CFIB Budget Comment: Capital gains and $2.5 billion in carbon tax rebates for small firms

The 2024 budget changes on capital gains will create many winners and losers among Canada’s entrepreneurs, according to the Canadian Federation of Independent Business (CFIB). CFIB notes important budget progress in unlocking $2.5 billion in carbon tax rebates for SMEs. 

Capital Gains Changes a Mixed Bag for Entrepreneurs

“The big surprise for small business is a series of changes to capital gains taxation,” said Dan Kelly, CFIB president. “Our early assessment is that most small business owners will come out ahead or be unaffected by today’s changes as a result of a boost in the Lifetime Capital Gains Exemption from $1 million to $1.25 million and a new Canadian Entrepreneurs’ Incentive for some sectors which will lower the capital gains inclusion rate to 33.3% on the next $2 million when fully phased in.”

But the capital gains inclusion rate increase to 66.7% will create many net losers, including owners of medium-sized businesses. In addition, owners of professional corporations (such as doctors), financial, insurance, food and accommodation, arts, recreation, entertainment and personal care services firms will be excluded from accessing the new Canadian Entrepreneurs’ Incentive and will be hit with more taxes on capital gains for sales of small business shares above $2.25 million.

 

 “CFIB will continue to advocate on issues that matter most to small businesses across the country”

“What worries me the most about the capital gains changes is the potential to demotivate Canadians from getting into business in the first place or working hard to grow a small business to a medium-sized business,” Kelly said. “CFIB will be pushing back against any increase in the capital gains inclusion rate for all small- and medium-sized business owners. It seems bizarre that government would single out some sectors of Canada’s SME community for higher taxes, including many of those hardest hit by pandemic restrictions like restaurants and arts and recreation firms.”

$2.5 Billion Carbon Tax Rebate for SMEs

“Carbon tax rebates owed to small businesses have been a long time coming, but we’re glad to see the government making progress on it. Most importantly, it is good to see government broaden its eligibility rules to include most small and medium-sized firms,” Kelly said.

Government has said it will “urgently” return over $2.5 billion owed to an estimated 600,000 businesses with fewer than 500 employees. CFIB understands all Canadian Controlled Private Corporations (CCPCs) that issue T4s in the eight provinces will receive a rebate cheque based on their number of employees.

“Many details of the size, scope and timing of carbon tax rebates for SMEs remains unclear,” Kelly added.  CFIB will continue to call on government to ensure the $2.5 billion is returned in 2024 with meaningful rebates for the smallest businesses and to raise the share of future SME rebates back to 9% of carbon tax revenue or more. 

“It is important to note that 82% of small firms now want the consumer carbon tax regime scrapped altogether,” Kelly said.

Taxes and Deficits

The government has not introduced a plan to bring the budget back to balance and continues to project huge deficits for the foreseeable future.

Other Budget Measures

• CFIB is encouraged to see Accelerated Capital Cost Allowance to allow businesses to immediately write off the full cost of innovation and productivity enhancing assets, such as computers and data infrastructure, starting today to January 1, 2027. 
• The budget makes important progress on Employee Ownerships Trusts, allowing business owners to access a special capital gains exemption of up to $10 million when selling a business to their employees.

CFIB will continue to advocate on issues that matter most to small businesses across the country.