Leaders in Technology Caution of Capital-gains Measures May Hinder Entrepreneurship

Hinder Entrepreneurship
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Leaders in the technology industry argue that Ottawa’s proposed hike in capital gains taxes will dampen the innovation economy, hindering investment and risk-taking. They believe that these changes may dissuade entrepreneurs and tech professionals from launching startups and discourage venture funding by diminishing potential investor profits.

The Council of Canadian Innovators, a prominent technology industry organization, released an open letter on Wednesday evening denouncing the proposed measures. The letter, endorsed by over 250 signatures from Canada‘s leading tech companies and investment firms, voices opposition to the tax adjustments.

“The tech industry is viewing this budget as hostile,” Benjamin Bergen, the group’s president, said in an interview. “This shows a fundamental misunderstanding of how the innovation economy works. Ultimately, it will set our country back.”

As per the alterations outlined in the federal budget announced on Tuesday, businesses will now be subjected to income taxes on two-thirds of their capital gains earnings annually, up from the previous half. Similarly, individuals will face the same increase, but only on capital gains exceeding $250,000. Expected to be implemented on June 25, these measures are projected to contribute $19.4 billion to the government’s revenues over the next five years.

These changes will impact individuals who sell assets for profit, encompassing those who divest their businesses, convert stock options into common shares, or launch their businesses publicly.

The budget measures are arriving at “the worst possible time,” said Kim Furlong, chief executive officer of the Canadian Venture Capital and Private Equity Association.

Tech executives expressed their dissent regarding the new measures on social media platforms.

“In a period when our nation is grappling with significantly low productivity and business investment, our political leaders are letting down our country’s entrepreneurs,” wrote Harley Finkelstein, President of Shopify Inc., in a post on X.

She emphasized that interest rates remain elevated, and there has been a slowdown in mergers, acquisitions, and initial public offerings.

“The consequences are not only direct for investors and entrepreneurs but will also ripple through the entire economy. This sends a clear signal that risk-taking is being discouraged,” she remarked.

Numerous tech employees in nascent startups assume risks in anticipation of future rewards, including capital gains upon a company’s public debut. Targeting this aspect could convey the message that such risks may not yield worthwhile returns, Mr. Bergen suggested.

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