Capital Gains Changes a Mixed Bag for SMEs

The federal government’s changes to capital gains taxation that were included in its 2024 budget will likely benefit small businesses.

This is according to Dan Kelly, president of the Canadian Federation of Independent Business.

“Our early assessment is most small business owners will come out ahead or be unaffected by (the) 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 per cent on the next $2 million when fully phased in.”

But the capital gains inclusion rate increase to 66.7 per cent will create many net losers, including owners of medium-sized businesses. Others will be excluded from accessing the Canadian entrepreneurs’ incentive and will be hit with more taxes on capital gains for sales of small business shares above $2.25 million, though this will not affect furniture, mattress and appliance retailers.

“What worries me 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,” says Kelly.