CFIB says that half of business owners will be negatively impacted by changes
Shifting the inclusion rate for capital gains tax from 50% to 66.7% will negatively impact around half of Canada’s business owners, according to the Canadian Federation of Independent Business (CFIB).
More than half of respondents to the federation’s survey said the change will affect them when they come to sell their business, and more than four in ten say it will impact either their privately held investments, those held within their incorporated business, or both.
The blow to businesses is only part of the story with a report earlier this week revealing that one in five Canadians believe their income will be reduced due to the changed rules.
“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 an increase in the Lifetime Capital Gains Exemption is welcomed, the CFIB says this will only benefit business owners when they sell the assets rather than shares in their business. And investments held in companies for the owners’ retirement or for reinvestment in the business will also trigger the 66.7% rate for any capital gains as corporations are not eligible 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.
The CFIB has several things it would like to see to ease the burden on small business owners:
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
2. 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
Despite challenging times for businesses, including a high debt burden which is proving unsustainable for some, business confidence increased last month.
