Budget: bad news for life insurers

An important concept in this standard is the Contractual Service Margin (CSM). The purpose of the latter is to predict the exact profit that the insurer will realize during the life of a contract, explains Daniel Singer, former president of the Canadian Association of Insurance Accountants (CLHIA).

“Budget 2022 proposes legislative changes to confirm support for the use of IFRS 17 accounting standards for income tax purposes, except for a new reservation called contractual service margin, subject to certain changes. Without this exception, profits incorporated into the new reserve would be deferred for income tax purposes,” the 2022 budget states.

Last year the government noticed that the CSM of IFRS 17 offered the possibility for insurers to defer the recognition of profits until the years following the tax year in which the income-generating activities took place . With the change they want to make to IFRS 17, profits would be recognized in the year they occur, forcing insurers to pay certain income taxes more quickly, summarizes Stephen Frank, CEO of CLHIA.

“Profits are profits,” notes Paul Vienneau, Partner, Corporate Taxation (Financial Institutions) at KPMG Canada. So it’s potentially just a matter of timing. Thus according to him, for a given tax rate, the total tax paid is the same.

But inflation is confusing the cards. “With current inflation, it costs more if you have to pay [l’impôt sur les sociétés] earlier,” notes Daniel Singer.

The government calculates that this measure will enable it to increase federal revenues by $2.35 billion over the next five years.

“These $2.35 billion represent the federal part. There will be an overlay of provincial taxes on top of that. It is likely that this is also quite significant, laments Stephen Frank. This change will have a huge impact on the industry next year! »

The exact impact of the proposals has yet to be determined. “Once we have the legislation, I think it will be much easier to analyze,” concludes Paul Vienneau.

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