Elimination of dividend deductions from income tax for financial institutions

Budget 2023 introduced a new amendment to the Income Tax Act that would eliminate the deduction of dividends received on shares that are “mark-to-market” property held by financial institutions. As a result, dividends received after 2023 will be considered regular business income.

• Estimates are presented on an accrual basis as would appear in the budget and public accounts.
• A positive number implies a deterioration in the budgetary balance (lower revenues or higher spending). A negative number implies an improvement in the budgetary balance (higher revenues or lower spending).

The historical total business income from dividends received from “mark-to-market” property shares held by financial institutions was estimated using a combination of data collected from public financial statements and aggregated tax data. The estimated tax base was projected using PBO’s projected growth for nominal GDP. To account for possible behavioral responses of affected corporations, an attrition rate was applied to the estimated tax base.

The main sources of uncertainty relate to the projection of business income related to dividends and the magnitude of the behavioural response.