Capital gains increase will impact two-thirds of Canadian small businesses: CFIB

Roberto Wakerell-Cruz
  |   June 20, 2024   |   Be the first to comment

Half of Canada's small business owners will be affected by a new 66.7% capital gains tax inclusion rate hike that takes effect June 25.

The Canadian Federation of Independent Business (CFIB) is going against claims by the government that just a tiny share of wealthy Canadians would be affected by the tax rate hike, after over 55% of small business owners said it will impact the eventual sale of their business. 45% said it will affect the investments they hold privately, and 41% said it will affect investments held within their incorporated businesses.

“Even the federal budget admits that 307,000 Canadian corporations had net capital gains in 2022 alone. Like individual Canadians, companies often record capital gains as a one time or occasional event, not every year. The impact of the hike in the inclusion rate needs to be measured over the long term, not just in any one given year,” said Dan Kelly, CFIB president.

Business owners who hold investments within their corporations for the owner's retirement or for reinvestment in the company will be hit by the 66.7% inclusion rate on any capital gain as corporations are ineligible for the $250,000 annual allowance at the 50% level.

“With details of the changes in the inclusion rate only coming out in last week’s Ways and Means Motion, business owners were only given two weeks to make informed decisions, leaving virtually no time to change gears. And details of the proposed Canadian Entrepreneurs’ Incentive have yet to be published, leaving entrepreneurs largely in the dark on this potentially beneficial change,” Kelly added.

A statement from the CFIB calls for the planned increase to be scrapped.

If the government is unwilling to abandon the plan, they say all existing capital gains should be grandfathered in using a valuation day, as was done in 1971.

The CFIB is also calling on the government to allow corporations to benefit from $250,000 each year at 50% inclusion like individuals do and to allow for a five-year income averaging to benefit from the $250,000 annual threshold for larger capital gains for irregular events like selling property.

The hike has proven unpopular, even among Liberals. Former Liberal finance minister Bill Morneau criticized the policy in April, calling it a negative for Canada.

"From my perspective, this is clearly a negative to our long-term goal, which is growth in the economy, productive growth and investment," Morneau said.

Liberal officials have stated that the capital gains tax inclusion rate had been higher in the past when it was at 75% from 1990 to 1999.

Morneau also noted that the deficit is now about double what it was when he left office in 2020 amid the WE Charity scandal.

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