Canada's Proposed Share Buyback Tax

On August 4, 2023, the Department of Finance released a revised version of its proposed 2% equity buyback tax ("Buyback Tax") that will apply to relevant transactions that occur on or after January 1, 2024. The draft legislation does not include an exception for equity issued prior to the effective date for the Buyback Tax. Although not strictly speaking an income tax, the Buyback Tax will be included in the Income Tax Act (Canada) ("Tax Act") as a new Part II.2. The Buyback Tax was first announced in the government's 2022 fall economic statement, with an initial version of the draft legislation being introduced as part of the 2023 federal budget.

While the rules have been refined since the initial version of them was released this past spring, the scope of the Buyback Tax remains broad in its revised form.¹ It is expected to apply to a variety of ordinary course capital market transactions including, in particular, normal course issuer bids and substantial issuer