‘Irrelevant tweaks’: Business groups slam Trudeau government for ‘minor’ changes to controversial capital gains tax increases

Since the plans were unveiled in this year’s federal budget, several groups have criticized the policies, arguing they will deter entrepreneurs from starting businesses by cutting into the profits they can expect to make by selling their firms or investing in assets within their businesses. 

Previously, 50 per cent of capital gains — earnings through the sale of an asset like a property, business or stock — were taxed as income. The Liberals intend to increase that to 66.7 per cent, but the higher rate will only apply to earnings beyond $250,000 for individuals. 

At the same time, the Liberals are introducing a new measure branded as the “Canadian Entrepreneurs’ Incentive” that will see the sale of certain businesses and business shares taxed with a lower capital gains inclusion rate of 33.3 per cent on a portion of earnings that will eventually increase to the first $2 million. They are also increasing the lifetime amount of capital gains that is exempt from income tax from $1 million to $1.25 million. 

On Monday, following weeks of criticism from medical and business groups about the changes, the Finance Department announced changes to broaden eligibility for the lower tax rate for entrepreneurs. They included eliminating a requirement to be a business founder to profit from the lower rate, and reducing the amount of a business someone must own and the time in which they must be actively engaged in the enterprise to be eligible for the incentive. 

The government also expanded eligibility to the sale of more types of small businesses, farms and fishing property, and is more quickly implementing the policy so that the first $2 million in earnings is eligible for the lower capital gains rate by 2029 instead of 2034. 

In an interview with the Star, Council of Canadian Innovators president Benjamin Bergen called the changes “minor and pretty irrelevant tweaks” that don’t resolve his group’s concerns with the tax changes.

“Poking someone in the eye is still poking someone in the eye,” Bergen said, calling for the entire scheme to be repealed. 

The Grain Growers of Canada similarly called Tuesday on the government to abandon the capital gains changes, stating that the revisions announced this week will benefit some farmers but still do not address “the substantial impact” that raising the amount of capital gains taxed as income will have on food producers. 

The Canadian Federation of Independent Business is also still pushing for the new inclusion rate increase to be repealed. But the group welcomed the expansion of the entrepreneurs’ incentive in a statement Tuesday, even while it argued the benefit should be extended further to include “all entrepreneurs” in sectors like restaurants, hotels, insurance and more. 

Katherine Cuplinskas, a spokesperson for Finance Minister Chrystia Freeland, said the government is committed to its changes to capital gains and noted that there are other programs to support business startups, including measures to help secure money to get started and tax incentives for research and development. 

“We are making the tax system fairer,” Cuplinskas said. “That is the fiscally responsible thing to do.” 

This year's budget predicted the capital gains tax changes would rake an additional $19.4 billion into federal coffers over the next five years. The independent Parliamentary Budget Officer estimated in an Aug. 1 report that the measure would actually result in $17.4 billion in new tax revenue.