With less than a week before Canada’s capital gains tax inclusion rate is set to rise, the country’s largest small-business association is renewing calls for the federal government to scrap the change or risk negatively impacting thousands of enterprises and their owners. 

The Canadian Federation of Independent Business (CFIB) said in a Thursday press release that based on a recent survey, half of all small-business owners in Canada will be affected by the new 66.7 per cent capital gains inclusion rate set to take effect on June 25.

“Despite (the) government’s claim that the rate would affect only a tiny share of the wealthiest Canadians, over half (55 per cent) of small business owners say it will affect the eventual sale of their business,” the release said.

Another 45 per cent said the tax changes would affect the investments they hold privately, while 41 per cent said it would affect investments held within their businesses, the survey found.

“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 per cent inclusion rate on any capital gain as corporations are ineligible for the $250,000 annual allowance at the 50 per cent level,” the release said. 

CFIB president Dan Kelly said more than 300,000 Canadian corporations reported net capital gains in 2022. He argued that many businesses realize capital gains just once or occasionally rather than every year, making the proposed increase to the inclusion rate unnecessarily punitive.

“The impact of the hike in the inclusion rate needs to be measured over the long term, not just in any one given year,” Kelly said.

“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.”

Letter to Freeland

The CFIB sent a letter to federal finance minister Chrystia Freeland late last month, laying out its recommended changes to the proposed legislation.

Despite its opposition to the inclusion rate increase, it asked the government to keep certain “positive measures,” such as the increase to the lifetime capital gains exemption from 1 million to 1.25 million.

Still, the letter said that 60 per cent of CFIB members opposed the legislation as a whole without “critical amendments.” The CFIB also took issue with the timeline for the implementation of the changes, which it said left business owners scrambling.

“CFIB and tax advisors have been fielding hundreds of calls from business owners without having access to the full information needed to make critical decisions in an incredibly tight time frame. This is deeply unfair,” the letter said.

“Most small business owners are part of the middle class. Increasing the capital gains inclusion rate will not only impact the wealthy but many who are in the middle class, and those they employ.”

Methodology

The online survey was conducted from May 2 - 17, 2024. The number of respondents was 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 per cent, 19 times out of 20.