Canada’s association of life and health insurers has made a pre-budget submission ahead of the federal government’s budget slated for October. Among the items on the Canadian Life & Health Insurance Association (CLHIA)’s wish list: a rethink of tax measures affecting insurance firms, further development of Canada’s framework for variable payment life annuities (VPLAs) and greater regulatory and cyber-reporting harmonization across provinces.
The federal government invited submissions until Aug. 28 ahead of its budget 2025 — the first under Prime Minister Mark Carney — to be tabled unusually late this year, in October.
CLHIA’s submission draws attention to recent taxation changes that it says put Canadian firms at a disadvantage:
- A 2022 budget measure to charge an additional 1.5% tax on taxable income greater than $100 million earned by Canadian banks and insurers that it said “has created an inequitable sector-specific two-tier corporate tax system in Canada.”
- In 2023, the federal government started taxing 90% of the contractual service margin (CSM) of life insurers immediately, instead of over the term of the contract. As the CSM represents unearned future profits on long-term insurance contracts that can span decades, CLHIA said this is “… fundamentally unfair. … The insurance industry is the only industry being taxed upfront on unearned profits in Canada,” it said. “Canada is also an outlier globally to levy a tax on the unearned future profits of life and health insurers.”
- Canada’s Global Minimum Tax Act (GMTA), which came into effect in 2024, establishes a minimum tax of 15% on profits earned in each jurisdiction where a Canadian entity operates. While it was implemented as part of OECD’s Pillar II measures, CLHIA noted that U.S. President Donald Trump’s administration opposes the measures and the G7 and the OECD recently announced they would seek to align U.S. and OECD rules. As a result, CLHIA recommends the government repeal the GMTA or defer its application until the international framework is finalized “so as to not disadvantage Canadian insurers competing with insurers headquartered in the U.S. or other jurisdictions that have not yet adopted OECD’s Pillar II rules.”
CLHIA also advocates for a harmonized licensing system for life and health insurance agents across provinces, and harmonized reporting requirements for cyber incidents to reduce the administrative burden for firms. The Canadian Council of Insurance Regulators (CCIR) published a position paper on the latter in May, outlining 11 recommendations for its members.
It also supports pension innovation, specifically in the form of VPLAs. While federal legislation was passed in 2021 dealing with VPLAs, which would provide payments based on the investment performance of the underlying annuities fund and on the mortality experience of annuitants, there has been little movement since. CLHIA advocates for a VPLA framework that will allow funds outside of defined contribution and pooled pension plans — such as RRSPs, RRIFs and LIRAs — to participate.
The insurance association also has an eye on investing in Canadian infrastructure, which the Office of the Superintendent of Financial Institutions’ recent decision to reduce capital charges on such investment is meant to encourage. It notes Canadian insurers have already invested $60 billion in domestic infrastructure.
“We recommend the government leverage our industry’s investment capacity and expertise, through partnerships, to expand and accelerate long-term financing structures, create a framework to develop policies which attract private capital and remove regulatory inefficiencies,” the association submission reads.