For decades, bank owned properties have been the subject of frequent disputes between owners and regulators over whether the banks should be required to pay taxes on the value of their properties.
Now, that debate appears to be coming to an end.
The Bank of Canada has announced it will now only consider tax payments from banks that are owned by corporations.
The announcement came as the bank announced it is lowering its benchmark interest rate to 1.75 per cent from 2 per cent, in line with expectations from the federal government.
“We believe that it is the right and reasonable policy to consider the taxation and other tax liabilities of banks as part of a broader portfolio of assets and liabilities,” said deputy governor Carolyn Wilkins.
“The Bank of Canadian offers tax-free and income-based assistance to its clients and the government through its Income Tax Assessment Program.”
It also has begun collecting more information about the assets and other financial records of its clients, such as credit and mortgage histories, to help regulators better understand their tax liability.
Banks are still subject to a number of rules and regulations that govern how they pay taxes.
For example, banks must report to the provincial and territorial governments their full operating costs, the amount of debt that the bank owns and how much of that debt they hold.
Also, banks can only make a contribution of 10 per cent of the total taxes paid, if they can prove they can make the payment in full.
That means banks will have to pay about half of all taxes collected, said Wilkins, in an interview Tuesday.
However, banks have been exempt from some of those rules and are free to apply them to the income and expenses of their employees, such the amount they pay to the federal, provincial and municipal governments for services they perform.
“In recent years, many banks have made some adjustments to their tax obligations to improve the tax reporting and financial management of their customers,” said Wilkin.
“That includes changes in the rules around the reporting of income, deductions, and credits.
We are currently looking at how the Bank of Alberta, and others, can adapt to these rules in a more effective way.”
For now, banks will not be required by the Bank to pay any taxes.
Wilkins also noted that banks can now apply to the province or territory for tax credits and exemptions, so they can pay taxes that are less than those required by other provincial and federal governments.
“At the moment, these credits and exceptions are only available to a limited number of financial institutions,” said the deputy governor.
“Our focus is on the full range of financial services that we provide to our clients, including capital investments, real estate, loans, and income, capital gains and dividends.”
With files from The Canadian Press, The Canadian Broadcasting Corporation, CBC News and The Canadian Centre for Policy Alternatives