Alberta Continues to Lead the Country with the Lowest Effective Payroll Tax Rate
by Morinville Online Staff
A recent report by the Canadian Federation of Independent Business (CFIB) reveals that payroll taxes have steadily increased in most Canadian provinces since 2019, imposing a significant financial burden on employers and reducing the take-home income of workers. The CFIB’s findings shed light on the pressing issue of payroll taxes in Alberta, where the province boasts the lowest effective payroll tax rate in the country.
Andrew Sennyah, CFIB’s Alberta senior policy analyst, emphasized the detrimental impact of these taxes on both employers and employees, particularly in the context of rising inflation. Sennyah noted that the Canada Pension Plan (CPP) and Employment Insurance (EI) premiums increased earlier this year, and further hikes are on the horizon. While federal government decisions largely drive these cost increases, Sennyah stressed that the Alberta government has the opportunity to alleviate the burden by reducing the provincial small business tax rate.
The CFIB’s report highlights that 75% of Alberta small businesses view payroll taxes as the most damaging among all taxes affecting their operations. To illustrate, on top of a typical $50,000 salary, employers across Canada face an effective payroll tax rate of 10.1%, equating to $5,067. However, in Alberta, employers may pay up to $4,538, raising the total cost of the same salary to as much as $54,538.
For employees earning $50,000, the impact is also substantial, with their take-home income being reduced by 7% nationwide, leaving them with $46,418. This means that the government absorbs $3,582 in all provinces except Quebec, where the rate is higher at 7.7%, or $3,858.
Although some provinces have taken measures to alleviate the burden on small businesses, such as subsidizing workers’ compensation premium rates or increasing the exemption payroll tax threshold, these efforts have not been sufficient to offset the effects of federal premium increases.
In light of these challenges, the CFIB recommends that federal and provincial governments collaborate on the following actions to support small business growth and competitiveness:
- Expedite the delay of the introduction of the second CPP/QPP earnings threshold.
- Implement a 50:50 split in EI premiums between employers and employees, or introduce a lower rate or credit for small businesses.
- Maintain stability in Alberta Workers Compensation Board premiums through rate smoothing.
The CFIB has also reached out to Minister of Finance Chrystia Freeland and Minister of Employment, Workforce Development, and Official Languages Randy Boissonnault, urging them to maintain EI rates at the levels projected in the most recent budget.
Francesca Basta, bilingual research assistant and co-author of the report, emphasized the inequity of payroll taxes, which are imposed regardless of whether an employer is profitable. She noted that this approach exacerbates the challenges faced by businesses during difficult economic times, potentially leading to price increases and reduced sales. Moreover, high payroll taxes threaten businesses’ ability to expand and hire new staff, ultimately jeopardizing economic growth.
Basta concluded by urging all levels of government to assess the impact of recent rate increases on taxpayers and the economy before considering any further hikes.
For a comprehensive overview of the CFIB’s findings, readers can access the “Weight of Payroll Taxes” report on their website. Business owners seeking more information on payroll tax deductions can visit the CFIB’s website for detailed resources and guidance.