Ottawa's recent changes to the Canadian Entrepreneur Incentive leave many entrepreneurs facing higher taxes
The federal government’s recent adjustments to the Canadian Entrepreneur Incentive (CEI) have not fully addressed concerns from business groups, according to The Globe and Mail.
They say small business owners and entrepreneurs still face a higher tax burden when selling their companies.
Announced on Monday, the tweaks include extending the CEI to cover agriculture and fishing properties and relaxing certain eligibility criteria.
The CEI was initially introduced in the spring budget to offset a broader increase in capital-gains taxes, where the inclusion rate was raised from 50 percent to 66 percent for businesses and individuals with annual gains above $250,000.
The Liberals justified the tax increase by citing the need for public investments in housing and affordability initiatives. However, the change sparked significant backlash from the business community, who feared it would stifle investment and discourage entrepreneurship.
This week’s modifications to the CEI, including scrapping the requirement for company founders and accelerating the program's rollout, were seen as a response to this criticism.
Dan Kelly, president of the Canadian Federation of Independent Businesses, acknowledged that the CEI would reduce taxes for many small business owners, especially those selling companies for less than $6.25m.
The CEI lowers the inclusion rate to 33 percent on profits up to $2m, in addition to an increased capital-gains tax exemption for small business owners.
However, Kelly criticized the government for excluding sectors such as doctors' offices, restaurants, hotels, and real estate firms from the incentive, calling the decision “unfair and deeply disappointing.”
He also noted that the overall increase in the capital-gains inclusion rate still poses a significant challenge for small business owners.
Doctors, who were vocal opponents of the capital-gains tax changes in the spring, expressed dissatisfaction with the CEI revisions.
The Canadian Medical Association stated that the changes do not benefit incorporated physicians, urging the government to apply the old 50-percent inclusion rate to professional medical corporations for gains under $250,000.
Farmers, who stand to benefit from the expanded CEI, still have concerns. Representatives from farm lobby groups, including the Grain Growers of Canada, acknowledged that while some farmers would see a reduced tax burden, most would still be worse off compared to the previous 50-percent inclusion rate.
The increasing value of farmland could result in significant capital-gains liabilities when sold or passed to the next generation.
Ben Bergen, head of the Council of Canadian Innovators, welcomed the removal of the founders requirement but pointed out that venture-capital investors and tech workers who rely on stock options remain excluded from the CEI.
He criticized the changes as insufficient, stating that while they may reduce the burden on founders, they do not support talent and capital.
Finance Minister Chrystia Freeland’s spokesperson, Katherine Cuplinskas, defended the government’s actions, stating that the tax changes aim to make the system fairer, a move she described as “the fiscally responsible thing to do.”
