Canada’s federal government in Ottawa plans to raise more than $3 billion by taxing the dividends received by banks and insurance companies on their investments.
In Budget 2023, the federal Liberal government outlined changes to tax regulations that apply to the dividends banks and insurers get from their Canadian investments.
Going forward, Ottawa will treat dividends received by financial institutions holding domestic shares as business income. Federal officials say they expect to raise $3.2 billion over five years with this change.
Banks, insurers, and other financial institutions have, until now, been able to exclude these dividend payments from their income, lowering their taxes in the process.
The new tax applies to shares that are held as mark-to-market property, not to dividends paid from one subsidiary to another.
Federal finance officials are making this change to help with a deteriorating fiscal situation and slowing economy.
The money raised through the new tax will also help Ottawa pay for new spending initiatives on healthcare and the environment.
The federal government had previously introduced a corporate tax hike on Canada’s banks and life insurers, and a one-time windfall tax on financial firms called the “Canada Recovery Dividend.”
Those tax measures were projected to raise more than $5 billion over five years.
Budget 2023 has also proposed changes to the taxes that apply to Canadians earning more than $300,000. Specifically, Ottawa is raising the special tax rate to 20.5% from 15% on high income earners.
These latest tax measures follow a 2% tax on stock buybacks for publicly traded companies that was announced late last year by the federal Liberals.
