In its budget announced April 7, the federal government proposed the introduction of an additional tax of 1.5 per cent of taxable income on banks and insurance companies.
Budget 2022 also introduces the Canada Recovery Dividend, under which banks and insurers will pay a one-time 15 per cent tax on taxable income above $1 billion for the 2021 tax year. The Canada Recovery Dividend will be paid in equal installments over five years.
Together, these moves are expected to raise $6.1 billion over the next five years. The measures are aimed at ensuring that large financial institutions help support Canada’s broader recovery following the COVID-19 pandemic, says the government.
Ottawa provided a number of financial supports during the pandemic, particularly to help small businesses stay in business. At the same time, it spent more than $350 billion for health and safety and direct support measures.
The 1.5 per cent corporate income tax rate hike will apply to taxable income of banks and life insurers above $100 million. That will push the overall federal corporate income tax rate above this income threshold to 16.5 per cent from 15 per cent.
The 1.5 per cent permanent tax on banks and life insurers is expected to raise $445 million ongoing.
Measures come at a challenging time for insurers
The Canadian Life and Health Insurance Association (CLHIA) said it will review the details of the budget, but noted that the scope of the corporate tax rate has increased from the government’s original proposal.
“As such [this] will have a broader impact for life and health insurers,” the CLHIA said in a statement. “These measures come at a challenging time for life and health insurers as we continue to face headwinds from the COVID epidemic in the form of higher health-related and other life protection costs. These higher impacts will be with us for many years.”
In its statement, the Canadian Bankers Association (CBA) said the banking industry has always contributed to the country’s vibrant economy.
“While we remain opposed to singling out specific economic sectors for special taxation, the CBA and its members are committed to accelerating a thriving Canadian economy and helping Canada emerge from the pandemic with a strong, sustainable recovery,” the group said in a statement.
It noted that banks are one of the largest corporate taxpayers in Canada, paying more than $12.5 billion in taxes to all levels of government in 2020, including $6.5 billion to Ottawa.
In addition, said the CBA, banks helped out individual Canadians having trouble making ends meet during the pandemic.
“During the pandemic, Canada’s banks provided hundreds of thousands of Canadians with mortgage relief, waived millions in fees for individuals and small businesses, and were instrumental in standing up essential programs like the Canada Emergency Relief Benefit and the Canada Emergency Business Account.”
