Last August, the Liberal Party unveiled a campaign promise to impose a one-time tax on the profits of Canada’s largest financial institutions, as well as a permanent increase in their annual corporate tax rates. At the time, the two measures were estimated to generate at least $ 2.5 billion in federal revenue annually for four years – or at least $ 10 billion in total. After months of uncertainty on Bay Street, the Liberals released the final details of these tax changes to their federal budget on Thursday, and the overall blow is less severe than originally promised. It is also distributed over a slightly longer five years. However, it will hit a larger number of companies. For the first charge, known as the Canada Recovery Dividend, banks and life insurers will pay a one-time tax of 15 percent on taxable income of more than $ 1 billion by 2021. That amount, totaling $ 4.05 billion, will be paid in equal installments of $ 810 million over five years. When first announced, the dividend was projected to raise about $ 5.5 billion over four years. The second tax is a permanent change in the corporate income tax rate of the group. During the election campaign, the level of taxable income that could pay the new tax was expected to be set high enough to target only the largest financial institutions. However, the government has now lowered the threshold to cover more than $ 100 million in revenue. The tax increase was expected to be three percentage points, but will only increase by 1.5 percentage points to 16.5%, from the current level of 15% per year. In total, the increase is estimated to bring in $ 2.1 billion over the next five years. After that, it is projected to raise $ 445 million a year. The Liberals had estimated that the tax, as originally planned, would generate up to $ 1.3 billion in revenue each year. In the insurance sector, there was some relief on Thursday as the government clarified that only life insurers would be affected – meaning property and accident insurers would not be affected. However, lowering the taxable income threshold to $ 100 million will affect more life insurers. The tax changes “come at a difficult time for the life and health industry as we continue to work to tackle COVID and all the health effects that have not yet been left behind,” said Stephen Frank, CEO of Canadian Life and Health. Insurance Association. It is rare for the federal government to target a specific sector with a permanent corporate tax rate increase, but Ottawa has long imposed different tax rates across industries after accounting for specific tax rebates, such as exploration rebates for energy companies. The proposed tax changes have disappointed the leaders of large financial institutions that felt unfairly targeted. While many of these executives acknowledge that their businesses were undoubtedly aided by Ottawa’s large-scale income support programs at the start of the pandemic, they do not understand why only banks and life insurers are affected. In addition, many other non-taxable financial companies had advertising years during the pandemic, including Canadian giants such as Brookfield Asset Management Inc. arguing that it could drive away foreign investment. The Bankers Association of Canada said in a statement on Thursday that “while we remain opposed to selecting specific financial sectors for excise duty,” its members remain committed to accelerating a thriving Canadian economy and helping Canada emerge from the pandemic with a strong, sustainable recovery. “ Following the Liberals’ re-election, many bank and insurance executives privately acknowledged that they could not change the government’s view of the tax changes. Instead of publicly retaliating and risking alienating any relationship with the government, the CEOs quietly urged Ottawa to spend tax dollars in a way that could create some financial depreciation, the Globe reported. As part of the effort, bank executives jointly and severally proposed the idea of letting banks and insurers hold more than $ 5 billion if they pledged that money to invest and lend in areas high on the government’s agenda, such as housing supply or climate change. , but the Ministry of Finance was not interested. With files from Clare O’Hara
Federal Budget 2022: What it means to you
Personal finance columnist Rob Carrick highlights how the budget seeks to tackle inflation, what it offers for dental care, and how a new tax-free savings account aims to boost home buyers for the first time. The Globe and Mail Your time is precious. Deliver the Top Business Headlines newsletter to your inbox in the morning or evening. Register today.
