Editor’s Note: This story has been updated to include information from Insurance Bureau of Canada.
The Liberal party’s campaign promise to include a higher surtax on the financial sector is one step closer to being implemented, which means higher taxes for P&C insurers.
However, the exact structure of the surtax has yet to be clarified.
As part of a deal to keep the federal Liberals’ minority government in power until 2025, the NDP party has called on the Liberals to move ahead with a 3% tax increase on big banks and insurance companies’ “excess profits,” and called to extend the application of the tax to big oil companies and big box stores in a debate yesterday, ahead of the 2022 federal budget.
In their 2021 election platform, the Liberals proposed to raise the corporate income tax rate for banks and insurance companies from 15% to 18% on all earnings above $1 billion.
The party promised to “raise corporate income taxes on the largest, most profitable banks and insurance companies who earn more than $1 billion per year,” as well as requiring these same companies to pay a temporary Canada Recovery Dividend.
The proposal recognized that these sectors “have recovered faster and stronger than many other industries,” according to the campaign platform.
What is meant by “excess profits,” “profits,” or even “earn” is not clear. For example, the Office of the Superintendent of Financial Institutions’ financial data differentiates between P&C insurers’ net premiums written (premiums earned before expenses) and net income (profit) for the year. The Liberal government has not specified which figure would potentially be taxed higher.
For example, Canada’s largest insurer, Intact, totalled $8.9 billion premiums written in 2021 (premiums earned before expenses such as claims payouts), but $550 million net income, putting them well above a $1-billion surtax on threshold in one regard (premiums earned before expenses), but well below it in another (profit).
A senior government official previously said the surtaxes would be addressed in the 2022 budget. Deputy Prime Minister Chrystia Freeland is expected to announce a budget date in the coming days.
In an email statement, Insurance Bureau of Canada said they are working with the government to address the corporate tax rules.
“As we look ahead to the economic recovery for our country, the industry intends to work with government to ensure Canadians are supported. IBC and its members continue to work with government to ensure that corporate tax rules are fair and equitable.”
IBC emphasizes the role P&C insurers played during the pandemic for consumers.
“Canada’s P&C insurers have been with Canadians every step of the way over the course of the pandemic and will continue to be there as our country continues to recover. Since the beginning of the pandemic, P&C insurers have provided $3.7 billion in relief to their customers in the form of refunds, re-rating policies, deferring premiums, among many other methods of support,” the statement reads.
“The P&C industry’s efforts have provided help to Canadians when they needed it most. The value of the P&C industry’s relief measures is unparalleled in the financial services sector.”
Canadian Underwriter has reached out to the Liberal Party for clarification on which figure would be taxed and is awaiting further comment.