A decision by the federal government to eliminate a tax deduction for credit unions could have a negative impact on the Revelstoke Credit Union, says its Chief Executive Officer.
The news came as part of the budget released last month, and was a big surprise, said Robert Bobicki.
“The biggest thing is that it is going to affect our capital and our ability to build further capital,” she said. “Right now, with all of the margins being squeezed and the regulators looking for more capital, when we earn anything more than that $500,000, instead of being able to give that community giving or member rewards, we now in turn are going to have start paying a portion of that for yet another tax.”
The tax credit in question was created in the 1970s as a way to allow credit unions to better build capital since they don’t have the same access to capital markets that banks do.
According to the 2013 budget document, the phase-out of the tax credit over the next five years is “to improve the neutrality and fairness of the tax system.”
David Phillips, the CEO of Credit Union Central of Canada, said the tax increase will make it more difficult for credit unions to compete with major commercial banks. “Providing credit unions with access to a lower income tax rate is good policy for a government that seeks to encourage the growth of competitive alternatives to the large Canadian commercial banks,” he said.
The move comes as credit unions in B.C. are bracing themselves for the potential re-instatement of the corporate capital tax should the NDP win power in the upcoming provincial elections. The one per cent tax on capital would cost the RCU about $100,000, said Bobicki.
She said in 2012 the credit union gave $30,000 to its community giving program, $160,000 to member rewards, $18,800 in dividends, and put more than $300,000 into retained earnings to build capital. The tax increases could cost the RCU more than $100,000.
“This is a double whammy, if in fact we do have a new government,” she said, stressing that she was non-partisan. “Where it hurts is that we’re strong and healthy and all of that, it’s the times right now – short lived I’m really hoping – where the net incomes are lesser than normal, to then in turn give have to give a portion of that already reduced profitability to another tax is extremely frustrating.”