Tax Highlights from the 2025 Alberta Budget

Tax Highlights from the Alberta Budget

Minister of Finance Nate Horner tabled the 2025 Alberta provincial budget on February 27, 2025.

The government reported that last year ended with higher-than-expected employment gains, and oil production reached a record of 4.3 million barrels per day. Non-residential building investment also increased, led by industrial factory expansions. However, a stark shift in U.S. trade policy toward stronger protectionist measures, primarily in the form of tariffs, created significant headwinds for the 2025/26 outlook.

The Alberta Government’s economic outlook assumes that Canada will face an average tariff of 10% on energy products and 15% on all other goods. These U.S. tariffs, combined with expected retaliatory tariffs, are expected to dampen Alberta’s economic growth, slowing from 3% in 2024 to 1.8% in 2025 and 1.7% in 2026.

Total revenue in 2024/25 is forecast at $80.7 billion, an increase of $7.2 billion over Budget 2024 projections. This increase is primarily due to higher investment income, non-renewable resource revenue, and corporate and personal income tax revenue. However, revenue is expected to decline significantly in 2025/26, with the government estimating $74.1 billion in forecasted income.

The forecast surplus for the nearly completed 2024/25 fiscal year now stands at $5.8 billion, compared to the previously projected surplus of $367 million. However, the deficit for 2025/26 is now projected at $5.2 billion, followed by $2.4 billion for 2026/27 and $2 billion for 2027/28. This deficit planning is intended to “manage economic and revenue volatility” and includes provisions allowing the government to run a deficit in response to significant declines in revenues. The government notes that it has three years to return to balance after a deficit is reported at year-end.

On the income tax front, the 8% tax bracket for income up to $60,000 has been formally rolled out. Originally scheduled for introduction in 2026 and full implementation in 2027, this tax cut has been rolled out ahead of schedule. In addition to the new 8% tax bracket, the budget introduces a new supplemental personal tax credit, increases the fuel tax for locomotives, and raises education property tax rates.

The following summarizes the changes announced in the budget. Please note that some of these changes remain proposals until passed into law by the provincial government.

Personal Tax Matters

Personal Income Tax Rates and Tax Brackets

Budget 2025 introduces a new 8% personal income tax bracket on the first $60,000 of income, effective January 1, 2025. This tax cut is being implemented ahead of the schedule announced in Budget 2024 to provide more immediate financial relief to Albertans. Unlike the original plan in Budget 2024, which envisioned an interim 9% rate, the tax cut is being introduced directly at 8%.

Most taxpayers will begin to see the benefits of the tax cut after July 1, 2025, once payroll withholdings are updated. Starting in 2026, this tax bracket will be adjusted by the Alberta escalator. The new tax bracket is expected to save individuals up to $750 in 2025. Taxpayers earning less than $60,000 will see their personal income taxes reduced by 20%.

Tax brackets and other amounts have been indexed by 2% under the Alberta escalator to account for inflation. The table below outlines Alberta’s tax rates and brackets for 2025.

The table below outlines the highest combined federal and provincial marginal tax rates for various types of income in 2025.

Supplemental Credit

Budget 2025 introduces a new tax credit to ensure that Albertans claiming more than $60,000 in non-refundable tax credits do not face higher taxes due to the new 8% tax bracket. While Budget 2025 notes that this situation is “very rare”, it provides an example where an Albertan earning over $60,000 also claims the basic personal exemption, spousal amounts, infirm dependent amounts, and medical expenses.

This non-refundable tax credit will take effect for the 2025 tax year and will be equal to 2% of the total amount of certain non-refundable tax credits claimed beyond $60,000.

Starting in 2026, this credit will be adjusted by the Alberta escalator.

Corporate Tax Matters

Corporate Income Tax Rates

There are no proposed changes to corporate income tax rates. The table below shows Alberta tax rates and the small business limit for 2025.

The table below shows the 2025 combined federal and provincial corporate income tax rates for various types of income earned by a Canadian Controlled Private Corporation (CCPC).

Other Initiatives

Contraband Tobacco

As outlined in Budget 2024, the government established a working group to assess the prevalence of contraband tobacco and develop policy measures to address this issue.

The working group concluded that contraband tobacco is a growing problem in Alberta, with estimates suggesting it could account for up to 25% of the total market. This results in annual revenue losses of up to $150 million.

The Alberta Government announced four additional measures to address contraband tobacco.

1. Strengthen Enforcement

Budget 2025 will double the number of officers in Alberta Gaming, Liquor, and Cannabis’s Tobacco Enforcement Unit, strengthening their capacity to disrupt contraband trafficking and sales.

2. Introduce New Administrative Penalties

The government will implement two new administrative penalties to increase financial deterrents for those involved in contraband activities. These penalties will be set at three times the tax otherwise payable and will apply to the possession or sale of contraband cigarettes, tobacco sticks, and fine-cut tobacco, as well as the unauthorized possession of cigars containing more than 1,000 grams of tobacco.

3. Improve Coordination

New legislation will mandate the reporting of contraband seizures to ensure consistent data collection and enforcement of penalties. Alberta also plans to work with other provinces to enhance nationwide enforcement efforts.

4. Advocate for Stronger Federal Action

Since contraband tobacco moves across both provincial and international borders, Alberta will push for stronger federal action to address this national issue.

Education Property Tax

The education property tax helps fund Alberta’s education system, supporting the development of a skilled workforce that benefits Albertans.

After being frozen in 2024/25, education property tax rates will increase in 2025/26 from $2.56 to $2.72 per $1,000 of equalized assessment for residential and farmland properties and from $3.76 to $4.00 per $1,000 for non-residential properties. These higher rates, combined with rising property values and increased development, are expected to raise education property tax revenue from $2.7 billion in 2024/25 to $3.1 billion in 2025/26. The share of education operating costs covered by the education property tax will rise to 31.6% in 2025/26, following historic lows of 28.5% in 2023/24 and 29.5% in 2024/25.

Locomotive Fuel Tax

Budget 2025 raises the fuel tax rate that applies to locomotive fuel from 5.5 to 6.5 cents per litre, effective March 1, 2025. This adjustment will align Alberta’s tax rate more closely with those in other Prairie provinces.

This measure is expected to generate approximately $3 million in additional annual revenue.

Winding Down Cancelled Tax Credit Programs

The Alberta Climate Leadership Adjustment Rebate and the Alberta Family Employment Tax Credit were eliminated in 2019 and 2020, respectively. However, these programs have continued to be administered to accommodate late-filed tax returns and reassessments. As benefit payments have declined, administration costs now make up a significant portion of total program expenses.

Budget 2025 will officially end entitlements under these discontinued programs after December 31, 2025, eliminating ongoing costs. Albertans who may still be eligible for payments under either of program are encouraged to contact the Canada Revenue Agency as soon as possible.

We Can Help

Your financial advisor can help you assess the impact of these proposals on your personal finances or business affairs and show you ways to take advantage of their benefits or ease their impact.

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