This morning, Finance Minister Chrystia Freeland met with a group of Canadian technology industry leaders in Toronto to discuss the federal government’s recent capital gains tax hikes, which have fuelled widespread backlash from tech entrepreneurs and investors.
“If this is going to be as detrimental to our sector as we think it is, and to Canada in general, we’ve got to keep organizing.”
BetaKit has confirmed that in addition to Freeland, the meeting’s participants included Council of Canadian Innovators (CCI) president Ben Bergen, MaRS Discovery District CEO Alison Nankivell, Maverix Private Equity founder and managing partner John Ruffolo, Passage founder and CEO Martin Basiri, Radical Ventures co-founder and managing partner Jordan Jacobs, and Waabi founder and CEO Raquel Urtasun.
This meeting began at 10:30 a.m. today and concluded at 12:30 p.m. after running an hour long. Details of the discussions are scant: when reached by BetaKit, multiple attendees declined to comment on the conversation beyond noting that the group was “working together to find a solution that will enable Canada’s future prosperity.”
Appearing on a forthcoming episode of the BetaKit Podcast recorded immediately following the meeting, CCI president Benjamin Bergen spoke about the circumstances that led to it, noting that the Canadian tech sector’s response to this policy has been centred on its perceived consequences for capital availability, access to talent, and the retention of businesses in the country.
“It’s making it more difficult to invest because returns will be taxed at a higher rate,” said Bergen. “It’s potentially going to cause problems for firms being able to keep and retain talent here in Canada because tools like stock options become less desirable … And then the third element is, if you’re not able to raise capital to the same extent, do you look at going elsewhere?”
Many Canadian tech leaders have expressed strong opposition to these moves, arguing that they stand to stifle entrepreneurship and investment in innovation at a time when Canada already faces significant productivity challenges. Over 1,400 of them have already signed an open letter from CCI calling on the feds to reverse course.
Bergen told BetaKit that he left the meeting with unanswered questions about how these changes will work, their potential impact, and why they are being made.
BetaKit reached out to the Ministry of Finance to ask if the department has any plans to scrap the capital gains measures or adjust these changes to address the tech sector’s concerns.
RELATED: Capital gains tax changes strike a nerve with Canadian tech ecosystem
A Ministry of Finance spokesperson declined to comment on the record to BetaKit but argued that the government’s budget is fair and that Ottawa is asking those who can afford to pay more to do so.
The spokesperson said workers such as servers or carpenters should not have to pay a higher marginal tax rate than multimillionaires. They also noted that in the 1990s, the capital inclusion rate was 75 percent, a moment in time when productivity was at “its highest” but that productivity dropped when capital inclusion rates dropped to half in the early aughts.
Earlier this week, in Budget 2024, the feds proposed raising the inclusion rate on capital gains from half to two-thirds for all businesses and trusts and individuals that earn more than $250,000 CAD as part of a push to finance billions in new spending and increase tax fairness between middle-class and wealthy Canadians.
To help offset the impact of this hike, the government also outlined plans to increase the Lifetime Capital Gains Exemption from just over $1 million to $1.25 million and launch a new Canadian Entrepreneurs’ Incentive to reduce the inclusion rate to 33.3 percent on a lifetime maximum of $2 million in capital gains.
The Ministry of Finance told BetaKit that senior federal government officials have been meeting with senior tech leaders regarding the proposed changes in the budget, including today’s meeting, appearing to signal a willingness to work with industry players on this matter.
RELATED: What’s in Budget 2024 for Canadian tech?
In a press conference following the meeting, Freeland doubled down on these changes and Budget 2024’s other proposals.
Speaking directly to some of the criticisms, Freeland said, “The rate that we have set means capital gains will—again without the $250,000 tier—be taxed at a lower rate than they are in California or in New York City. And I do really want to say, we believe in this budget. We really believe in the investments this budget is making.”
For his part, Bergen noted that it remains unclear how exactly these capital gains tax changes will play out, adding that the feds did not conduct a technical briefing after they were announced, which he said is “quite unusual” when it comes to this type of tax policy. He added that CCI and other industry leaders have asked for the government to share the documentation it claims to have illustrating that capital gains tax increases do not hurt innovation.
“In terms of what’s next, I think we’ve got to keep pushing,” said Bergen. “If this is going to be as detrimental to our sector as we think it is, and to Canada in general, we’ve got to keep organizing, we’ve got to keep coming together, and we’ve got to really make it clear what this means for Canadians.”
With files from Douglas Soltys and Bianca Bharti.
Feature image courtesy CPAC.