Low tax rate pays dividends for Alberta business

Posted on October 19, 2023 by Taber Times

By Heather Cameron
Taber Times
Local Journalism Initiative Reporter

According to a new report by the Canadian Federation of Independent Business, Alberta currently has the lowest effective payroll tax rate in Canada.

Andrew Sennyah, senior policy analyst with the Canadian Federation of Independent Business (CFIB), says the report examined the effective payroll tax rates based on a typical salary of $50,000 in a business with a payroll of $2.5 million. Sennyah says that payroll taxes included in this analysis are Canada Pension Plan/Quebec Pension Plan, Employment Insurance, and parental benefits, workers’ compensation, and provincial payroll taxes (when applicable).

Taking the above-mentioned taxes into account, Alberta has the lowest effective payroll tax rate compared to other provinces. This means that an employer in Alberta pays 9.1 per cent ($4,538) on top of a $50,000 salary,” Sennyah said. “Nationally – the rate is 10.1 per cent or $5,067.”

Sennyah says that businesses across all provinces, except for Quebec, pay the same CPP employer rate and EI rate, but the variables come down to whether the province has provincial payroll taxes like health and education taxes as well as the rate of their worker’s compensation premiums, as they vary by province.

“Alberta does not have health and education employer taxes and it has the second lowest workers’ compensation premiums in the country. Manitoba has the lowest worker’s compensation premiums, but the province has other provincial payroll taxes, therefore they have a higher payroll tax burden as that will get added to the overall payroll tax rate calculations,” Sennyah said. 

Sennyah says that regardless of profit and size, payroll taxes must be paid and there is often no special treatment for small businesses. 

“No matter the revenues or expenditures, if wages are paid, payroll taxes must be paid,” Sennyah said. 

Conversely, Sennyah says, corporate income taxes apply only to profits. By making tough years even less affordable, increases in payroll taxes can delay a small business’s growth, complicate multi-year planning, or even prevent important investments. Such taxes, Sennyah says, are also a burden when it comes to red tape, and can be particularly challenging for small businesses to manage, as they often have limited resources to navigate the complex payroll tax system, including the required paperwork and calculations.

“Businesses with little flexibility to absorb increases in payroll taxes may need to raise prices, which in turn can result in lost sales,” Sennyah said, adding, “payroll taxes are a complex issue.”

Sennyah says that the increase in the overall payroll tax burden since 2019 in most provinces, including Alberta, has largely been due to the increases in the federal payroll taxes. Sennyah added that some provinces, like Ontario, have decreased their average workers’ compensation premiums and increased the exemption threshold for their provincial Employer Health Tax, but these decreases were not enough to offset the increases in the federal payroll taxes over the last four years.

The federal government, Sennyah says, had previously stated in their 2023 Federal Budget that EI premiums were not projected to increase for the next seven years due to strong labour market conditions, but they have recently announced an increase in their EI premiums. Sennyah says that despite having the lowest effective payroll tax rates in the country, Alberta and Saskatchewan have both seen the greatest increase in the effective payroll tax rate since 2019 at 1.0 and 0.9 percentage points, respectively) – in part due to increases in the average workers’ compensation premium rate, for Alberta – from 1.08 to 1.26.

“It is unfortunate that the federal government has announced an increase in Employment Insurance, after previously stating that it would not increase it,” Sennyah said. 

“CFIB urges the federal government to ensure that any future EI changes or reforms not result in any net increase in costs for small businesses. Targeted measures for small businesses would be most appropriate going forward. In Alberta, a reduction in the small business tax rate from 2 per cent to 1 per cent or the complete elimination of the tax would be a solution to offset payroll tax increases.”

Sennyah noted this could be done by implementing a 50:50 split in EI premiums between employers and employees, or introducing a permanent, targeted, EI premium credit for small businesses to effectively lower the amount of premiums they pay to be equal to that of their employees. Sennyah emphasized that reducing, or at least not increasing, EI premiums will help small businesses already dealing with many other rising costs.

“Federal, provincial governments and worker’s compensation boards must work together to come up with solutions to ensure that small businesses are not unnecessarily burdened,” Sennyah said. “Targeted measures for small businesses would be most appropriate going forward.”

Sennyah said One of those measures should be the Worker’s Compensation Board maintaining its rate smoothing policy to keep WCB rates low. 

“We also recognize that the Alberta WCB is not in a surplus position as it is currently funded at 108 per cent, with the threshold to trigger a surplus distribution over 128 per cent. However, the policy to rebate excess funds is merely a discretionary policy. Similar to Ontario, CFIB recommends the government and WCB legislates surplus distribution policies and implement mandatory distribution once over-funding reaches a certain level. Doing so would add predictability to the system and ensure that surpluses do not get out of control as seen in jurisdictions like British Columbia and Manitoba.”