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Updated: Tue, 27 Aug 2013 13:53:13 GMT | By CBC News, cbc.ca

Budget 'mistake' more than doubles tax on credit unions

Budget 'mistake' more than doubles tax on credit unions

The NDP is calling on Finance Minister Jim Flaherty to acknowledge a mistake in last spring's federal budget that more than doubled the corporate tax rate for credit unions and bring in a fix immediately.

The government had signalled it was raising the tax rate for credit unions and caisses populaires to 15 per cent from 11 per cent, to bring them in line with Canadian banks.

But a recent Deloitte report found the budget implementation bill passed in the spring will effectively raise the credit unions' tax rate to 28 per cent over the next five years. Deloitte's report said the increase was due to a "technical deficiency" in the budget legislation and that the Finance Department was working to correct it.

"However, our contacts would not provide any assurance that the legislative fix would be enacted prior to the end of 2013 or whether the fix would be retroactive to budget day. Any legislative change is subject to parliamentary approval," the Deloitte report said.

NDP finance critic Peggy Nash said the government needs to address the error immediately.

"We've not heard from the finance minister on how he is going to fix this, we haven't even heard him acknowlege it," Nash said at a press conference in Ottawa Tuesday.

Nash said if the increase was an error, it shows the danger of using omnibus bills to push through a raft of legislative changes and avoid debate.

"If it isn't a mistake, it is a massive penalty on Canada's credit unions," Nash said.

Definition change behind unexpected jump

There are two corporate tax rates in Canada:

- The general rate, which is currently at 15 per cent.

- A preferential rate of 11 per cent applied to the first $500,000 of income for small businesses.

Before the spring budget, credit unions were allowed to apply the 11 per cent rate to income above $500,000 through an additional deduction, up to a certain limit. The budget intended to phase out that additional deduction over the next five years and bring credit unions under the general rate.

But the Deloitte report found that Bill C-60, the budget implementation bill, modified a tax definition for credit unions and caisses populaires that means income no longer covered by the additional deducation will not qualify for the general rate reduction enjoyed by larger corporations, in effect raising the credit unions' tax rate to almost 28 per cent by the end of the phase-in period.

Nash said the NDP was opposed to the planned increase of four per cent, to be phased in over five years, because many credit unions are not-for-profit or serve a particular role in a community and higher taxes could hinder their ability to fulfill that role. She said some credit unions might not even be aware of the accidental tax hike.

Asked if the NDP would support a fix if the government brings one forward, Nash pointed to the difficulty posed by prorogation, which has delayed the return of Parliament until at least mid-October.

External Links

Read the Deloitte report

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