Business Leaders Urge Federal Tax Incentives to Rejuvenate Venture Funding
Canada’s tech sector is urging Ottawa to adopt new capital gains tax incentives that would encourage more investment into high-growth startups.
In an open letter sent to Finance Minister François-Philippe Champagne on Tuesday, a group of more than 100 businesses, industry groups and executives called for two specific changes to the existing federal tax regime.
First, the letter said Ottawa should expand the Canadian Entrepreneurs’ Incentive, which since 2024 has offered lower capital gains tax rates for startup founders.
Second, the letter said entrepreneurs and investors should be allowed to defer capital gains on proceeds from selling a stake in a startup when that money is reinvested in another startup.
“For someone who has successfully built or backed a Canadian company, that would create a stronger incentive to put the proceeds back to work rather than take them out of the growth economy,” the letter said.
“These policies should not be limited to the technology sector. Companies in advanced manufacturing, life sciences, mining and natural resources, and other innovative sectors face many of the same challenges.”
The letter is part of a campaign from the Canadian Council of Innovators and the Canadian Venture Capital and Private Equity Association called Bet on Canada. Some of the notable signatories include Maverix Private Equity founder and CCI vice chair John Ruffolo, Borrowell chief executive officer Andrew Graham, CVCA CEO Ben Bergen and KOHO Financial Inc. CEO Daniel Eberhard.
Prime Minister Mark Carney’s recent Canada Investment Summit was about attracting major institutional investors to the country, the CVCA’s Mr. Bergen said in an interview.
“But this policy activates and mobilizes individual Canadians to participate in the economic investment opportunity that is in front of us right now.”
Now is a good time to ask as the government prepares to table its next budget, he said.
“Are we making sure that we are beginning to prepare the ground for the companies of the future?”
Currently, the Canadian Entrepreneurs’ Incentive offers lower tax rates for founding investors in a business on up to $2-million in capital gains. In order to be eligible, founders must own at least 10 per cent of a business that has been their principal employment for at least five years.
The letter proposes raising the cap to $15-million and broadening eligibility in order to better rival the U.S. Qualified Small Business Stock framework.
The QSBS deduction exempts all capital gains (up to either US$10-million or 10 times the initial investment, whichever is greater) made on investments in businesses with up to US$50-million in assets from federal taxes. Unlike the CEI, the QSBS does not differentiate between founders, investors and employees.
“These changes would make Canada more competitive with the United States,” the letter said.
“It would also send an important signal about Canada’s ambition: that we want the world’s most ambitious entrepreneurs to build here, successful investors to keep putting capital to work here, and world-class talent to see Canada as a place where taking a risk can be rewarded.”
The country has long struggled to maintain a robust growth capital ecosystem for domestic startups. The Senate committee on banking, commerce and the economy has spent the better part of 2026 studying the issue and is planning to release a list of recommendations for the federal government to consider in the coming months.
Implementing a QSBS-style incentive system and allowing capital gains referrals for reinvested startup proceeds are among several dozen ideas presented to the committee by Canadian entrepreneurs, investors and executives.
“Most investors who stand to benefit from this kind of incentive are not large institutional players, but ordinary Canadians,” the letter said. “At its core, this is about rewarding the risk Canadians take when they invest in other Canadians.”
This article was first reported by The Globe and Mail
