B.C. credit unions will keep their preferential tax advantage a little longer as the provincial government intends to pause for one year the phase-out of the tax advantage credit unions have enjoyed.
The change will be introduced Feb. 21 as part of Balanced Budget 2017, Finance Minister Michael de Jong announced today.
The B.C. government is pausing the phase-out until the current review of the Financial Institutions Act and Credit Union Incorporation Act is complete. This will allow the Province to consider the complete picture of the regulatory environment in which B.C.’s credit unions operate. The preferential treatment will remain at the 2016 level (80% of its full value) through to the end of 2017. The change will be introduced Feb. 21 as part of Balanced Budget 2017.
Credit unions are the only class of financial institution that has had access to this preferential tax treatment, providing significant savings compared to other types of corporations. After the federal government announced in 2013 it would phase out the preferential tax treatment for credit unions to improve the fairness and neutrality of the corporate income tax system, B.C. announced it would phase out the provincial component over five years, beginning Jan. 1, 2016.
Even with the preferential tax advantage for credit unions fully phased out, credit unions would still pay approximately 40% less in total tax than they did in 2001. Since 2001, the Government of B.C. eliminated the corporation capital tax, which applied to credit unions, and federal and B.C. corporate income tax rates have been reduced significantly: the general rate has been reduced by almost 35% since 2001, and the small business rate has been cut by 44%.
The consultations with credit unions and other stakeholders have been an important part of the review. The feedback and engagement of credit unions have made a valuable and constructive contribution to this review. There will be an opportunity for credit unions and other stakeholders to provide further input later in the review process.
The one-year pause is subject to the approval of the legislative assembly.