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The delivery of the 2017-2018
Saskatchewan budget on March 22 will have a significant impact on credit unions going forward, as the province has decided to phase out the additional credit union deduction over a four-year period, starting this year.
There is much discussion amongst credit unions and industry groups as to how the system will plan for this change, as the increase in tax will have a significant impact on a credit unions’ ability to build capital reserves.
Saskatchewan’s small business tax deduction for credit unions was designed to accumulate capital in cooperative financial institutions, SaskCentral notes. When banks need capital, they can issue shares traded on public exchanges. Credit unions typically do not issue shares like the banks do, making them unable to benefit from federal incentives such as the generous capital gains exemption
Credit unions’ main avenue to raise capital is after-tax earnings and the province’s small business tax deduction allowed Saskatchewan credit unions to retain approximately $11 million per year to build capital. The after-tax earnings will be reduced, in many cases, with the recent budget changes. As profitability is reduced due to the larger tax burden, a credit union’s capital, which is required to meet both regulatory requirements and sustain operations in the future, will be negatively impacted. (To view the full commentary by SaskCentral,
The 2017 federal budget, delivered the same day, highlighted changes in several tax measures as outlined in MNP’s
federal budget commentary . We continue to see a focus on innovation, which is entrenched in how credit unions operate as they strive to provide innovative services to better meet members evolving needs. Technological advances by credit unions over recent years in the form of remote deposit capture and mobile pay are just a few examples of areas where credit unions have been leading the pack in innovation.
Credit unions also are doing amazing things in support of financial well-being for members and communities. They use their profits in fiscally responsible ways, investing in communities, returning patronage to members and building programs that create a sustainable economy and combat economic downturns.
The Conexus Business Accelerator and Meridian Business Academy programs are perfect examples of how credit unions are focused on building financial well-being for their membership and communities, providing training across all aspects of business, strengthening businesses and communities in partnership with MNP. While credit unions are profit-oriented enterprises, they are governed based on co-operative principles which include concern for community.
Our country and provinces are stronger because of credit union investment in and support for communities. As some of our provinces continue to recover from the impact of economic changes, we trust that the impact credit unions have on their communities will be recognized.
Contact Annette Bester, National Credit Union Leader, at 306.664.8327 or [email protected]
Client Groups:Credit Union
Related Topics:Budget Announcements; Tax Credits; Small Business
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