With the introduction of a tax on share buybacks, a source of returns for Canadian investors is now squarely in the government’s crosshairs.impose a 2-per-cent tax on companies buying back their own stockBuybacks have increasingly come under scrutiny from policy-makers who characterize them as a misuse of corporate funds, benefiting shareholders and management to the detriment of workers and the broader economy.
While the buyback is an instrument prone to questionable use, it makes sense for oil and gas companies generating more cash than they can otherwise deploy, said Ryan Bushell, president and portfolio manager at Newhaven Asset Management in Toronto. Having spent years cutting costs, reducing debt and consolidating, the industry now has few options to invest its many billions in excess profits.
That role reversal has driven net buybacks as a proportion of the total Canadian stock market to their highest level in at least 20 years, the report said. This has narrowed the gap against the U.S. stock market, which has been much more heavily skewed toward buybacks in recent years. The Canadian government echoed that rationale while proposing to double the rate of the U.S. buyback tax. Ottawa’s levy will be introduced in the 2023 federal budget, to take effect the following year.