Corporate tax cuts in the United States have saved some of Canada’s big banks hundreds of millions of dollars in the first full year since they were introduced.
Bank of Montreal’s chief financial officer, Tom Flynn, told the Financial Post last week that the contribution from lower U.S. taxes had been “in the zone” of US$100 million in incremental income for its fiscal 2018, which ended Oct. 31, 2018, as well as “a little under” US$30 million for the bank’s first quarter of 2019, which covered the three months ended Jan. 31.
Toronto-Dominion Bank, meanwhile, had forecast an approximately US$240 million annual benefit last year because of U.S. tax reform.
“Basically, you can think of it as having enhanced our earnings by about $60 million a quarter in U.S. dollars,” said Riaz Ahmed, TD’s chief financial officer, in a phone interview.
Ahmed added that there are “puts and takes in the adjustments, but as kind of an average run-rate, that’s a fair number.”
The exact effect of the cuts, which kicked in at the start of 2018 and lowered the corporate rate to 21 per cent from 35 per cent, can be hard to pin down because of how the lenders report their financial results.
The fiscal years for the Big Five banks end at the end of October, and the tax rate was lowered in January 2018, meaning the first fiscal quarter of last year only included one month affected by the cut.
Also muddying the waters somewhat is that the banks first had to book one-time charges because of accounting assets that lost value when the tax rate was lowered. For example, BMO had reported a $425-million charge and TD a $453-million charge.
However, with those charges now behind them, Canadian banks are set to enjoy the ongoing effect of the lower corporate rate.