Alberta businesses balk at federal hike in capital-gains tax

C A LG ARY Alberta businesses say new tax increases on capital gains, announced Tuesday in the 2024 federal budget, will negatively affect investment in the province.

An increase on the capital-gains tax for wealthy individuals and companies was a headline feature of the federal government's budget — a measure some economists predicted after the Liberal government's multi-week tour announcing several multibillion-dollar initiatives.

The capital-gains inclusion rate will increase to 66 per cent, up from 50 per cent, on capital gains above $250,000 for individuals, and on all capital gains for corporations and trusts. Meanwhile, small businesses had their capital-gains exemptions increased by $250,000, while an entrepreneurs incentive was announced, lowering the rate on a lifetime maximum of $2 million in eligible capital gains.

In an interview ahead of the budget, University of Calgary economist Lindsay Tedds said increasing the inclusion rate was one of few options that would single-handedly provide a large boost to federal coffers. The Liberal government projects the change will yield $19.4 billion over four years.

Deborah Yedlin, president of the Calgary Chamber of Commerce, said in an interview that the chamber is “not terribly happy” with the increase.

“It won't encourage capital formation. That's a disincentive for individuals,” Yedlin said, adding it's not clear how it will affect corporations.

Lisa Baiton, president and CEO of the Canadian Association of Petroleum Producers (CAPP), while not referring directly to the capital-gains tax increase, said in a statement that adding “new corporate taxes on top of regulatory uncertainty and costs undermines Canada's attractiveness for investment on the global stage.”

Yedlin said the chamber echoes CAPP's statement.

Mike Holden, chief economist at the Business Council of Alberta, said during a moment in which business investment is flat and productivity is declining, “we need more capital investment and not less.”

“These changes disincentivize the exact kind of investment that we need in order to solve these problems,” he said.

It's unlikely the change will be warmly received in Alberta, as increasing the capital-gains tax could hinder investment in the province due to the higher cost of selling a business, said Charles St-Arnaud, chief economist at Alberta Central.

“There's still some concern in terms of growth in the investment environment,” he said. “It might, at the margin, change some of the mood surrounding investment.”

However, the effect will be spread out across several sectors, St-Arnaud said, compared to previous measures the federal government has taken, such as its one-time windfall tax on financial institutions reaping above-average profits.

The Alberta business community had feared ahead of the budget that such a tax would be applied to the oil and gas industry.

Overall, St-Arnaud added, the budget will still likely allow for a potential June rate cut from the Bank of Canada.

Yedlin commended the federal government for its entrepreneurs incentive, which should have a positive effect in Alberta due to its expanding startup universe.

“When you have a university in the city that is generating more startups than any other university in the country, this is great news,” Yedlin said.

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

Meanwhile, small- and medium-sized businesses will soon receive a long-awaited carbon-tax refund from Ottawa, which was holding on to billions of dollars while it figured out how to deliver it. Overall, $2.5 billion will be doled out to more than 600,000 businesses through a refundable tax credit — as long as they file their 2023 tax return by July 15.

The Canadian Federation of Independent Business (CFIB) has been advocating for those revenues to be distributed.

CFIB president Dan Kelly said in a statement the group was encouraged to see the province expand its eligibility rules, which the CFIB initially estimated would have only allowed about 20,000 businesses to benefit from the rebate.