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Insurance Industry

Federal tax exception in the Fall Economic Statement welcomed by P&C insurers

Nov 22, 2023 | By: Craig Stewart, Vice President, Climate Change and Federal Issues, IBC
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The Federal Government’s 2023 Fall Economic Statement (FES) included a partial exception for Dividend Received Deduction (DRD) by financial institutions, which was a welcome development for the P&C insurance industry. This significant change helps our industry mitigate cost pressures and ensures stability for investors in Canadian companies, despite not being a full exemption.

Released yesterday, the FES included a partial exception under a tax on dividends that had been announced earlier in the year:

The Income Tax Act permits corporations to claim a deduction in respect of dividends received on shares of other corporations resident in Canada. Budget 2023 proposed to deny the dividend received deduction in respect of dividends received by financial institutions on shares that are mark-to-market property.

The 2023 Fall Economic Statement proposes an exception to this measure for dividends received on “taxable preferred shares” (as defined in the Income Tax Act). This exception, along with the rest of the measure, would apply to dividends received on or after January 1, 2024.

Finance Canada values this exemption at $215 million for all financial institutions over the next five years.

In these times of economic hardship, we know Canadians are looking for ways to keep the cost of living affordable. That’s why IBC advocated over the summer for an exception to this proposed measure.

In addition, this exception will have important positive implications for investors in Canadian companies, avoiding changes to investments and access to capital for our domestic companies.

We are pleased to have worked in a constructive manner with the Department of Finance to avoid negative consequences for consumers and Canadian capital markets.

About This Author

Craig Stewart leads national work on disaster resilience and climate change at Insurance Bureau of Canada. He co-chairs the National Advisory Table on Disaster Resilience and Security which advises federal Ministers on development of Canada’s National Adaptation Strategy and disaster risk reduction generally.

Craig is considered one of Canada’s foremost experts on disaster risk reduction and climate adaptation and has testified at numerous Senate and House of Commons Committees as well as to federal, provincial and territorial Ministerial meetings repeatedly over the past decade.