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There are substantial measures within the 2013 Federal Budget that immediately impact Credit Union tax rates & EFT reporting to CRA.
The budget proposes increased reliance on financial institutions to combat tax evasion by having them report international Electronic Funds Transfers (EFTs) Generally, an EFT is an instruction to send remit or transmit funds, sent electronically, and can include a wire, for instance. with a value of CAD $10,000 or more directly to the Canada Revenue Agency (CRA) beginning in 2015. That reporting appears to mirror the reporting now required for those same transactions to the Financial Transactions Reports and Analysis Centre of Canada (FINTRAC). As with the FINTRAC EFT reporting regime, reports would need to be filed within five working days after the day of the transfer, with complete details about the transaction. It is not made clear in the budget document which government agency will enforce compliance, or which penalties will apply to non-compliance. Also unclear is whether the exemptions specified in the AML legislation for EFT reporting will apply.
Credit unions are also bracing for expected changes in EFT reporting for FINTRAC which would see the elimination of the threshold for international electronic funds transfer reporting, such that all international wires would be reportable, rather than just those with a value of CAD 10,000 or more.
Hopefully the CRA and FINTRAC will coordinate to receive EFT information through a common portal. Ideally that would be the one employed now, F2R, to reduce the administrative burden on reporting entities. If all international wires are to be reported to FINTRAC, a common platform could conceivably direct the ones meeting the CRA’s threshold to that agency, rather enforcing a distinct and redundant process.
The Additional Deduction for Credit Unions is being phased out over five years, beginning with fiscal years ending after March 21, 2013.
This elimination of the Additional Deduction means that the effective tax rate for some Credit Unions will increase by 11%, as their income exceeds their Small Business Deduction over the course of the next five years.
The schedule for the phase out is as follows:
Currently, Credit Unions generally qualify for the Small Business Deduction for taxable income up to $500,000. The amount of Small Business Deduction begins to be reduced when "taxable capital" of the credit union exceeds $10 million, and it is entirely eliminated where “taxable capital” exceeds $15 million.
Any income that exceeds the Small Business Deduction, will likely allow for Credit Unions to receive the Additional Deduction that extends access to the "small business" tax rate of 15.5%.
The amount of the Additional Deduction is determined for each Credit Union individually (Schedule 17, corporate tax return). When taxable income exceeds the Additional Deduction, it is taxed at the "regular" corporate rate, which is currently at 26.5%.
The Budget proposal to phase out the Additional Deduction for Credit Unions means the effective tax rates for some Credit Unions will increase by as much as 11%.
For more on this, read the news release [PDF] from Credit Union Central of Canada or this EFT Reports to CRA memo [PDF] published by our Toronto team.
If you have any questions, please let us know and we'd be happy to discuss your specific situation.
Related Topics:Budget Announcements; FINTRAC
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