Canadian tech companies believe new capital gains tax changes will harm investment and talent retention
A survey of Canadian tech companies shows 9 out of 10 respondents believe the federal government’s changes to its capital gains policy will negatively impact the industry, as reported by BNN Bloomberg.
The new policy increases the portion of capital gains taxed from one-half to two-thirds, applying to both companies and individuals with capital gains over $250,000. Although the change took effect in June, the accompanying legislation is expected to be introduced and debated in the fall.
Members of the CCI view this change as harmful to the sector and the country. Sixty percent of the respondents, who participated in the online survey between June 18 and July 9, believe the capital gains changes will have a “very negative” impact on investment.
Additionally, 86 percent think the changes will make it harder to attract and retain talent, especially in a tech environment that 50 percent of respondents described as “unhealthy.”
CCI president Benjamin Bergen pointed to data showing that 122,000 Canadians moved to the US in 2022, likely including tech workers seeking higher salaries and entrepreneurs looking for better access to funding. Sixty-seven percent of survey respondents identified accessing capital as their top challenge.
Bergen remarked, “It was bad before this capital gains piece came in, and now it’s only going to get worse.”
This sentiment is echoed by leading tech figures, such as Shopify Inc. president Harley Finkelstein. Following the budget announcement, he expressed his frustration on X, stating, “What. Are. We. Doing?!?”
What. Are. We. Doing 🇨🇦 ?!? https://t.co/P6LVwloaUM
— Harley Finkelstein (@harleyf) April 16, 2024
He later added, “This is not a wealth tax, it’s a tax on innovation and risk-taking. Our policy failures are America’s gains.”
We need to be doing everything we can to turn Canada into the best place for entrepreneurs to build 🇨🇦
— Harley Finkelstein (@harleyf) April 17, 2024
What's proposed in the federal budget will do the complete opposite. Innovators and entrepreneurs will suffer and their success will be penalized -- this is not a wealth tax,…
Tech workers are significantly impacted by the capital gains changes due to their high compensation and stock ownership. Research from The Dais, a public policy organization at Toronto Metropolitan University, showed that the median Canadian tech worker held $84,000 in unsold equity.
In 2021, about 1,960 tech workers declared more than $250,000 in capital gains. The report indicated that 0.20 percent of tech workers would be affected by the change, compared to 0.15 percent of non-tech workers.
Since April, the CCI has opposed the tax, drafting an open letter to Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland, urging them to reconsider.
More than 2,000 tech workers, including Lightspeed Commerce Inc. CEO Dax Dasilva and 1Password founder Roustem Karimov, have signed the letter.
Bergen remains hopeful for change, stating, “There is an opportunity to make it less bad. But how do you take something from being a punch in the gut to maybe just a slap across the face?”
The Council of Canadian Innovators (CCI), representing and advocating for the tech sector, conducted the survey with 143 tech leaders. This survey comes in response to the federal government’s April budget, which announced the change.
