Global

Details

  • Service: Tax, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 8/28/2013

Canada - Technical glitch in credit union tax amendments 

August 28: There is an apparently unintended technical glitch in the credit union amendments included in Bill C-60 (Canada’s 2013 federal budget bill #1) enacted 26 June 2013.

Although the 2013 federal budget proposed to phase-out the preferential tax rate for credit unions over five years, the enacted legislation does not technically work this way. In general, the preferential rate for credit unions reduces the federal tax rate to the same level as the small business deduction—i.e., 11%.


Under the new legislation, if a credit union claims a deduction pursuant to subsection 137(3), the tax rate applicable to the "phased-out" portion of the deduction is subject to a federal income tax at the full rate of 28%. This is because the 13% general rate reduction is not available on this income to bring the federal rate down to 15%.


Surprisingly, however, if the credit union does not claim the deduction at all, all of its taxable income (less any small business deduction claimed) would be subject to the 15% federal rate (the general rate reduction is available).


Read an August 2013 report prepared by the KPMG member firm in Canada: Credit Unions - Budget 2013 Glitch Results in Surprise Tax Hike




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