Alberta budget 2019: Tax changes are here for all
On October 24, 2019, the new United Conservative government of Alberta tabled its first budget. While not everyone gets hyped for a new budget (we know, it’s not the Grey Cup), there are some pretty big tax changes that Albertan’s need to be aware of for the upcoming tax season.
Luckily for you, we’re here to guide you through the updates and how they’ll change taxes for everyone.
Tax brackets, not Football brackets.
Perhaps one of the biggest changes announced during the budget was tax de-indexing. This is a bit tricky to understand but stick with us – it’s about your money after all!
So, what exactly is tax indexing, anyways? If you want to get technical, tax indexing is the adjustment of the various rates of taxation in response to inflation to avoid bracket creep. That is, the provincial basic amount – one of the non-refundable tax credits every Canadian resident can claim on their tax refund – and tax brackets – how much tax you have to pay based on your income – are slightly changed year-over-year to prevent inflation from driving your income to a higher tax bracket (and therefore cause you to pay more in taxes).
Now, because the United Conservative Party will be freezing tax bracket thresholds and personal basic amounts at the 2019 levels for 2020 and future years, Albertans may end up paying more in taxes as a result.
Let’s break it down.
Take Kevin, for example. He earned $130,000 in 2018 and was under the $131,220 tax bracket. He ended up being taxed 10% on his earnings. In 2019, Kevin got a raise and earned $132,000, bumping him into the next tax bracket at 12%. Although he now earns more money, his income actually buys the same amount of goods and services that his previous salary got him because of inflation. The end result? Even though his purchase power didn’t change, he’s now taxed more.
Likewise, in 2019 Kevin was able to claim the provincial basic amount of $19,369 which meant at least his first $19,369 of taxable income would not be taxed. However, with de-indexation this amount will not increase with inflation and will be stuck at $19,369 for the foreseeable future.
Ramen, study, (taxes), repeat.
What this means is that post-secondaries will be allowed to raise tuition by 7% institute-wide. If a blanket tuition increase doesn’t sound too fun, buckle in because there could be an up to 10% additional increase in individual programs over the next three years. So, between first and third year, your tuition could increase by 30%. But on the bright side, you’ll have mastered calculus, right?
Unfortunately, as part of the budget, it was also shared that both the provincial tuition and education tax credits will be eliminated in the 2020 tax year. Alberta students can only claim amounts earned prior to 2020.
The Albertan business advantage.
Announced in the budget was some great news for business owners – tax cuts! Legislation has already been introduced to reduce the general corporate tax rate from the current 12% down to 8% by 2022. This will make Alberta the province with the lowest tax rates in the country. You know what that means? All Canadians now know where to set up shop for the next 3 years – get ready Alberta!
Unfortunately, there was also an elimination of some business-related tax credits. Included in these cuts are:
• The Alberta Investor Tax Credit
• The Community Economic Development Corporation Tax Credit
• The Capital Investment Tax Credit
• The Interactive Digital Media Tax Credit
• The Scientific Research and Experimental Development Tax Credit (SR&ED) – for expenses incurred after December 31, 2019.
A couple of kids and a white picket fence – the Canadian dream.
For families, the biggest change will be the newly introduced Alberta Child and Family Benefit. This new benefit is set to replace two existing provincial aids – the Alberta Child Benefit and the Alberta Family Employment Tax Credit.
The result? A bit more money in the pockets of lower-income earners. With the new benefit, the maximum payout is increasing to $5,120, up from $4,999 – but now fewer families will get it. Why? Because the phase-in and phase-out rates have been increased, which means that money will begin flowing in and out once you hit a certain net family income.
For a family of four with working income, the Family Employment Tax Credit is currently phased out when net income exceeds $96,120. Under the new program, it will be fully phased out when net income exceeds approximately $61,000.