Several major business groups are calling on Finance Minister Chrystia Freeland to kill the planned increase to the capital-gains tax, saying they are alarmed by the potential impact on Canada’s competitiveness.
Chief executive officers of the Canadian Chamber of Commerce, the Canadian Federation for Independent Business, Canadian Manufacturers & Exporters, and the Canadian Venture Capital and Private Equity Association have signed a letter that will be sent to Ms. Freeland on Thursday. The Canadian Franchise Association and the Canadian Canola Growers Association are also listed as signatories.
“This measure will limit opportunities for all generations and make Canada a less competitive, and less innovative nation,” the groups wrote. “At a time when we are already urgently struggling to reignite our nation’s lagging productivity, increasing taxes on productive investments and throttling Canadian potential will have profound, long-lasting and potentially irreversible repercussions.”
The letter adds to the growing pushback from Canada’s business community over the tax proposal.
The 2024 budget includes measures to increase the taxable portion of capital gains to two-thirds from one-half for corporations and trusts. The change also affects individuals, but only on capital-gains earnings more than $250,000. The new rules are set to come into effect June 25.
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Upon the release of the budget, Ms. Freeland pledged that 99.87 per cent of Canadians will not be affected by any tax changes in the budget. “I know there will be many voices raised in protest. No one likes paying more tax, even – or perhaps particularly – those who can afford it the most,” she said.
Ms. Freeland told reporters days after the government released the budget that “people who are enriching our country with their work, and are doing really well, we’re asking those people to contribute a little bit more so that we can make the investments that Canadians need.”
The Liberal government said these added taxes will raise $19.4-billion in revenue over five years to fund spending commitments in housing, health care, defence and scientific research. A number of innovation-friendly measures in the budget, including $2.4-billion in funding for artificial intelligence, have been overshadowed by the tax increase, however.
“This proposed tax hike will only serve to undermine the government’s stated policy objectives,” the letter says. “If enacted, this change will have significant knock-on impacts, including making it harder for Canadians to access medical practitioners, limiting employment opportunities, and making the prospect of starting, growing or succession planning a business more difficult especially for multigenerational businesses such as farms, fisheries and small businesses.”
Ms. Freeland responded to the criticism in April by saying that academic evidence suggests raising capital-gains taxes will not threaten entrepreneurship or economic growth.
She followed up with The Globe and Mail with the names of three authors, including the late Simon Fraser University economics professor Jonathan Kesselman. Mr. Kesselman found in a 2023 review of the academic literature that evidence about the long-run economic impact of higher capital-gains taxes are “mixed and not easily quantified,” but “economic analysis confirms the adverse effects of higher capital-gains taxes” on the creation and success of young enterprises.
The Council of Canadian Innovators, an industry group representing domestic technology companies, previously published an open letter criticizing the tax.
Thursday’s letter from the business groups says Canada “needs a simple, fair and principled tax system that works in the best interests of Canadians. We urge all political parties to commit to a comprehensive, independent review of Canada’s tax system, which is currently complicated and burdensome and drives away investment.”
The business groups told Ms. Freeland this is a “better way” and they are “prepared to roll up our sleeves and work with you to help Canada get there.”