DAN KELLY
OTTAWA – Half of Canada’s small business owners will be hit by the new 66.7% inclusion rate hike coming into effect on June 25, warns the Canadian Federation of Independent Business (CFIB).
Despite government’s claim that the rate would affect only a tiny share of the wealthiest Canadians, over half (55%) of small business owners say it will affect the eventual sale of their business, 45% say it will affect the investments they hold privately, and 41% say 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.
While the federal government has proposed a welcome increase in the Lifetime Capital Gains Exemption, this will not help business owners who sell the assets, rather than the shares, of their company. In addition, 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.
CFIB continues to push the government to:
1. Scrap the planned increase in the general inclusion rate to 66.7%. If government is unwilling to abandon this plan, it should:
- Grandfather all existing capital gains using a V-Day (valuation day) as was done in 1971
- Allow corporations to benefit from $250,000 each year at 50% inclusion like individuals
- Allow for 5-year income averaging to benefit from the $250,000 annual threshold for larger capital gains for irregular events, like selling a property
- Expand the new Canadian Entrepreneurs’ Incentive to include all entrepreneurs:
- Include all sectors, including farmers and fishers selling assets
- Include non-founders to encourage people to invest in small firms
- Cut the 10-year implementation schedule in half
Read CFIB’s letter for a full list of recommendations on the proposed capital gains changes.
Methodology
Final results for the CFIB Survey – Upcoming Changes to Capital Gains Tax. The online survey was conducted from May 2 – May 17, 2024, number of respondents = 2,335. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of at most +/-2.0%, 19 times out of 20.
