Industry Groups Urge Canada to Adopt US-Style Tax Incentives to Curb Talent Flight
AI-generated image · Bay Street Wire
A coalition of investors and tech leaders is calling for capital gains reforms to keep founders and capital within domestic borders.
A coalition of Canadian tech and investment associations is urging the federal government to implement tax reforms designed to retain founders, capital, and talent within Canada. As BetaKit first reported, the "Bet on Canada" campaign saw more than 150 leaders sign an open letter to the finance minister, representing groups such as the Council of Canadian Innovators (CCI), the Canadian Venture Capital and Private Equity Association (CVCA), the National Angel Capital Organization (NACO), C100, CPA Ontario, and the Chartered Business Valuators Institute.
According to BetaKit, the group is proposing two primary changes. First, they seek a tax incentive modeled after the U.S. Qualified Small Business Stock regime, which BetaKit notes allows early stockholders to exclude up to 100 percent of federal capital gains upon a company sale. While the federal government proposed a Canadian Entrepreneurs’ Incentive in 2024 that would lower the inclusion rate to 33.3 percent on a lifetime maximum of $2 million, the coalition is pushing for a $15 million per transaction limit. They also want eligibility expanded beyond founders to include early investors and employees.
Second, the group proposes allowing investors to defer capital gains if proceeds from one Canadian business are reinvested into another domestic company. CVCA CEO Benjamin Bergen told BetaKit that such reinvestments must be in Canadian-owned corporations rather than foreign subsidiaries. Bergen stated the goal is to encourage successful individuals who have had a large exit to continue investing in the growth of other domestic companies.
The coalition argues these measures would de-risk initial investments and facilitate the flow of profits back into the Canadian economy. The open letter specifies that these incentives should extend beyond the tech sector to include mining and advanced manufacturing. This push comes as the administration of Prime Minister Mark Carney has introduced business-friendly measures, such as the Productivity Mega-Deduction, following previous tensions under Prime Minister Justin Trudeau regarding capital-gains inclusion rate increases.