(Toronto) The federal budget is being met with scorn by Canada’s innovation industry, including tech darling Shopify, which has called measures surrounding capital gains a potential cause of “irreparable harm.”
The sector is disappointed with the Liberal government’s proposal to increase the proportion of capital gains on which businesses pay income tax. Two-thirds of earnings will be taxed, rather than half.
The increase would also apply to individuals whose capital gains exceed $250,000 per year. It would come into force on June 25.
The increase would only affect the richest 0.13% and would generate 19.3 billion in revenue over the next five years. However, the proposal was met with consternation from the tech industry, which derided the changes.
“My phone was blowing up with text messages from leaders across the country saying, ‘This is a nightmare. You need to fix this problem. They don’t know what they’re doing,” said the president of the Council of Canadian Innovators, Benjamin Bergen, on Wednesday.
At the heart of the comments he received was a sense that the potential changes would encourage entrepreneurs to open their businesses elsewhere and drive sector workers away from Canada as they try to avoid paying more tax when They cashed in stock options.
“If taxes and capital gains are so punitive that it doesn’t make sense for someone to stay in the country or choose to leave a job, perhaps a more traditional one, to go start a new business, you are depriving (the country) has the talent it needs,” says Mr. Bergen.
Of the 500 companies surveyed by consultancy KPMG in 2021, 80% said they need more workers with digital skills, but two-thirds struggle to find and hire such talent.
The report was released before artificial intelligence began to explode following the release of ChatGPT in 2022, which has only increased the demand for tech talent.
“A tax on innovation”
While the capital gains measures are seen as a way to tax the richest, Bergen said the budget’s contents could affect tech workers who don’t hold management positions.
“Individuals who join start-ups and scale-up companies early in their journey are offered stock options and other benefits, which are ultimately determined as capital gains in the future,” he says.
“It’s the marketing experts, the business experts, the legal experts who are traditionally mid-career who […] are completely undermined by this type of political leverage implemented. »
These concerns have also trickled down to the highest echelons of Canadian tech. Several Shopify executives, including Chairman Harley Finkelstein, reacted to the capital gains changes at social network X.
“It is not a tax on wealth, it is a tax on innovation and risk-taking,” he wrote on Wednesday. Our policy failures are America’s gains. »
Meanwhile, the president of the Canadian Venture Capital Association said on LinkedIn that the capital gains changes left her “bewildered.”
This measure, which effectively taxes innovation and risk-taking, will significantly weaken Canada’s entrepreneurial spirit, stifle economic growth in critical sectors of our economy and impact job creation.
Kim Furlong, President of the Canadian Venture Capital and Private Equity Association
“Such a policy shift undermines Canada’s ability to attract the talent needed to grow and expand businesses here,” she continues.
Mme Furlong promised to “work tirelessly to reverse the decision.”
Overshadowed benefits
Alison Nankivell, executive director of the MaRS innovation center in Toronto, sees this reaction to the budget as reflecting a tug of war that can pit equity against economic opportunity.
“In some ways, what you’re hearing from the entrepreneurial community is a sense that maybe that balance isn’t what they want in terms of their ability to build a business,” she mentions.
The tensions have obscured some of the benefits she noted in the budget for the sector.
For example, the government has set aside 2.4 billion to boost artificial intelligence (AI) capacity, with the majority going into a fund to increase access to IT and technical infrastructure.
Mme Nankivell is glad AI is getting some attention, as she said Canada needs to ask itself whether it has enough capacity in chips and server farms to power future uses of the technology.
Money has also been allocated to a program that sees Ottawa work with the private market to co-invest in promising Canadian companies, creating the Financial Consumer Agency of Canada to oversee the opening of the system banking and shape the country’s approach to reporting cryptocurrency assets.