The government is hiking the rate at which insurance firms are taxed on life and health insurance premiums by one per cent, which would generate $260 million over three years.
The trickle-down effect could see advisors forced to have difficult conversations with clients.
Parti Quebecois finance critic Nicolas Marceau voiced concerns that tax increases for banks and insurance companies could be passed on to clients in the guise of higher fees or policy increases. He noted, however, that his government had instituted similar taxes on financial institutions, raising $200 million.
“Generally all the taxes have to be paid by consumers one way or another but there’s nothing specific I can say about that,” said Yves Millette, Senior Vice President, Quebec Affairs for the Canadian Life and Health Insurance Association
The government is also targeting banks and smaller businesses, part of the province’s $250 million deficit-reduction plan. Quebec expects to save $700 million a year by 2016-17 with the tax changes. Tax assistance for businesses will be reduced by one-third in 2016-17, dropping to $1.7 billion instead of the projected $2.5 billion
The CHLIA says the industry is happy to play its part in helping the government but is disappointed with the type of tax implemented.
“We don’t see it as specifically targeted and we think that we have to be responsible but we are not pleased because the way chosen by the government, the capital tax, is something that we considered generally speaking should not be done because most of the jurisdictions in the world are not using that way of taxing financial institutions,” Millette said.
The tax will affect the capital and surplus amounts for insurance companies. “[They] need to be adjusted when the obligation of the insurance company are increased,” he said. “This is counterproductive and we prefer the taxes not be there.”
With most of the industry preparing budgets and financial statements for 2014 the change has caught the industry off-guard. “The change was not expected so they have to look,” said Millette. “The tax impacts the companies differently according to their line of business so at this time we have no idea really of the impact of the tax on the industry.”
Advisors are bracing themselves for tough conversations with clients about increased premiums stemming from the Quebec government’s decision to raise taxes for life and health insurers.