As an entrepreneur, there are a few things you just can’t neglect, including your taxes. However, as a new business owner, you might find yourself stuck on how to calculate your tax rates and pay your taxes on time to avoid interest or penalties. Alberta’s tax system is similar to other provinces in Canada, but there are some unique tax credits available for Alberta residents that you can access to reduce your tax payments.
Let’s dive into the details of Alberta’s tax rates so you can pay your taxes on time and be in good financial standing with the provincial government.
How do I calculate my personal income tax rate in Alberta?
To get a better sense of the taxes you pay on personal income, let’s look at how your income is determined according to the provincial government. Your personal income is calculated based on the total of all of your income streams for the year, including employment, self-employment, pension, saving plans, investments, benefits, dividends, etc. The Alberta government then subtracts any applicable tax credits or deductions from your income to come up with your taxable income amount.
In Alberta, there is a specific amount of income you can earn before you have to start paying taxes, called your “basic personal” or “personal amount.” For the 2019 fiscal year, the federal basic personal amount is $12,069, and the Alberta personal amount is $19,369. Lucky for Alberta residents, Alberta has the highest basic personal amount in Canada.
Personal income tax brackets and rates in Alberta
To determine your personal tax amounts, you will need to look at Alberta’s tax brackets. A tax bracket is the tax rate that’s applied to a set range of personal income. Alberta is similar to most provinces in Canada when it comes to tax brackets and uses a progressive tax structure that mirrors the federal tax structure. This means Alberta’s tax brackets are not static and will increase each year based on inflation.
Alberta’s tax rates range from ten to 15 per cent of your income. Your income tax rates in Alberta are based on how much income you made during the year. Visit the Alberta Treasury Board and Finance Personal Income Tax page for the most up to date tax bracket rates for your tax year.
The Alberta tax brackets for 2020 are:
- 10% on the first $131,220 of taxable income, plus
- 12% on the next $26,244, plus
- 13% on the next $52,488, plus
- 14% on the next $104,976, plus
- 15% on the amount over $314,928
You can find your income tax rate using the rates listed above, or the rates listed for the year you are filing your taxes. So, for example, using the 2020 tax rates, if you made $60,000 in income for the year, you would fall in the 10 per cent tax rate. If you made $170,000 for the year, you would fall in the 12 per cent tax bracket. Identifying the tax bracket you fall into is important, as it will also give you a sense of how much tax you will owe and how much you will need to save to pay your taxes, especially if you are self-employed.
Alberta personal tax credits
To help reduce the amount of personal income tax you have to pay in Alberta, you may qualify for a new tax credit called the Alberta Child and Family Benefit (ACFB). This tax credit is a consolidated version of the Alberta Child Benefit (ACB) and the Alberta Family Employment Tax Credit (AFETC). The ACFB offers financial assistance for lower and middle-income families with children under 18 years of age to help them provide for their families and afford to stay in the workforce.
To be eligible, you must be a parent of one or more children under 18, reside in Alberta, file a tax return, and meet the income criteria for the benefit. This benefit is not taxable, and you will be automatically considered for ACFB when you file your taxes. You can also apply for this benefit online if needed.
The first payment for ACFB for qualified individuals is in August 2020, with the option to receive retroactive payments for this benefit from the CRA for previous qualifying years.
More detailed information about the maximum benefit amounts for ACFB can be found on the Government of Alberta website.
Corporate tax rates and credits in Alberta
If you are registered as a corporation, you are legally required to pay taxes in Alberta. This means you need to file a corporate tax return with Alberta Revenue for every tax year, no exceptions. Now, the good news: as of July 1, 2020, the corporate tax rate in Alberta has been reduced from 10 to 8 per cent to help businesses in Alberta recover financially from the COVID-19 pandemic.
Unfortunately, corporate tax credits like the Alberta Investor Tax Credit and the Community Economic Development Corporation Tax Credit were cut from the provincial budget in 2019. However, the Alberta government recently announced the Innovation Employment Grant, set to launch on January 1, 2021. This grant is worth up to 20 per cent of qualifying expenditures to support economic growth for small and medium-sized businesses to invest in research and development (R&D).
How can I avoid interest and penalties on Alberta taxes?
If you have a sole proprietorship, all income is declared on your personal tax return. A corporation must declare all income on a separate corporate tax return, and any salary you receive from the corporation would be declared on your personal tax return. There are no exceptions to this rule, and not filing a return can lead to accumulated interest and penalties.
As well, you must pay your income tax and corporate tax on time to avoid any penalties. Interest and penalties on unfiled or unpaid taxes in Alberta can add up to a sizeable bill, so be sure to file and pay your taxes on time to avoid unnecessary charges.
When and how can I file my taxes in Alberta?
In Alberta, the deadline for filing your taxes as a self-employed person is June 15, 2020. The due date for filing your personal taxes if you are not self-employed has been extended to June 1, 2020.
If you owe any taxes for the 2019 tax year you have until September 30, 2020 to pay any tax owed. As an entrepreneur, it’s good practice to file and pay your taxes at the same time to avoid any interest or penalties.
You can file your taxes online through a tax program like Turbo Tax or the old school way via a paper return. Tax payments can be made online through your My CRA account or by cheque to the CRA.
If you find your Alberta taxes confusing or complicated, consider hiring an accountant to help you file correctly and on time. For some entrepreneurs with a lot of clients and paperwork, it may be safest to hire an accountant with professional expertise rather than file your taxes on your own.
However, keeping track of your expenses and income regularly as an entrepreneur will make tax filing and payment a relatively painless process, especially now that you know more about Alberta’s tax rates and how they work.
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