Integris credit union is pleased with Victoria’s decision to reinstate the credit union tax treatment, which was announced in the September 11 B.C. budget update.
The change means credit unions can maintain a lower amount of capital for commercial loans and leases. Specifically, the amount of capital credit unions are required to hold for commercial lending has been reduced when commercial lending is between 30 per cent and 35 per cent of the credit union’s unweighted assets.
“We’re thrilled by this decision,” said Alison Hoskins of Integris credit union, in a press release. “With this permanent tax change, we’ll have greater leverage to lend to our members and support local businesses. Ultimately, this decision enables us to continue to make important investments in our community and support local economic development.”
Credit unions are key lenders for small businesses in British Columbia, said Finance Minister Carole James. This is particularly the case in in rural communities where a credit union is often the only financial institution in a community. The change to the cap for commercial lending recognizes the associated risks inherent to commercial lending and brings B.C. more into line with capital requirements for such lending in other Canadian provinces. It also allows credit unions to continue to provide affordable financing and banking services to small business owners.
“By making commercial lending more viable, credit unions have the opportunity to further support small businesses and grow local economies and jobs,” James said. “This increase to the commercial lending cap will help provide a boost for our rural communities because credit unions are often the only option available in those communities.”
In 2014, the Ministry of Finance began a broad review of the Financial Institutions Act and the Credit Union Incorporation Act to ensure that the regulatory framework continues to be effective, efficient and modern. As part of the legislative review, government is looking at comprehensive changes to capital requirements including eliminating prescriptive rules like the commercial lending cap.
The province had planned to phase out the small business tax rate for credit unions and increase it incrementally over the next four years. In January 2017, the government deferred this decision, pending further consultation. Without the restoration of the credit union tax treatment, B.C. credit unions faced a tax increase of over $26 million annually, according to Hoskins.
In communities where credit unions are the sole financial services provider, the tax change is likely to have an even bigger impact.
“We’re very glad the government sees the benefits in this tax change and we look forward to further opportunities to work with the government to develop legislation and regulations that enable us to grow and support our communities,” said Hoskins.