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Deputy Prime Minister and Minister of Finance Chrystia Freeland arrives to a caucus meeting on Parliament Hill in Ottawa on Wednesday, April 17, 2024. THE CANADIAN PRESS


April 18, 2024

The federal budget has sparked discontent within Canada's innovation sector, with industry players expressing concern over proposed capital gains measures. Among the critics is Shopify, a prominent tech company, which warned of potential "irreparable harm" resulting from the fiscal plan.

Key among the grievances is the Liberal government's proposal to increase the portion of capital gains subject to income tax, from one half to two-thirds. This adjustment would also extend to individuals earning capital gains above $250,000 annually.

Although the government estimates that this change would only affect the wealthiest 0.13% and generate $19.3 billion in revenue over five years, the tech industry has voiced strong opposition. Benjamin Bergen, President of the Council of Canadian Innovators, conveyed widespread dismay within the sector, citing concerns that such measures could drive entrepreneurs away and discourage tech talent from remaining in Canada.

The potential impact on workers beyond senior positions is highlighted, as many employees receive stock options in startups and scaleups, which could be affected by the proposed tax changes.

The Council of Canadian Innovators rallied against the measures, drafting an open letter to Prime Minister Justin Trudeau and Finance Minister Chrystia Freeland, garnering signatures from leaders of 200 companies.

In response, Freeland's office defended the capital gains adjustments as a move towards fairness for younger Canadians grappling with living costs. Additionally, the budget introduced a program to reduce tax burdens for small business owners selling their companies, aiming to tax only one-third of their capital gains up to $2 million.

Shopify executives, including President Harley Finkelstein, expressed frustration with the proposed changes, framing them as a hindrance to innovation and risk-taking. CEO Tobi Lütke also criticized the government's approach, suggesting it may deter innovation in Canada.

Other industry figures echoed these sentiments, with concerns raised about the impact on entrepreneurial spirit, economic growth, and job creation.

Despite the backlash, the budget includes some initiatives aimed at supporting the tech sector, such as a $2.4 billion allocation to bolster AI capacity and funding for programs to co-invest in Canadian companies. However, the overall sentiment within the innovation community reflects a perceived imbalance between fairness and economic opportunity.

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