The Canadian government wants companies to spend more to invest in their business and contribute to increased economic growth. They are introducing a new tax on companies when they use their profits for buyouts. He writes Radio Canada.
It was announced on Thursday that the government plans to introduce a new 2% tax on share buybacks from 2024.
Canada is not the only country to introduce such a tax. US President Joe Biden recently passed an Inflation Reduction Act that includes a tax on stock buybacks. The US tax rate will be 1% starting next year.
Gives 6.5 billion per year
The newly introduced tax is expected to bring in $120 billion over the next ten years in the United States, or $12 billion a year.
Canadian government revenues are estimated to be lower. They expect it to earn them C$420 million a year, which at today’s exchange rate is about NOK 6.5 billion. Over the next five years, the government expects to receive C$2.1 billion from the new tax.
“Terrible, terrible idea”
A Bay Street manager believes the proposal is an unnecessary knee-jerk reaction to Canada’s investment community.
“It’s a very, very bad idea, and the premise behind it is flawed in that it looks like stock buybacks are bad,” said Dennis Mitchell, managing director of Toronto-based fund Starlight Capital, in an interview.
He goes on to say that this means it limits the ability of companies to properly allocate capital. Mitchell says regular misallocation of capital will affect salaries and new hires.
