Independent businesses raise concerns on capital gains tax measure

A national federation representing independent businesses has raised concerns about the federal government’s Canadian Entrepreneurs' Incentive (CEI), which aims to alleviate the negative effects of the increased capital gains inclusion rate.

On August 12, Trudeau’s government shared new information on the CEI, which will lower the capital gains paid by certain business owners when they sell their company’s shares.

While the CEI introduces significant relief for certain business owners, it falls short of addressing the needs of all entrepreneurs, leaving some sectors and business types at a disadvantage.

The Canadian Federation of Independent Business (CFIB) said that without the expansion, hundreds of thousands of small businesses will continue to be excluded, including restaurant and hotel owners, those in finance, insurance, real estate, arts, entertainment, and recreation, and professionals like doctors, lawyers, and accountants.

In a post on X, CFIB’s president, Dan Kelly, said these moves are overall positive. However, he noted the government neglected one of the most critical changes: the need to expand the CEI to all entrepreneurs.

Government just dropped new details of the Canadian Entrepreneurs' Incentive. My initial read is that Finance moved forward on 3 of CFIB's top 4 proposed amendments:
1. Farmers and fishers selling property will now have access (they were excluded before).
2. The founder rule has…

— Dan Kelly (@CFIB) August 12, 2024

In a statement, the CFIB also said it is pleased with the government's movement regarding three of its four proposed amendments:

1. Farmers and fishers selling property will now have access to the program (only those selling shares were included before). Personal services businesses will also now have access to the incentive.
2. The founder rule has been dropped, allowing those who invest later to benefit.
3. The incentive will be phased in over five years rather than 10.

However, Kelly said these changes do not fully negate the negative impact of the hike in the inclusion rate.

“There is no good reason to exclude any small business from this helpful new measure. In addition, today's changes do not offset the harmful increase in the capital gains inclusion rate from 50% to 66.7%,” Kelly said.

“The changes will help many, but not biz owners who sell their assets rather than shares (other than farms/fishers) or those who have capital gains within their corporations.”

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