Budget 2023: Canadian Banks to Pay More Tax

Finance Minister Chrystia Freeland announced changes to the tax rules for dividends financial institutions earn from Canadian corporations.

Ruth Saldanha 28 March, 2023 | 4:18PM
Facebook Twitter LinkedIn

Canada Budget 2023

Canada’s Liberal government announced its 2023 Budget late Tuesday evening, in which Finance Minister Chrystia Freeland outlined new tax rules for dividends financial institutions earn from Canadian corporations.

“Currently, the dividends that financial institutions receive on Canadian shares are not treated as business income and are effectively exempt from tax. Financial institutions rely on this treatment to lower their tax burden, which reduces tax revenues that are important to delivering benefits and services to Canadians,” the Budget statement said.

Banks, insurers and other financial firms exclude these dividends from their income, lowering their overall tax burden.

The Budget proposes to amend the Income Tax Act to treat dividends received on Canadian shares held by financial institutions in the ordinary course of their business as business income.

“This measure would apply to dividends received after 2023, which would increase federal revenues by $3.15 billion over five years starting in 2024-25, and by $790 million ongoing,” the statement reads.

This is Not the First Tax on Banks

In 2022, the government announced a “Canada Recovery Dividend,” under which banks and life insurers were to pay a one-time 15% tax on taxable income above $1 billion for the 2021 tax year. The Canada Recovery Dividend would have to be paid in equal installments over five years.

"On the margin, it takes money away from the banks (and their shareholders) and redirects it to whatever the government is spending it on. I calculate $60 billion in net income projected for the big 6 banks in 2025/2026, so $790 million in ongoing expense, is around 1% of that. I would assume that $790m includes income from other financial institutions (not just the banks), so seems like a small negative,” points out Morningstar analyst Eric Compton.

Facebook Twitter LinkedIn

About Author

Ruth Saldanha

Ruth Saldanha  is Editorial Manager at Morningstar.ca. Follow her on Twitter @KarishmaRuth.


© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility