A chorus of Canadian entrepreneurs and investors is blasting the federal government’s budget for expanding a tax on the rich. They say it will lead to brain drain and further degrade Canada’s already poor productivity.
In the 2024 budget unveiled Tuesday, Finance Minister Chrystia Freeland said the government would increase the inclusion rate of the capital gains tax from 50 per cent to 67 per cent for businesses and trusts, generating an estimated $19 billion in new revenue.
Capital gains are the profits that individuals or businesses make from selling an asset — like a stock or a second home. Individuals are subject to the new changes on any profits over $250,000.
The government estimates that the changes would impact 40,000 individuals (or 0.13 per cent of Canadians in any given year) and 307,000 companies in Canada.
However, some members of the business community say that expanding the taxable amount will devastate productivity, investment and entrepreneurship in Canada, and might even compel some of the country’s talent and startups to take their business elsewhere.
WATCH | The federal budget hikes capital gains inclusion rate:
Federal budget adds billions in spending, hikes capital gains tax
3 days ago
Duration 6:14
Finance Minister Chrystia Freeland unveiled the government’s 2024 federal budget, with spending targeted at young voters and a plan to raise capital gains taxes for some of the wealthiest Canadians.
Benjamin Bergen, president of the Council of Canadian Innovators (CCI), said the capital gains tax has overshadowed parts of the federal budget that the business community would otherwise be excited about.
“There were definitely some other stars in the budget that were interesting,” he said. “However, the … capital gains piece really is the sun, and it’s daylight. So this is really the only thing that innovators can see.”
The CCI has written and is circulating an open letter signed by more than 1,000 people in the Canadian business community to Trudeau’s government asking it to scrap the tax change.
Shopify CEO Tobi Lütke and president Harley Finkelstein also weighed in on the proposed hike on X, formerly known as Twitter.
We need to be doing everything we can to turn Canada into the best place for entrepreneurs to build ????????<br><br>What’s proposed in the federal budget will do the complete opposite. Innovators and entrepreneurs will suffer and their success will be penalized — this is not a wealth tax,…
Former finance minister Bill Morneau said his successor’s budget disincentivizes businesses from investing in the country’s innovation sector: “It’s probably very troubling for many investors.”
Canada’s productivity — a measure that compares economic output to hours worked — has been relatively poor for decades. It underperforms against the OECD average and against several other G7 countries, including the U.S., Germany, U.K. and Japan, on the measure.
Bank of Canada senior deputy governor Carolyn Rogers sounded the alarm on Canada’s lagging productivity in a speech last month, saying the country’s need to increase the rate had reached emergency levels, following one of the weakest years for the economy in recent memory.
The government said it was proposing the tax change to make life more affordable for younger generations and fund efforts to boost housing supply — and that it would support productivity growth.
A challenge for investors, founders and workers
The change could have a chilling effect for several reasons, with companies already struggling to access funding in a high interest rate environment, said Bergen.
He questioned whether investors will want to fund Canadian companies if the government’s taxation policies make it difficult for those firms to grow — and whether founders might just pack up.
The expanded inclusion rate “is just one of the other potential concerns that firms are going to have as they’re looking to grow their companies.”
Benjamin Bergen, president of the Council of Canadian Innovators, said the proposed change could have a chilling effect for several reasons, with companies already struggling to access and raise financing in a high interest rate environment. (Submitted by Benjamin Bergen)
He said the rejigged tax is also an affront to high-skilled workers from low-innovation sectors who might have taken the risk of joining a startup for the opportunity, even taking a lower wage on the chance that a firm’s stock options grow in value.
But Lindsay Tedds, an associate economics professor at the University of Calgary, said the tax change is one of the most misunderstood parts of the federal budget — and that its impact on the country’s talent has been overstated.
“This is not a major innovation-biting tax change treatment,” Tedds said. “In fact, when you talk to real grassroots entrepreneurs that are setting up businesses, tax rates do not come into their decision.”
As for productivity, Tedds said Canadians might see improvements in the long run “to the degree that some of our productivity problems are driven by stresses like housing affordability, access to child care, things like that.”
‘One foot on the gas, one foot on the brake’
Some say the government is sending mixed messages to entrepreneurs by touting tailored tax breaks — like the Canada Entrepreneurs’ Incentive, which reduces the capital gains inclusion rate to 33 per cent on a lifetime maximum of $2 million — while introducing measures they say would dampen investment and innovation.
“They seem to have one foot on the gas, one foot on the brake on the very same file,” said Dan Kelly, president of the Canadian Federation of Independent Business.
WATCH | Could the capital gains tax changes impact small businesses?:
How could capital gains tax increases impact Canadian small businesses? | Power & Politics
2 days ago
Duration 12:18
Some business groups are worried that new capital gains tax changes could hurt economic growth. But according to Small Business Minister Rechie Valdez, most Canadians won’t be impacted by that change — and it’s a move to create fairness.
A founder may be able to sell their successful company with a lower capital gains treatment than otherwise possible, he said.
“At the same time, though, big chunks of it may be subject to a higher rate of capital gains inclusion.”
Selling a company can fund an individual’s retirement, he said, which is why it’s one of the first things founders consider when they think about capital gains.
LISTEN | What does a hike on the capital gains tax mean?:
Mainstreet NS7:03Ottawa is proposing a hike to capital gains tax. What does that mean?
Tuesday’s federal budget includes nearly $53 billion in new spending over the next five years with a clear focus on affordability and housing. To help pay for some of that new spending, Ottawa is proposing a hike to the capital gains tax. Moshe Lander, an economics lecturer at Concordia University, joins host Jeff Douglas to explain.
Dennis Darby, president and CEO of Canadian Manufacturers & Exporters, says he was disappointed by the change — and that it sends the wrong message to Canadian industries like his own.
He wants to see the government commit to more tax credit proposals like the Canada Carbon Rebate for Small Businesses, which he said would incentivize business owners to stay and help make Canada competitive with the U.S.
“We’ve had a lot of difficulties attracting investment over the years. I don’t think this will make it any better.”
Tech titan says change will only impact richest of the rich
Ali Asaria, the CEO of Transformation Lab and former CEO of Tulip Retail, told CBC News that the proposed change to the capital gains tax is ‘going to really affect the richest of the rich people.’ (Tulip Retail)
Toronto tech entrepreneur Ali Asaria will be one of those subject to the expanded capital gains inclusion rate — but he says it’s only fair.
“It’s going to really affect the richest of the rich people,” Asaria, CEO of open source platform Transformer Lab and founder of well.ca, told CBC News.
“The capital gains exemption is probably the largest tax break that I’ve ever received in my life,” he said. “So I know a lot about what that benefit can look like, but I’ve also always felt like it was probably one of the most unfair parts of the tax code today.”
While Asaria said Canada needs to continue encouraging talent to take risks and build companies in the country, taxation policies aren’t the most major problem.
“I think that the biggest central issue to the reason why people will leave Canada is bigger issues, like housing,” he said.
“How do we make it easier to live in Canada so that we can all invest in ourselves and invest in our companies? That’s a more important question than, ‘How do we help the top 0.13 per cent of Canadians make more money?'”
NEW GLASGOW, N.S. – Police in New Glasgow, N.S., say a 44-year-old woman faces fraud charges after funds went missing from the Pictou East Progressive Conservative Association.
New Glasgow Regional Police began the investigation on Oct. 7, after Nova Scotia Premier Tim Houston reported that an undisclosed amount of money had gone missing from his riding association’s account.
Police allege that a volunteer who was acting as treasurer had withdrawn funds from the association’s account between 2016 and 2024.
The force says it arrested Tara Amanda Cohoon at her Pictou County, N.S., residence on Oct. 11.
They say investigators seized mobile electronic devices, bank records and cash during a search of the home.
Cohoon has since been released and is to appear in Pictou provincial court on Dec. 2 to face charges of forgery, uttering a forged document, theft over $5,000 and fraud over $5,000.
Police say their investigation remains ongoing.
Houston revealed the investigation to reporters on Oct. 9, saying he felt an “incredible level of betrayal” over the matter.
The premier also said a volunteer he had known for many years had been dismissed from the association and the party.
This report by The Canadian Press was first published Oct. 23, 2024.
PICTOU, N.S. – A Nova Scotia excavation company has been fined $80,000 after a worker died when scaffolding collapsed on one of its job sites.
In a decision released Wednesday, a Nova Scotia provincial court judge in Pictou, N.S., found the failure by Blaine MacLane Excavation Ltd. to ensure scaffolding was properly installed led to the 2020 death of Jeff MacDonald, a self-employed electrician.
The sentence was delivered after the excavation company was earlier found guilty of an infraction under the province’s Occupational Health and Safety Act.
Judge Bryna Hatt said in her decision she found the company “failed in its duty” to ensure that pins essential to the scaffolding’s stability were present at the work site.
Her decision said MacDonald was near the top of the structure when it collapsed on Dec. 9, 2020, though the exact height is unknown.
The judge said that though the excavation company did not own the scaffolding present on its job site, there was no evidence the company took steps to prevent injury, which is required under legislation.
MacDonald’s widow testified during the trial that she found her husband’s body at the job site after he didn’t pick up their children as planned and she couldn’t get in touch with him over the phone.
Julie MacDonald described in her testimony how she knew her husband had died upon finding him due to her nursing training, and that she waited alone in the dark for emergency responders to arrive after calling for help.
“My words cannot express how tragic this accident was for her, the children, and their extended family,” Hatt wrote in the sentencing decision.
“No financial penalty will undo the damage and harm that has been done, or adequately represent the loss of Mr. MacDonald to his family, friends, and our community.”
In addition to the $80,000 fine, the New Glasgow-based company must also pay a victim-fine surcharge of $12,000 and provide $8,000 worth of community service to non-profits in Pictou County.
This report by The Canadian Press was first published Oct. 23, 2024.
ST. JOHN’S, N.L. – Investigators found the remains of a 77-year-old American man on Wednesday at the scene of a fire that destroyed a hotel in western Newfoundland on the weekend.
Eugene Earl Spoon, a guest at the hotel, was visiting Newfoundland from Kansas. His remains were found Wednesday morning during a search of the debris left behind after the fire tore through the Driftwood Inn in Deer Lake, N.L., on Saturday, the RCMP said in a news release.
“RCMP (Newfoundland and Labrador) extends condolences to the family and friends of the missing man,” the news release said.
Spoon was last seen Friday evening in the community of about 4,800 people in western Newfoundland. The fire broke out early Saturday morning, the day Spoon was reported missing.
Several crews from the area fought the flames for about 16 hours before the final hot spot was put out, and police said Wednesday that investigators are still going through the debris.
Meanwhile, the provincial Progressive Conservative Opposition reiterated its call for a wider review of what happened.
“Serious questions have been raised about the fire, and the people deserve answers,” Tony Wakeham, the party’s leader, said in a news release Wednesday. “A thorough investigation must be conducted to determine the cause and prevent such tragedies in the future.”
The party has said it spoke to people who escaped the burning hotel, and they said alarm and sprinkler systems did not seem to have been activated during the fire. However, Stephen Rowsell, the Deer Lake fire chief, has said there were alarms going off when crews first arrived.
This report by The Canadian Press was first published Oct. 23, 2024.
