to $314,928, plus
15% on the portion that is $314,928.01 and up
Alberta combined tax rates
Of course, Albertans have to pay federal taxes, too. Here's how much you'll pay when Alberta taxes are added to federal rates:
Alberta combined tax brackets
|Taxable income||Employment, self-employment, interest and other income||Capital Gains||Eligible Canadian dividends||Ineligible Canadian dividends|
|Over $49,020 up to $98,040||30.50%||15.25%||10.16%||22.18%|
|Over $98,040 up to $131,220||36%||18%||17.75%||28.51%|
|Over $131,220 up to $151,978||38%||19%||20.51%||30.81%|
|Over $151,978 up to $157,464||41.32%||20.66%||25.09%||34.63%|
|Over $157,464 up to $209,952||42.32%||21.16%||26.47%||35.78%|
|Over $209,952 up to $216,511||43.32%||21.66%||27.85%||36.93%|
|Over $216,511 up to $314,928||47%||23.50%||32.93%||41.16%|
How to calculate income tax in Alberta
Calculating income tax in Alberta is simple. Just use an online tax calculator and simply enter the amount and type income and it will generate all the necessary information. You could also do it the old fashioned way:
First figure out how much income you made per taxable category. Then locate your tax bracket for that income (starting with the first tax bracket) and multiply it by the combined tax rate. Add all the sums together for your total tax payable.
For example, let’s say you made $100,000 in employment income, $1,000 in interest income, and $10,000 in capital gains.
Let’s start with the $100,000 plus $1,000 in employment and interest income:
$49,020 times 0.25 equals $12,255 plus
$49,020 times 0.305 equals $14,951.1 plus
$2,960 times 0.36 equals $1,065.6 for a tax payable of $28,271.7
Now let’s add in the $10,000 of capital gains
$10,000 times 0.125 equals $1,250
So when we add the tax payable for “other income” category, plus capital gains we get a total tax payable of $29,521.7
That gives you an average tax rate of 26.6% (total tax payable/total income). As you can see, you don’t simply go to the bracket of “$111,000” to find your tax rate—in that case it would be much higher. Instead, you only pay the higher rate of tax on each additional dollar you earn.
How to reduce your taxes in Alberta
It’s easy to reduce your tax rate in Alberta. You can make less money. You can also try earning other kinds of income that are taxed at lower rates, like capital gains and dividends. But the easiest route is probably simply maximizing deductions and credits.
Tax deductions work by reducing taxable income. And as we’ve already said, the lower your income the less tax you pay. The most common deduction is contributing to an RRSP. So not only do you get to grow your funds in a tax-free shelter but you also get a bigger tax refund. Of course, you’ll have to pay taxes when you withdraw the funds in retirement.
Other common tax deductions include:
Business expenses for the self-employed
Carrying charges for investments (like mortgage interest on an investment property)
Support payment after a divorce
Tax credits reduce your tax payable. Refundable credits can reduce your tax payable below zero so that the government owes you (these are the best kind of credits!) while non-refundable credits, which are much more common, can only reduce tax payable to zero.
Remember: You don’t deduct the amount of the credit from your tax payable. Instead you usually deduct the percentage of tax that would be payable at the lowest bracket. So for federal credits you subtract 15% of the amount from your tax payable while for provincial credits you subtract 10%.
Sometimes credits, however, will list a more specific amount or have bonuses. For example, you get a federal credit of 15% for the first $200 you donate to a charity, but 29% for additional donations. The government does this to incentive you toward certain actions.
Some common federal credits are:
Medical expenses over 3% of your income
Disability tax credit
Climate action incentive
Student loan interest with some lenders
Alberta, unlike other provinces, does not have many boutique credits. Its main credit for individuals is the Alberta Family Employment Tax Credit, which is effectively an income-tested benefit for low and middle-income parents to encourage them to keep working. This refundable credit is also based on the number of children in the household.
Frequently asked questions
How do tax brackets work in Alberta?
Alberta tax brackets are combined with federal brackets to determine the total amount of income tax owed to the CRA. You pay the higher tax rate on each additional dollar earned. Since Alberta tax brackets are so broad most Albertans will either pay $0 if they make under $19,369, or 10% if they make more than that until $131,220. The most income tax you’ll pay in Alberta is 15%.
Are Alberta tax brackets incremental?
Yes, Alberta tax brackets are incremental, and the more you earn the more you pay. However, you have to make more than $131,220 to pay more than 10%.
How do I know what tax bracket I’m in?
Look at the chart above. Far more useful, however, will be determining your average tax rate, which can be calculated by dividing your total tax payable by your gross income.
When do Alberta tax brackets change?
Alberta tax brackets may change annually.
When does Alberta tax have to be paid?
Alberta tax is paid along with your federal tax by April 30 if you are employed. Because of the Covid-19 pandemic the tax deadline for paying 2019 taxes was extended to September 1, 2020.