STUDY: If Ottawa Moves Ahead With Planned Capital Gains Tax Increase, Private Equity Investment Will Fall by Nearly Half, Harming Entrepreneurs and Businesses – Fraser Insitute

By: Douglas Cumming

Capital Gains Tax Hikes in Canada and Their Impact on Venture Capital and Private Equity

• Starting June 25, 2024, Canada’s federal government increased the inclusion rate for the capital gains tax from 50% to 66.67% for corporations and for individual capital gains over $250,000.
• There is reason to be concerned with higher capital gains taxes in the middle of a productivity crisis in Canada.
• The evidence from Canada and around the world is consistent with the view that the supply of venture capital and private equity is reduced in the presence of higher capital gains taxes.
• The move to a higher capital gains tax also contradicts efforts to cultivate a venture-capital-financed technology cluster in Canada.
• This tax hike on capital gains will reduce the number of venture capital deals in Canada by approximately 22% (or 107 deals per year) compared to the historical average levels of venture capital deals over the 1977-to-2024 period.
• Increasing taxes on capital gains is projected to reduce the number of venture capital deals by 20% compared to 2023 levels.
• The higher capital gains tax inclusion rate is estimated to reduce the dollars of private equity investment in Canada by over 48% relative to the historical average levels of investment over the 1977-to-2024 period, or by 18% compared to 2023 levels.

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