Credit Union Preferential Tax Treatment Frequently Asked Questions

The following will help answer your questions about Credit Union Preferential Tax Treatment. 

What is the preferred tax treatment for credit unions?

If you are a credit union, the credit union preferential treatment permits you to apply the small business corporate income tax rate to some or all of your earnings; your income in excess of this amount is taxed at the general corporate income tax rate.  

Budget 2017 Update proposes to cancel the phase out of the preferential tax treatment and restore full provincial preferential tax rate for credit unions effective January 1, 2017. The restoration of the preferential tax treatment for credit unions is proposed to apply to taxation years or parts of taxation years on or after January 1, 2017.

What is the preferred rate amount?

The preferred rate amount is based on the cumulative amount of your income that was taxed at the small business corporate income tax rate. Your prior year preferred-rate amount is included in determining the amount of income eligible for the preferential tax treatment.

How do I calculate my prior year preferred rate amount?

For 2016 and earlier years, your preferred-rate amount is the amount you calculated under the Income Tax Act (Canada). The preferred-rate amount used to calculate your preferential tax benefit for the 2017 taxation year is the preferred-rate amount calculated for federal purposes at the end of the 2016 taxation year. 

Budget 2017 Update proposes that for 2017 and later years, your preferred-rate amount is the amount that you would have calculated under the Income Tax Act (Canada) if the additional deduction under that Act had not been phased out.  

How can the preferential tax rate for credit unions be claimed?

Credit unions can claim the preferential tax rate by completing Schedule 17 – Credit Union Deductions and Schedule 428 – British Columbia Corporation Tax Calculation.

Sources:

  • Section 137 of the Income Tax Act (Canada) 
  • Section 16(2) of the Income Tax Act (British Columbia)