Feds’ share buyback tax to generate $3B over five years: PBO

The federal government’s proposed 2% tax on share buybacks will generate nearly $3 billion in tax revenue over the next five years, according to a report from the Office of the Parliamentary Budget Officer (PBO) released Thursday.

In the 2022 fall economic statement, the Liberal government announced its intention to introduce a tax on the net value of all types of share buybacks by public corporations in Canada, effective Jan. 1, 2024. The government estimated the tax would generate $2.1 billion over five years “while also encouraging corporations to reinvest their profits in their workers and business.”

Details about the new tax will be released in the 2023 federal budget, the government said.

In the report, the PBO projected that the tax would bring a total of $2.98 billion over the next five fiscal years: $128 million in 2023–24, $565 million in 2024–25, $727 million in 2025–26, $763 million in 2026–27 and $800 million in 2027–28.

The PBO established a baseline amount of net share buybacks for 2022 and then applied a 4.9% growth rate for future years, using historical data. The estimate for net share buyback volume in 2022 was projected by multiplying the baseline amount by the growth rate for each year, and then the 2% tax rate was applied to that amount and adjusted to obtain the revenue amount.

The PBO assumed a 25% reduction in net share buyback volume “to account for potential changes in corporate behaviour for calendar year 2024.”

The PBO said the main sources of uncertainty for the estimate were measurement errors for the volume of share buybacks and issues, the unpredictability of equity markets and behavourial impact due to the introduction of the tax.

Rudy Mezzetta

Rudy is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on tax, estate planning, industry news and more since 2005. Reach him at rudy@newcom.ca.