Alberta companies reject the federal budget's capital gains tax hike

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Alberta entrepreneurs say new capital gains tax increases announced in the 2024 federal budget on Tuesday will hurt investment in the province.

A capital gains tax increase for the wealthy and companies was a central feature of the federal government's budget – a move some economists had predicted after a multi-week tour of the Liberal government announcing several billion-dollar initiatives.

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Increases from 50 percent to 66 percent on capital gains over $250,000 for individuals and all capital gains for corporations and trusts. In addition, the small business capital gains exemption was increased to $250,000, and an entrepreneur incentive was announced, reducing the rate to a lifetime maximum of $2 million.

University of Calgary economist Lindsey Tedds said in an interview ahead of the budget that increasing inclusion rates is one of several options that could provide a big boost to federal coffers. The Liberal government estimates the change will generate $19.4 billion over four years.

Deborah Yedlin, president of the Calgary Chamber of Commerce, said in an interview that the chamber was “very unhappy” with the increase.

“It does not encourage capital formation. It's going to incentivize individuals,” Yedlin said, adding that it's unclear how it will affect corporations.

Lisa Beighton, president and CEO of the Canadian Association of Petroleum Producers (CAPP), said in a statement that “adding new corporate taxes on top of regulatory uncertainty and costs will undermine Canada's attractiveness for investment,” without directly referring to the capital gains tax increase. in the global arena.”

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Yedlin said the House would echo CAPP's statement.

Mike Holden, chief economist of the Alberta Business Council, said at a time when business investment is flat and productivity is falling, “we need more capital investment, not less.”

“These changes don't encourage the exact type of investment we need to address these issues,” he said.

“Some Growth Concerns”

Alberta is unlikely to welcome the change warmly, as a capital gains tax hike could discourage investment in the province due to the higher cost of selling businesses, said Charles St. Arnaud, Alberta Central's chief economist.

“There are still concerns about the growth of the investment environment,” he said. “It could change sentiment around investment at the margin.”

However, the impact will spread across several sectors, St-Arnaud said, compared to previous measures taken by the federal government, such as a one-time windfall tax on financial institutions with above-average profits.

Alberta's business community feared before the budget that such a tax would be applied to the oil and gas industry.

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Overall, St. Arnaud added, the budget still leaves room for a possible June rate cut from the Bank of Canada.

There are positives to be found in a budget

Yedlin praised the federal government for encouraging entrepreneurs, which should have a positive impact as the startup world expands in Alberta. “It's great news to have a university in town that produces more startups than any other university in the country.”

CAPP also praised the federal government for including the oil and gas industry in the $5 billion National Loan Guarantee Program, which provides loans to help indigenous communities invest in natural resources and energy products. The association called it a “remarkable achievement”.

Meanwhile, small and medium-sized businesses will soon get back a long-awaited carbon tax from Ottawa, which has withheld billions of dollars while it figures out how to deliver them. In total, more than 600,000 businesses will receive $2.5 billion in refundable tax credits when they file their 2023 tax returns by July 15.

The Canadian Federation of Independent Business (CFIB) advocated for this revenue sharing.

In a statement, CFIB president Dan Kelly urged the group to look into expanding the province's eligibility rules, which the CFIB initially estimated would allow about 20,000 businesses to benefit from the exemptions.

— With Canadian Press files

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