Tax On Buybacks Proposed
The federal government wants Canadian companies to spend more of their own money to invest in their businesses and help grow the economy, so it's bringing in a new tax on corporations when they use their profits to do nothing more than pad their bottom lines. In the ‘Fall Economic Statement,’ the government announced it plans to implement a tax of two per cent on stock buybacks. Buybacks are when publicly traded companies buy back a portion of their own shares on the stock market, at market prices. They do nothing to improve or expand a company's underlying business, but they have the effect of driving up share prices and improving various profitability metrics by reducing the amount of shares in the company. Investors tend to welcome them for those benefits, but in recent years the sheer volume of stock buybacks has started to raise concerns. U.S. companies on the S&P 500 spent $881 billion buying back their own stock last year, an increase of almost 70 per cent from the previous year's level, and almost 10 per cent higher than the previous annual record set in 2018.