New amendments to the Canadian Entrepreneurs' Incentive offer relief, but many SMEs remain excluded
The federal government has revealed new details about the Canadian Entrepreneurs' Incentive (CEI), a measure proposed in the budget to mitigate some of the negative effects of the increased capital gains inclusion rate.
The CEI aims to reduce the capital gains tax burden for certain business owners when they sell shares of their businesses.
While these changes do not fully offset the negative impact of the inclusion rate hike, the Canadian Federation of Independent Business (CFIB) expressed satisfaction with the government's adoption of three of its top four proposed amendments.
The amendments include expanding access to the program for farmers and fishers selling property, not just shares, and allowing personal services businesses to qualify for the incentive.
Additionally, the founder rule has been eliminated, enabling those who invest later to benefit from the CEI. The incentive will also be phased in over five years instead of the initially proposed ten.
Despite these positive changes, the government has not addressed the need to expand the CEI to all entrepreneurs.
As a result, hundreds of thousands of small businesses, including restaurants, hotels, and those in finance, insurance, real estate, arts, entertainment, recreation, and professional services like doctors, lawyers, and accountants, remain excluded from the program.
The CFIB argues that there is no justification for the different tax treatment between a retail shop and a local restaurant.
While the CEI itself is a positive step, the new amendments will not benefit business owners who sell assets rather than shares (except for farms and fishers) or those who have capital gains within their corporations. For these entrepreneurs, the increase in the inclusion rate will have a significant impact.
Dan Kelly, president of CFIB, stated that the organization will continue to advocate for the reversal of the inclusion rate hike and the expansion of the CEI to all small and medium-sized enterprises (SMEs).
