Canada Set To Implement Stock Buyback Tax On Jan 1, 2024

The Canadian government is finally set to implement a tax on share buybacks, as announced originally in 2022. Within its 2023 budget, Trudeau’s Liberal government has created the framework for which that tax will be implemented.

Share buybacks are set to be conducted at a rate of 2% of the net value of all share repurchases conducted by corporations in Canada. The measure applies to Canadian-resident corporations whom are publicly listed, but the measures exclude mutual funds.

For clarity, the budget outlines that the tax will also apply to REIT’s, as well as specified investment flow-through trusts and SIFT partnerships.

The 2% tax is to be calculated based on the fair market value of the equity repurchased, less the fair market value of equity issued from treasury, with the tax applied on an annual basis, in line with a corporations taxation year. The rule is set to include normal course issuer bids as well as substantial issuer bids, with exemptions in place for debt-like preferred shares and units, and certain situations related to reorganizations and acquisitions, including amalgamations.

The tax however will not apply if less than $1.0 million in equity is repurchased in the year.

The new rule is set to come into force on January 1, 2024.

Information for this briefing was found via sources mentioned. The author has no affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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