Government of Alberta introduces Bill 35

On October 20, 2020, the Government of Alberta introduced Bill 35 outlining changes to Alberta’s corporate income rate.  

While the small business rate on the first $500,000 of active business income remains at 11% (2% Alberta rate and 9% Federal rate), the Alberta rate for income above this limit has been reduced to 8% effective July 1, 2020; resulting in a combined rate of 23% (8% Alberta rate and 15% Federal rate).

Also included in Bill 35 is a reduction of the Alberta eligible dividend tax credit effective for the 2021 taxation year.  The result is an effective personal income tax rate increase from 31.71% in 2020 to 34.31% in 2021 for those in the top marginal tax bracket receiving eligible dividends (similar increases in the lower margin tax brackets, as well).

There were no changes to the non-eligible dividend tax credit, meaning the effective tax rate on non-eligible dividends remains at 42.50% for those in the top marginal tax bracket.

The increased tax on eligible dividends combined with the concern that future budgets at both the Federal and Provincial level will increase tax rates to deal with the substantial debt incurred as a result of the Covid-19 crisis, have many taxpayers considering income acceleration in 2020.

If this is something you are considering, please contact your Corporate Accountant for discussion.