CANADA FINANCIAL TAX RATE INCREASED
The average tax rate for Canadian
financial insitutions will increase to 21.3 pct from 14.5 pct
under the new tax reform package, the federal finance
department said.
     The amount of financial institutions' income that is taxed
will also increase to 74.0 pct from 48.7 pct, it said in
documents tabled with finance minister Michael Wilson's
prepared speech to the House of Commons.
     Under Wilson's plan, the federal government will collect
1.36 billion dlrs more over the next five years from financial
insitutions, including banks, trust mortgage and life insurance
companies, according to finance department documents.
     Financial institutions "are going to complain, but we
believe the changes are appropriate and affordable," said one
finance department official who asked not to be identified.
     Ottawa will collect more revenue from financial
institutions by reducing the amount of reserves they can deduct
from taxes, which "will broaden the tax base for this low tax
paying sector," the finance department said.
     Among the changes, chartered banks will no longer be able
to use a five-year averaging formula to calculate loan losses
that may be deducted for tax purposes.
     Effective June 17, 1987, banks will deduct bad or doubtful
loans during the year they are incurred.
     The finance department said the impact of the new
provisions will be cushioned over a period of five years.
     The changes are needed to ensure that all financial
companies are taxed fairly under deregulation of the financial
services industry.
     "It would be inconsistent for the tax system to continue
to provide different reserves for tax purposes for institutions
competing in the same marketplace," the finance department
said.
 Reuter
