The budget released Thursday calls it a “double-decker window” that allows some Canadian financial institutions to use “hedging and short-selling arrangements in aggressive tax planning strategies.” Closing the gap, the government says, could add $ 635 million to federal funds over five years, starting in 2022-23, and $ 150 million a year thereafter. Here’s what happens: A financial institution shorts a share, which means it borrows it, sells the shares and keeps the revenue by promising to repay the shares later. At the same time, the financial institution holds the same number of shares and receives dividends. An entity that shorts a stock can deduct interest it pays on borrowing as an expense. And a company that receives dividends from another company can offset its income with those dividends. The 2022 budget proposes amending the income tax law to deny deduction for a dividend received when the taxpayer has entered into these paired open sale transactions. Budget improves debt consolidation, but warns of financial uncertainty The building sector sees challenges in the core budget program for expanding the pace of housing construction in Canada The Canadian government’s view seems to be that the financial institutions involved in this combined short-term strategy are reaping two tax benefits in a financially neutral transaction, said Joseph Micallef, KPMG’s national tax leader in financial services practice. “I think in their view this kind of transaction is not in line with the spirit of fiscal policy that currently exists in practice,” he said. “You have a long position and a short position, and basically, they eliminate [each other]. And so the ability to recognize [deductions on] “They do not like both sides of this transaction.” Tara Benham, national tax leader for Grant Thornton LLP, said that this proposal and others in the federal budget “are not property taxes. “But it’s kind of where they looked at the industries or entities that make a lot of money and have the means to really plan taxes.” Your time is precious. Deliver the Top Business Headlines newsletter to your inbox in the morning or evening. Register today.
