Prime Minister Justin Trudeau, Deputy Prime Minister, Minister of Finance Chrystia Freeland and cabinet ministers pose for a photo before the tabling of the federal budget on Parliament Hill in Ottawa, on Tuesday, April 16, 2024.The federal government is increasing the capital gains tax for wealthy individuals and companies, although lowering the tax rate for some entrepreneurs who sell their businesses.above $250,000 from one-half to two-thirds.
However, economists warn that new measures could dampen investment in Canada and further damage the country’s already-weak productivity growth. It also introduces a new “Canadian entrepreneur’s incentive” which lowers the amount of tax some small business owners will have to pay when they sell their companies. Eligible individuals, who found and run small private companies, will be taxed on only one-third of their capital gains, up to a lifetime limit of $2-million. This will be phased in over ten years, with entrepreneurs allowed to claim up $200,000 in capital gains at the lower inclusion rate each year.
“About half of the small business community is is excluded from accessing this measure,” Mr. Kelly said. “The auto mechanic is going to get a one-third inclusion rate, but the hair salon is going to get two thirds inclusion. We are struggling to figure out what the policy rationale is behind picking winners and losers within the business community.”
Robert Asselin, head of the Business Council of Canada, said capital gains changes announced on Tuesday were worse than other tax levers the government could have pulled.