new Alberta income tax rates

[Thorin]

The recent thread about who to vote for made me think back to the recent Alberta election, and how taxes were supposed to change because of them.  Well, I went and looked it up, the 10% flat rate has now changed to a slowly-increasing rate.  Details here: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/t4032/2015/t4032ab-10-gnrlnf-eng.html#_Toc337712789

A tax rate of 10.5% for taxable income of $125,000.01 to $150,000;
A tax rate of 10.75% for taxable income of $150,000.01 to $200,000;
A tax rate of 11% for taxable income of $200,000.01 to $300,000; and
A tax rate of 11.25% for taxable income over $300,000.

There was a lot of gnashing of teeth and wailing about how people are going to have no money to live off of if we kill everyone with taxes, but lets do some math to see if that's right (assuming single income tax earner with no extra tax deductions).

old 10% flat rate
per year  per cheque  fed    prov   ei   cpp  net
125,000       4,807    901    390   91  238  3,187
150,000       5,769  1,164    486  109  286  3,724
200,000       7,692  1,722    678  145  381  4,766
300,000      11,538  2,837  1,063  217  572  6,795

new 10%-11.25% progressive rate
per year  per cheque  fed    prov   ei   cpp  net    difference
125,000       4,807    901    390   91  238  3,187     0
150,000       5,769  1,164    491  109  286  3,719     5
200,000       7,692  1,722    697  145  381  4,747    19
300,000      11,538  2,837  1,120  217  572  6,738    57


Wow, $57 per cheque if you're making $11k every two weeks.

People making under $125k see no change in their paycheques.

[Mr. Analog]

I was curious who this might affect; the median income in Alberta (as of 2013) was $97,390 with a growth trend (2014, $102,700)

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil108a-eng.htm

If the income follows the same curve as previous years listed, it might be closer to that 125k than we might think, as of last year:

?Families in Alberta not only had the highest median after-tax income, they also had the highest median market income at $102,700. Since the tax system is directly tied to income earned and some transfers are tied to income, families in the province also had the highest median income tax paid ($15,600) and the lowest median government transfers ($2,400),? said Statistics Canada.

http://calgaryherald.com/business/local-business/alberta-has-highest-family-median-income-in-canada

[Thorin]

$125k is individual income, most families achieve $100k+ by having two wage earners instead of one.  A family could earn $250k ($125k per earner times two earners) and still see no change on their paycheque.

That said, lets say there's a family with a single earner making $150k per year, that's just over 3.7k per cheque.  You think they're going to lose their house because of a $5 decrease in their paycheque?  That's a 0.135% reduction in take-home pay.  I'm sure such a family will have no problem surviving on 99.865% of their previous income.

[Lazybones]

Exactly, those steps start so high that they seem really fair to me.

[Thorin]

As for family income versus individual income, I wouldn't mind if we were taxed per household rather than per individual earner. As it stands now, a family with one income earner making X dollars pays more tax than a family with two income earners making X dollars combined. And that's assuming both family use the same credits; two-earner families may well use different credits than one-earner families (for instance, child care credits).

If a simply paid taxes per household, this would all get ironed out. I mean, all the baby bonus cheques (child tax benefit, universal child care benefit, national child benefit supplement, Alberta family employment tax credit, GST credit, working income tax benefit) are all already worked out based on household income... So why not do the same for filling taxes?

The current Conservative government tried to address this with the Family Tax Cut, which is overly complicated.

[Mr. Analog]

It's probably set up this way to make things easier, not all households treat their combined income as a pool, likewise if tax fraud is committed who is to blame?

If an individual is responsible for paying their own tax it simplifies a lot of things.

[Thorin]

Except anyone with higher income knows to find ways to transfer income to their spouse, so that they pay a lot less in taxes.

For instance, if you make $100k, or you can transfer $50k to your spouse so you both make $50k.

$100k for one earner pays (44,701*15%)+((89,401-44,701)*22%)+((100,000-89,401)*26%)-((11,327+11,327)*15%), or $6,705+$9,834+$2,755-$3,398, or $15,896 in federal tax (I skipped various tax deductions like employment credit, cpp and ei deductions, etc)

$50k per earner for two earners pays (44,701*15%)+((50,000-44,701)*22%)-(11,327*15%) twice, or $6,705+$1,165-$1,699 twice, or $12,342 in federal tax

That's $3,554 less in tax just by splitting the income.

This is one of the big reasons why programmers like us are so willing to take contract jobs, because we can then pay half our income to our spouses for them to do various office work for us.  At a mere $100k a year ($50/hour, which is not an unreasonable contractor rate), just splitting the income that way saves a bunch.

The savings from splitting income get bigger as the income grows.

[Mr. Analog]

The assumption is that the family wants to share / transfer debt load. Not all families operate this way

[Darren Dirt]

As for family income versus individual income, I wouldn't mind if we were taxed per household rather than per individual earner.

Yeah like imagine how much more fair it would be if, say, you only started owing income taxes after you as an individual earned 25k -- or if as a couple you earned a total of 50k!

[Thorin]

The assumption is that the family wants to share / transfer debt load. Not all families operate this way

I didn't once mention debt load, I only talked about equal taxation on equal income per household.

Seniors are allowed to split their pension from one person in the household evenly between two pensioners in the household.  So we're allowing this for seniors already.  And why?  Well, because it reduces their taxes owed.  Wage earners are allowed to put money into their spouse's RRSP, which also is a wealth transfer from the wage earner to the non-wage-earner.  Why?  Because it evens out the ability to save for retirement between single- and double-earner families.  All of the family benefits and credits and programs already look at the household income instead of individual earners.  Why?  Because it's a more fair way to determine what families should receive more or less of the benefits.  Taxes on wages is the last place that individual earners' incomes aren't allowed to be combined for the household.  Why?

As for family income versus individual income, I wouldn't mind if we were taxed per household rather than per individual earner.

Yeah like imagine how much more fair it would be if, say, you only started owing income taxes after you as an individual earned 25k -- or if as a couple you earned a total of 50k!

I don't know if you're being facetious or not.  I'll assume not (probably a bad assumption).  Federal income tax starts at around $12,000 of income.  If you have a couple living together and you each make $12,000, you don't start owing tax until about $24,000.  If the couple has one wage earner and one unemployed person, you still start owing tax at about $24,000 of income.  It's at the higher incomes that the disparity kicks in, where a couple with two incomes together being the same as a couple with one earner and one unemployed; the latter couple will lose more money to taxes.

Or are you just saying taxation needs to start at a higher threshold?

[Mr. Analog]

The assumption is that the family wants to share / transfer debt load. Not all families operate this way

I didn't once mention debt load, I only talked about equal taxation on equal income per household.

Okay maybe my wording wasn't PRECISE so you maybe missed what I was getting at

What exactly defines a "household", how does the household divide what is owed among itself?? If one part of a household is committing fraud is everyone liable, how do you prove otherwise? If one member is entitled to deductibles and they don't reside with the household does the individual claim them or does the household??

To me it just seems a lot clearer to link taxes directly to an individual.

[Thorin]

Well, they've figured all that out for pension income (which is taxable income just like wages), all manner of benefits and credits, spousal RRSPs and TFSAs... Revenue Canada already has a clear definition of a household and procedures for what to do if someone is cheating the system.

[Mr. Analog]

Sorry I was a bit grumpy last night

Sent from my SGH-I317M using Tapatalk

[Thorin]

'salright, I've been grumpy all week.

Anyway, the original point of this thread was to say that the new Alberta income tax rates brought in by the NDP will not suddenly force people out of their homes due to giant tax bills.

Although what I've read today says that next year instead of those percentages (10%, 10.5%, 10.75%, 11%, 11.25%), it'll be 10%, 12%, 13%, 14%, 15%: http://www.theglobeandmail.com/news/alberta/how-the-ghost-of-prentice-haunts-ndps-budget-plans/article24712052/.  Which will have a larger impact on people's paycheques.

[Darren Dirt]

The assumption is that the family wants to share / transfer debt load. Not all families operate this way

I didn't once mention debt load, I only talked about equal taxation on equal income per household.

Seniors are allowed to split their pension from one person in the household evenly between two pensioners in the household.  So we're allowing this for seniors already.  And why?  Well, because it reduces their taxes owed.  Wage earners are allowed to put money into their spouse's RRSP, which also is a wealth transfer from the wage earner to the non-wage-earner.  Why?  Because it evens out the ability to save for retirement between single- and double-earner families.  All of the family benefits and credits and programs already look at the household income instead of individual earners.  Why?  Because it's a more fair way to determine what families should receive more or less of the benefits.  Taxes on wages is the last place that individual earners' incomes aren't allowed to be combined for the household.  Why?

As for family income versus individual income, I wouldn't mind if we were taxed per household rather than per individual earner.

Yeah like imagine how much more fair it would be if, say, you only started owing income taxes after you as an individual earned 25k -- or if as a couple you earned a total of 50k!

I don't know if you're being facetious or not.  I'll assume not (probably a bad assumption).  Federal income tax starts at around $12,000 of income.  If you have a couple living together and you each make $12,000, you don't start owing tax until about $24,000.  If the couple has one wage earner and one unemployed person, you still start owing tax at about $24,000 of income.  It's at the higher incomes that the disparity kicks in, where a couple with two incomes together being the same as a couple with one earner and one unemployed; the latter couple will lose more money to taxes.

Or are you just saying taxation needs to start at a higher threshold?

I am just saying it would be funny to sneak into this convo an almost-on-topic direct reference to one element of Donald Trump's planned tax reform.