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Capital gains tax changes send shockwaves through Canada's tech ecosystem

Capital gains tax changes send shockwaves through Canada's tech ecosystem


More than 150 leaders have already signed an open letter calling on federal authorities to change course.

More than 150 leaders have already signed an open letter from the Canadian Council of Innovators (CCI) calling on Ottawa to reverse the changes in response to the capital gains measures proposed in Budget 2024.

The Budget proposes to increase the inclusion rate that companies pay on capital gains from 50 per cent to 66.7 per cent from June 25, 2024. For individuals, the inclusion rate increases to one-third of capital gains over C$250,000.

I think it would be a mistake to further reduce Canada's competitiveness at such a critical time.

Michael Katchen, Wealthsimple

The government estimates the new measures will affect 0.13% of the population, or 40,000 people, and generate $19.4 billion in revenue for the government over the five years starting this year.

CCI President Ben Bergen said the federal government's proposed changes would have a dire impact on the innovation ecosystem.

Bergen said in an interview that Canada is already in a situation where access to capital is problematic, highlighting high interest rates and inflation as macroeconomic headwinds. [This] This could lead to some real risks as to whether local residents will continue to invest in the company.

Mr. Bergen argued that the proposed tax increases could irreparably harm Canada's innovation economy and lead to a loss of talent to more competitive regions such as the United States.

In her budget, Finance Minister Chrystia Freeland also increased the lifetime capital gains exemption from $1 million to $1.25 million starting June 25, 2024, which will continue to be indexed to inflation. . Entrepreneurs can take advantage of this increase in conjunction with the newly proposed Canada Entrepreneurial Incentive. The program lowers the rate of eligibility for qualified capital gains of up to $2 million over a lifetime to 33.3 percent (increasing by $200,000 each year from inception). in 2025, until in 2034 he reaches $2 million).

According to the budget, the expanded lifetime capital gains exemption will give entrepreneurs a combined exemption of at least $3.25 million when they sell all or part of their business. Certain businesses, such as finance, insurance, real estate, food and lodging, arts, recreation, consulting, and personal care services, are not eligible for the proposed incentives.

Related: What's in Canadian tech in #Budget2024?

“Very I'm nervous.''

We talked about how Canada needs to become more competitive, but the new tax system, especially new forms of taxation that will further reduce Canada's competitiveness and discourage investment, some forms of Katchen said he was worried about introducing new taxes.

I think it would be a mistake to further reduce Canada's competitiveness at a critical time for us to embrace competition and productivity.

Tulip founder and chairman Ali Asaria said those opposed to the changes would only affect a small number of people and criticism would be distracting and polarize the conversation.

I'm a little scared to speak up about this issue because I know there are investors who are very upset that I said something. [on Twitter]Asaria said in an interview. We do not recommend that entrepreneurs try to optimize the capital gains exemption when forming a company. There are many other things to worry about.

Brett Chang, co-founder and CEO of Peak, shared a different perspective, saying that anyone who criticizes the new capital gains tax rate is saying it will only affect the wealthiest 0.01% of Canadians. He pointed out that the hysteria of lifetime capital gains exemption should be considered, rather than a policy that grants such benefits.

In a post on LinkedIn, Kim Furlong, CEO of the Canadian Venture Capital and Private Equity Association (CVCA), said the association was perplexed by the federal government's decision to increase capital gains taxes. The CVCA has vowed to work vigorously to reverse this decision.

Furlong argued that the measure, which would effectively tax innovation and risk-taking, would significantly weaken Canadians' entrepreneurial spirit, curb economic growth in key sectors of the economy and impact job creation. These policy changes undermine Canada's position in attracting the talent needed to grow and scale businesses in Canada.

National Angel Capital Organization board chair Mary Long-Irwin expects these changes will have a disproportionate impact on small-scale innovation ecosystems across Canada. He said the policy would keep small ecosystems small and discourage investment for growth. Entrepreneurs will face even greater challenges in building companies large enough to impact the nation. This tax increase will put a cap on entrepreneurship and encourage investors to invest in other areas.

Adam McNamara, former Shopify vice president of product and founding partner at Ramen Ventures, said the policy, as written, is a punitive punishment for Canada's high-growth startups.

Jack Newton, co-founder and CEO of Clio, argued that the measure would punish high-tech founders and employees, make Canada less competitive than the U.S., and argue that eligible small and medium-sized enterprises. He said a 20% tax on long-term capital gains, along with the stock exemption, could help entrepreneurs avoid it. All capital gains in the startup.

League founder and CEO Michael Cerbinis offered a more blunt assessment. “The time has come to start our next company in the United States.”

Featured image courtesy of Flickr.




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