Make tax benefit to B.C. credit unions permanent

For Les Bellamy, owner of Bellamy Homes (the Kelowna Chamber’s 2016 Small Business of the Year), choosing to work with a credit union made sense. The national, award-winning home builder has been a loyal customer of Interior Savings Credit Union for 25 years, and says that a combination of its services and community-oriented approach allowed him to grow a top-tier brand that earns accolades.

Les is not alone. Business owners and entrepreneurs across B.C. share his enthusiasm for the relationships they’ve built with credit unions servicing their local community, particularly in regions where credit unions are the only financial institution accessible to them. Credit unions’ deeply-local knowledge and relationships, in cases where they are the sole institution, helps their small community overcome a key barrier: access to capital.

Credit unions are member-owned co-operatives and, unlike our valued chartered bank partners, they cannot access capital markets to grow their earnings. Instead, they must rely on retained earnings for capital. That means any income taxes paid by a credit union cannot be recovered by issuing stocks, rather they simply have less available funds to invest into projects and people in their communities. In areas where a credit union is the only financial institution, the stakes are high to ensure it can meet the needs of under-serviced communities and support local economic development.

In 2013, the previous federal government moved to change how credit unions were taxed by eliminating a small business tax benefit. In B.C., which has the largest credit union system in the country, the provincial government recognized the harmful impact this could have and stepped in to delay the change from being implemented into B.C.’s tax laws.

In its 2014 budget, the B.C. government decided to retain the small business tax benefit for the province’s credit unions until 2016, before starting to phase it out. This year’s budget looks to extend this phase-out period for another year.

Our hope is that the new government will show leadership by permanently granting the small business tax benefit to credit unions, as well as work with the business community to reverse the change made by the federal government in 2013. These are recommendations widely supported by chambers and boards of trade across the province — and a position voted into force for another three years at our AGM in Victoria this past May.

The cost of removing this benefit is significant. Central 1 Credit Union, the central processor and treasury for B.C.’s credit unions, estimates that, as a direct result of this tax increase, credit unions will pay over $80 million more in income tax over the phase-out period — an increase that would equate to a $1.2 billion decline in loans to households and small business in B.C. It could be a game-changer for some communities from an investment standpoint.

Up to this point, the provincial government has not included this tax revenue in its budget — the true budgetary impact of removing the tax exemption is nil. Yet to the businesses and communities who directly benefit from the wide range of projects funded by B.C.’s credit unions, the impact is substantial.

It is encouraging to see this issue already recognized by the NDP government in their platform during the election campaign. As we continue to bridge the “250 and 604” in B.C., the new government has a ripe opportunity here to reverse credit union tax increases. This move would benefit rural and urban communities alike — and drive B.C.’s shared success.

Val Litwin is president and CEO of the B.C. Chamber of Commerce.