The Proposed New Tax On Share Buybacks

With the release of the 2022 Fall Economic Statement, the Federal Government proposed a new tax on repurchases of equity by certain entities (the "Buyback Tax"). The draft legislative proposals and explanatory notes published by the Department of Finance on August 4, 2023 shed additional light on the Buyback Tax. If enacted in its current form, the legislation would apply to transactions that occur on or after January 1, 2024.

The Buyback Tax is forecasted to generate $2.5 billion in additional tax revenue over five years. It is part of the federal government's plan to impose additional tax on public corporations paying out record profits to shareholders through relatively efficient means like buybacks of shares. Although the tax has been presented as an encouragement to businesses to reinvest profits into the business, the focus of the tax may be less altruistic.