Ottawa is planning to tax the millions of dollars sitting unclaimed in dormant bank accounts and terminated pension plans across the country.
The federal Department of Finance says it is looking at new ways to tax some of the idle money in bank accounts and pensions plans, and also at eliminating any interest paid on that money.
As of December 31, 2017, the Bank of Canada reported $742 million in unclaimed balances. A central registry allows potential bank account owners to search an online database, and about $10 million in claims are paid out each year. Federally regulated banks and trust firms turn over to the Bank of Canada any money they find in accounts that have been inactive for a decade and are owned by people who can't be located.
Proposals to significantly revamp the so-called "unclaimed balances" regime in Canada have undergone more than two years of consultations and review, and are now in the hands of department bureaucrats. The proposed changes would save Ottawa money while modestly increasing federal revenues.
The Bank of Canada holds the money for 30 years if the account balance is under $1,000, or for 100 years if it's more than $1,000. After the Bank of Canada releases the unclaimed cash, it goes into Ottawa's general revenues.
Finance Canada wants to cut or eliminate the interest paid on these balances. And small balances — those less than $100, which account for 70% of all unclaimed balances — would be held for an as-yet unspecified period much shorter than 30 years before reverting to general revenues.
Finance Canada also proposes expanding the regime to include unclaimed pension balances. There are more than 500 of these dormant accounts in federally regulated plans that have been terminated. Dormant pension accounts eventually could be transferred to the Bank of Canada, where they would be included in a searchable online registry that lost owners could check, just as with unclaimed bank accounts.
But Ottawa first wants to deduct income tax on those transferred pensions, and to pay no interest on the balance. A total of 23 stakeholders responded to the department's online consultation on the pension proposals by the deadline of August 21, 2018 — including plan sponsors, a union, actuarial firms, banks and others.
