With each successive government, the compensation tax on financial institutions has risen and fallen.
François Legault's Coalition Avenir Québec government has decided not only to maintain it, but also to extend it beyond March 31, 2024, the date it was slated to end. Finance Minister Éric Girard made the announcement in his budget tabled on March 25.
What is this tax? For a given taxation year a financial institution must pay a compensation tax that is calculated using two tax bases: amounts paid as wages and insurance premiums (including amounts assessed on insurance funds).
The government notes that various changes have been made to the financial institution compensation tax in recent years, the most recent of which were announced in last year's budget speech.
For insurance premiums and amounts established in respect of insurance funds, the tax rate for financial institutions is 0.48% for the period from December 3, 2014 to March 31, 2022 and 0.3% for the period from April 1, 2022 to March 31, 2024.
Extension beyond March 31, 2024
Under its current terms, the financial institution compensation tax was scheduled to expire on March 31, 2024. This will not be the case, the government announced in its budget tabled on March 25.
"In order for financial institutions to continue contributing to the funding of public services, the compensation tax for financial institutions will be maintained beyond March 31, 2024," the additional information section of the budget states.
The government adds that the tax legislation will therefore be amended so that an amount of compensation tax must also be paid by a person that is a financial institution for a period after March 31, 2024. “The terms and rates of the compensating tax that were to apply for the period beginning April 1, 2022, and ending March 31, 2024, will continue to apply after March 31, 2024.”
In 2013, the most recent data show that this compensation tax had generated an influx of more than $200 million into the Quebec government’s coffers.