It’s official: Ottawa is implementing special taxation as well as a permanent tax hike on Canada’s largest banks and insurance companies as part of its federal budget.
The Canada Recovery Dividend will consist of a one-time, big-time 15% tax on banks and insurers with profits of over $1 billion in 2021. The government justified this by stating that these major financial institutions made the most profits during the pandemic and have thus recovered faster than other sectors.
Doing so will help support Canada on its road to economic recovery as the government expects to receive a total amount of $4 billion. The move is a fulfilled election promise from Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland.
In addition, the government will also increase the corporate tax rate for banks and insurers on earnings over $100 million from 15% to 16.5%. Freeland said this will contribute an additional $445 million to government funding, which will then be used to invest in innovation and green technology.
The tax hike is smaller than expected, but is nevertheless opposed by the investment sector. Brian Porter, chief executive officer of Scotiabank, said it “sends the wrong message to the global investment community” at the annual shareholder meeting last Thursday.
To begin with, banks are already one of the largest corporate taxpayers in the nation. In 2020, the six biggest banks paid more than $12.5 billion in tax. Other executives have voiced similar concerns that the move might prompt inflation or diminish Canada’s competitiveness in the long run.
