Who Really Pays the Tax on Banks? You Do

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The federal government recently announced a sly new tax grab buried in Budget 2023 - a special additional tax targeting "financial institutions" expected to raise $3 billion over the next 5 years. While politically popular to tax banks, the reality is that we will all end up paying higher costs and fees.?

Eliminating Double Taxation

A core principle of Canadian corporate tax policy is to avoid double taxation on business profits. Corporations pay tax on their earnings and then distribute after-tax profits to shareholders as dividends without a second layer of tax. This avoids cascading taxes, reduces returns multiple times, and promotes efficiency.?

The mechanism enabling this is the "dividends received deduction" - dividends paid from one corporation's after-tax profits to another corporation are tax deductible for the recipient. Without this, taxes could pile up with each layer of ownership, practically eliminating returns.

Banks Will Pass On Costs

While governments may present new taxes on banks as only affecting profitable big business, ultimately, costs get passed on. Financial institutions facing $3 billion in new taxes over 5 years will inevitably raise fees and lending rates to maintain shareholder returns. Consumers and business borrowers end up paying in the end through higher loan rates, account fees, and reduced features or benefits.

Time To Withdraw The Tax

Rather than slyly taxing financial institutions, thinking voters won't realize the costs ultimately borne by them, the federal government should withdraw this proposed tax grab. Taxes on businesses, big or small, tend to hurt customers through higher prices and employees through lower wages over time.

Please contact me at 604.613.1693 or book a consultation through my Calendly Link to discuss how you can reduce your tax bill on your investments held at the bank to avoid this new tax grab.

The source article, linked here, provides full details: Freeland's new hidden tax on everything and everyone.

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Credits: Freeland's new hidden tax on everything and everyone

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