The Toronto Financial Services Alliance (TFSA) a public private partnership of federal, provincial and municipal governments and leading financial institutions and entities, has made submissions to the federal and provincial governments as part of the annual pre-budget consultation process. In each submission, TFSA has called for changes to Canadian laws and regulations to facilitate Islamic finance in Canada.
The TFSA notes, that the Islamic financing market represents a tremendous opportunity for Canada’s financial sector with Islamic banking assets reaching US$1.1 trillion in 2012, a significant jump of 33% from their 2010 level. Canada is well positioned to attract additional investment from countries where Islamic finance is becoming an important alternative to conventional finance, with Toronto well positioned to become the North American centre for Islamic finance.
Asian economies such as Malaysia and Indonesia and the countries of the Gulf Co-Operation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE) are at the forefront of the development of Islamic finance. Many of these jurisdictions are of strategic importance to Canada from a trade and investment standpoint, and a willingness to accommodate structures that are widely utilized in Islamic finance will facilitate attracting additional trade and investment opportunities for Canada and the Canadian financial industry.
The TFSA has created an Islamic Finance Working Group (IFWG) and the IFWG has done some of the initial policy work to identify issues and options to level the playing field with conventional finance. There are a number of proposed changes to federal and provincial legislation that would help level the playing field, thus allowing governments and private sector participants to take full advantage of Islamic finance in Canada. Most recently, KPMG has completed a report outlining changes to be made to Canadian federal and provincial tax regimes to facilitate Islamic finance in Canada.
TFSA has recommended that the Canadian federal government should review the income tax treatment of Islamic finance so as to clarify: (i) Islamic deposit products; (ii) Islamic non-mortgage and mortgage lending transactions; and (iii) Islamic bond structures. In addition TFSA has asked the federal government to review the GST/HST treatment of Islamic finance so as to clarify: (i) Islamic deposit products (ii) Islamic non-mortgage and mortgage lending transactions (iii) Islamic bonds; and (iv) Islamic insurance.
In its submissions to the Government of Ontario TFSA has asked the government to review possible amendments to the Financial Administration Act; Public Lands Act; Proceedings Against the Crown Act; and Land Transfer Act. In addition the TFSA has asked the Government of Ontario to work with the federal government on potential complementary changes to income tax and GST/HST requirements.