Last month, the Alberta government released their 2021–2022 budget.
In the new budget, personal income tax will make up about 26.7% of all government revenue. In last year’s budget, it made up 25.1% of all government revenue. In the UCP’s first year, it was supposed to be 23.97% of all revenue—it ended up being 24.3%. It was 23.92% in the NDP’s last budget.
So, it seems that with every budget, the UCP government expects those of us paying personal income tax to bear an ever-increasing share of the total tax burden. In the meantime, they cut corporate income tax by 33%.
I was curious how this compared to the personal income tax information of other provinces, and I discovered some interesting information.
First, Alberta’s personal income tax revenue makes up the third highest proportion of total revenue among all the provinces. Only BC and Québec are higher.
And that made me wonder how the actual tax rates compared between the 10 provinces.
Keep in mind that each province has a unique combination of tax rates and tax brackets, so I decided to compare the bottom tax rate and cuttoff and the top tax rate and cutoff.
Let’s start with the tax rates:
Here, we see that Alberta has the 4th highest tax bracket in the country for its lowest tax bracket. There are 6 other provinces that charge under 10% income tax on their lowest tax bracket, and 2 of them have a rate that’s virtually half of Alberta’s.
Here, we see it’s the other way around for the top rate. Alberta has the 4th lowest personal income tax rate on the top bracket among all 10 provinces.
Not only that, but 2 of the 3 provinces (Manitoba and Québec) that had rates for the bottom bracket that were higher than Alberta’s also had rates for the top bracket that were higher than Alberta’s.
In other words, only 1 province had a bottom tax bracket rate higher than Alberta’s but a top bracket rate lower than Alberta’s.
Now onto the cutoffs.
So, this was a bit of a shock.
Alberta has the highest income cutoff between its first and second tax brackets, compared to all other provinces. It’s not just the highest though: it’s, like really high.
Currently, it’s $131,220. No other province has an income cutoff on their bottom bracket that is above $100,000. Heck, it’s not even above $50,000 for any of them.
The province with the 2nd highest cutoff is Saskatchewan, at $45,225. Alberta’s bottom bracket cutoff is nearly triple that of the second highest cutoff. And it’s nearly 4.5 times higher than the lowest one.
The national non-Alberta average for the bottom bracket income cutoff is $39,170 and the median is $41,725. That means Alberta’s cutoff is more than triple that of both the national average and the national median.
Once again, Alberta has the highest income cutoff for their top personal income tax bracket. Theirs is the only one above $300,000 and one of only 2 that were above $200,000.
The non-Alberta average is $139,096 and the median is $139,607, which means that Alberta’s top bracket cutoff is more than double that of both the national average and the national median.
What this means is that the more money you make in Alberta, the better deal you get on your personal income tax, when compared to other provinces.
For example, if you make $50,000, you’d be in the second tax bracket in 9 of Canada’s 10 provinces. In Alberta, you’d still be in the bottom bracket. Heck, you’d be in the bottom bracket still even if you made $100,000 a year.
If you make $200,000, you’d be in the top bracket in 8 of the 10 provinces. Not in Alberta. You’d still be in the next lowest bracket. In fact, you wouldn’t bump up into the top bracket even if you made $300,000.
This is pretty good news if you make bank in Alberta. But it’s not that great if you’re poor.
Minimum wage in Alberta works out to be about $31,200 (if you’re not a teenager). Your income tax rate is 10%, the same as someone who makes four times what you do. Plus, in all but 4 other provinces, your rate would be lower than what it is now here in Alberta.
Literally, someone who makes $63 an hour pays the same personal income tax rate as someone who makes $15 an hour.
That’s the Alberta Advantage.
11 replies on “How Alberta’s personal income tax is scamming poor people”
Thanks Kim. That was an issue I was hoping to see addressed. It is mind boggling – why should some one making $40K pay the same tax rate as someone making $130K?
Totally agree, Chris.
One item I don’t see accounted for above is that Alberta has the highest personal tax exemption of all the provinces at $19,369 for 2020 (next is Nunavut at $16,304). So, in Alberta we can make almost $20K before we pay taxes. While this is a good thing it also helps everyone, not just the poor and it just strengthens the position on why the Alberta tax rate on higher incomes should be raised.
Great point. Although, even if you account for that, the first bracket cutoff still places above $100,000, more than twice that of any other province.
Either way, too bad that exemption is no longer indexed to inflation. 🙁
Hi Kim. Your article should have pointed out the following:
(1) The reason Alberta’s income tax rates and brackets appear to be out of whack with the other provinces is that the other provinces have graduated tax rate systems whereas Alberta chose many years ago to instead adopt a flat rate tax system set at 10%. The flat rate system was modified a few years ago, but only to introduce some new higher rates and brackets, not to return to a full graduated rate system.
(2) When Alberta’s flat rate tax system (now a modified flat rate tax system) was introduced its impact on lower income residents was lessened by increasing Alberta’s credit and exemption amounts, thereby allowing more income to be earned before the flat tax rate began to apply. As you will see from the examples below, Alberta’s credit and exemption amounts compare quite favourably with other provinces.
Personal exemption amounts — AB $19,369, BC $11,070, ON $10,880
Spousal/partner exemption amounts — AB $19,369, BC $9,479, ON$9,238
Disability amounts — AB $14,940, BC $8,303, ON $8,790
Accordingly, a more in-depth analysis would be required to determine whether, and to what extent, lower income residents are truly being scammed by Alberta’s personal tax system.
I understand the history behind the flat tax and the new tax regime. That doesn’t really explain why the new regime came in with the first bracket income cutoff at roughly 3 times that of any other province.
The thing about the exemption amounts is that they apply to everyone, so while it does reduce the functional placement of the first bracket cutoff, it’s still tens of thousands of dollars ahead of all other provinces, as I pointed out in another comment.
Plus, a higher exemption isn’t that impressive.
For example, Alberta’s personal exemption is 1.75 times higher than BC’s, yet its lowest bracket income cutoff is 3.14 times higher than BC’s.
As well, Alberta’s personal exemption is 14.8% of the lowest bracket income cutoff. BC’s is 49.2%.
Let’s take a simple example — someone earning $15 per hour and working 35 hours per week would earn $27,300 in a year, and:
1) in BC would pay (($27,300 – $11,070) x 5.06% =) $821 of provincial tax;
2) in ON would pay (($27,300 – $10,880) x 5.05% =) $829 of provincial tax; and
3) in AB would pay (($27,300 – $19,369) x 10.00% =) $$793 of provincial tax,
so no, AB does not appear to be scamming the lowest paid (ie. minimum wage) workers. However, I agree that as annual income rises, the benefit of the AB’s higher personal exemption is soon overtaken by its higher tax rate. So maybe it’s not AB’s poor that are being scammed, but rather AB’s middle class?
The point wasn’t the dollar value that poor people pay, but rather its relativity to higher wages in the same bracket.
ALL income tax scams the poor. Where do you think the government makes most of its money?
Through providing public services that people then pay for.
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