Canadian Contractor

By CFIB   

Half of small businesses to be negatively impacted by hike in capital gains inclusion rate: CFIB

Canadian Contractor capital gains cfib rate hike small business

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Half of Canada’s small business owners will be hit by the new 66.7 per cent inclusion rate hike coming into effect on June 25, warns the Canadian Federation of Independent Business (CFIB).

Despite the government’s claim that the rate would affect only a tiny share of the wealthiest Canadians, over half (55 per cent) of small business owners say it will affect the eventual sale of their business, 45 per cent say it will affect the investments they hold privately, and 41 per cent say it will affect investments held within their incorporated businesses.

“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 the federal government has proposed a welcome increase in the Lifetime Capital Gains Exemption, this will not help business owners who sell the assets, rather than the shares, of their company. In addition, business owners who hold investments within their corporations for the owner’s retirement or for reinvestment in the company will be hit by the 66.7 per cent inclusion rate on any capital gain as corporations are ineligible for the $250,000 annual allowance at the 50 per cent level.

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“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.

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