Canada: Changing Income Tax Rates In Alberta – Planning Considerations

Last Updated: November 19 2015
Article by Mark H. Woltersdorf

In a recent article, we described the changes to income tax rates that the provincial government has enacted and the increase to income tax rates that the incoming federal government has pledged to enact. Due to the magnitude of the tax rate increases, it is evident that there are tax savings that can be realized if income is received in 2015 rather than in 2016, particularly for individuals earning more than CA$200,000 per year, as the top marginal individual income tax rates are increasing for all types of income in Alberta. Below, we discuss some tax planning opportunities available to accelerate taxable receipts into 2015 and other planning considerations. To ensure they meet their objectives, high-earning Albertans should consult their tax advisor as soon as possible to determine whether the cost/benefit of accelerating taxable receipts into 2015 is appropriate to minimize the impact of these tax rate changes, or if alternate planning would be more suitable.

Acceleration of income

Salaries and bonuses

Owner-managers can increase their income in 2015 by increasing salaries, bonuses or dividends received from their corporation. In 2015, it is more effective to increase salaries or bonuses rather than receiving corporate distributions as dividends because the top marginal rate on salaries and bonuses is less than the top marginal rate on eligible and ordinary dividend income. Assuming the tax rate changes are enacted as proposed, in 2016, it will be more tax effective for owner-managers to receive salaries, bonuses or ordinary dividends than eligible dividends. The rate changes are not certain, however, as the Alberta government pledged in the 2015 Budget to review and/or amend the effective tax rates on dividend income in 2016. Until these details are finalized, it will not be certain whether salaries, bonuses and ordinary dividends are more tax-effective than eligible dividends in 2016.

Withholding considerations

An increase in salaries and bonuses in 2015, combined with the changes to tax rates for high-earning Albertans in 2015 and future years, will increase the source deductions required to be withheld and remitted to the Receiver General for Canada. Employers should be diligent to confirm that they are withholding and remitting the correct amount of employee income tax source, EI and CPP deductions. This is of particular concern to owner-managers, as corporate directors can be held personally liable for the failure to withhold and remit source deductions.

ESOP and stock option considerations

To assist employees with repaying bank debt used to acquire stock pursuant to a stock option plan, some employers have been returning capital to employees rather than paying taxable dividends to them. Due to the changing tax rates it may be preferable to pay two years' worth of dividends in 2015, and then to return capital in 2017 and subsequent years. Likewise, high-earning employees who own stock options in taxable Canadian corporations that are not Canadian-controlled private corporations (CCPCs)—for example, publicly-traded corporations—should consider exercising vested options in 2015 in order to move the income inclusion into 2015. The incoming federal government has also pledged to cap the stock option deduction at CA$100,000, which may give further cause to exercise vested options in 2015.

Share redemptions and buy-backs

High-earning Albertans who have share redemptions or buy-backs contemplated in the near future should consider whether to accelerate the redemption/buy-back program into 2015. Further, even if no redemption or buy-back plan is in place, consideration could be given to redeeming or repurchasing shares in 2015, and then using the after-tax amount to re-subscribe for shares in the corporation. These new shares will now have a high cost base and paid-up capital, and can be bought-back or redeemed in later years with little to no tax consequences.

Acceleration of capital gains

Transfers and sales

The top marginal rate on capital gains in Alberta is set to increase in 2016 from 20.13% to 24.00% (an increase of almost 20%). If significant events, such as the sale of a business, are contemplated in 2016 or later years, high-earning Albertans should consider whether the sale can be moved into 2015 in order to minimize the effect of these tax rate changes.1 This reasoning would also apply to high-earning Albertans who are likely to be deemed to dispose of capital property in the near future, such as terminally ill individuals, who could direct the transfer of their property to occur in 2015 and trigger the disposition prior to death. Further, taxpayers should review personal investment portfolios and other property that may have an accrued gain to determine whether realizing a gain on a transfer in 2015 is feasible.

Any steps to transfer property in 2015 to minimize the effect of changing tax rates should be taken in short order to give your legal counsel and tax advisors adequate time to perform the requisite due diligence critical to properly carrying out the transaction.


An internal reorganization of corporation shares could also be carried out in 2015 to trigger capital gains and prepay tax in 2015. This could take the form of an internal share exchange, where a capital gain is triggered in the hands of the individual and increases the cost base of the new shares held by the shareholder, reducing a gain in a subsequent year when the shares are disposed of. The relevant underlying corporate documents, such as the Articles of Incorporation (the Articles), or a shareholder's agreement, should be reviewed to ensure that the proper share structure and authorizations are in place prior to the effective date of the transaction. Should an amendment to the Articles of a corporation or shareholder consents be required to authorize the reorganization, your legal advisor will need the time to implement the amendment and obtain any required consents.

Discretionary deductions

Earned Income – RRSP

High-earning Albertans could postpone claiming their RRSP deduction until 2016 to take advantage of the deduction against the higher tax rates in 2016 and beyond.

Capital reserves, capital gains exemption, use of capital losses

High-earning Albertans should consider avoiding the use of capital reserves, their capital gains deduction or the use of capital losses in 2015 to take advantage of the changing tax rates, by accelerating income or gains into 2015 and moving applicable reserves, exemptions and losses into 2016 and beyond, when tax rates are higher and the applicable deduction or exemption has more impact.

Other discretionary deductions or credits

CCPCs earning income eligible for the small business deduction are likely to see the tax rate drop from 14% to 12% in 2016.2 Accordingly, CCPCs may wish to maximize any discretionary deductions (such as capital cost allowance), available to them in 2015. Non-CCPCs and CCPCs earning active business income in excess of CA$500,000 will see the tax rate increase from 26% to 27%. Accordingly, non-CCPCs and CCPCs earning active business income in excess of CA$500,000 may wish to defer taking discretionary deductions until 2016 or later.


1 Existing Capital Gains Reserves could also be accelerated into 2015.

2 We have assumed that the reduction in the federal small business rate from 11.0% to 9.0% proposed as part of the Liberal Party's platform will be effective January 1, 2016. However, it is possible that this reduction will be phased in over a number of years, similar to the reduction introduced in the Federal 2015 Budget (which introduced such a reduction over the course of the next four years).

About Dentons

Dentons is a global firm driven to provide you with the competitive edge in an increasingly complex and interconnected marketplace. We were formed by the March 2013 combination of international law firm Salans LLP, Canadian law firm Fraser Milner Casgrain LLP (FMC) and international law firm SNR Denton.

Dentons is built on the solid foundations of three highly regarded law firms. Each built its outstanding reputation and valued clientele by responding to the local, regional and national needs of a broad spectrum of clients of all sizes – individuals; entrepreneurs; small businesses and start-ups; local, regional and national governments and government agencies; and mid-sized and larger private and public corporations, including international and global entities.

Now clients benefit from more than 2,500 lawyers and professionals in 79 locations in 52 countries across Africa, Asia Pacific, Canada, Central Asia, Europe, the Middle East, Russia and the CIS, the UK and the US who are committed to challenging the status quo to offer creative, actionable business and legal solutions.

Learn more at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions