Budget 2024 is part of the federal government’s plan to deliver generational fairness by unlocking the door to a good middle-class life for younger Canadians and drive economic growth in a way that lifts up all Canadians.
To encourage Canadian innovators to turn their ideas into growing businesses that create good jobs, the government announced the creation of the Canadian Entrepreneurs’ Incentive in this year’s budget. When it comes time to sell a business, this incentive would reduce the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains.
Combined with the increased $1.25 million Lifetime Capital Gains Exemption announced in Budget 2024, the Canadian Entrepreneurs’ Incentive, when fully rolled out, would make eligible business owners better off when selling business shares worth up to $6.25 million.
Today, as part of consultations to advance key budget priorities, the federal government announced new enhancements to the Canadian Entrepreneurs’ Incentive, to ensure innovators and small business owners, including farmers, are rewarded for their hard work.
- Eliminating the Founder Requirement and Reducing Ownership Requirements: Budget 2024 announced a requirement that business owners must be a founder who, at all times since founding the company, held 10 per cent or more of all common shares. Following feedback that this ownership requirement may not meet the needs of entrepreneurs, particularly in the tech and farming sectors, the government is now proposing to:
- Reduce minimum ownership levels to 5 per cent; and,
- Reduce minimum ownership time to any continuous 24-month period, at any time since the business’ founding, thereby eliminating the requirement to be a founder.
- Reducing the Level of Engagement Requirement: Budget 2024 announced that business owners must be actively engaged on a regular, continuous, and substantial basis for the five years immediately preceding the sale to benefit from the incentive. The government heard that many entrepreneurs may reduce their day-to-day involvement in a company prior to selling and that many business owners choose to sell before five years have elapsed. Recognizing the importance of innovation, the government is now proposing to:
- Reduce the period of active engagement on a regular, continuous, and substantial basis to any combined three-year period at any time since the founding of the business.
- Expanding Eligibility to More Small Businesses: Budget 2024 announced that small business corporation shares would be eligible property for the incentive, making eligible entrepreneurs better off when selling business shares worth up to $6.25 million. To expand the incentive to more small business owners, including the next generation of business owners, the government is now proposing to expand eligibility to:
- All qualified farming and fishing property; and,
- Additional small businesses.
- Accelerating the Rollout: Budget 2024 announced the incentive would increase by $200,000 annually over ten years, to reach $2 million by 2034. In response to entrepreneurs’ desire for the full incentive to be delivered sooner, the government is now proposing to:
- Double the annual phase-in increases to $400,000, to reach $2 million by 2029.
The government invites all interested Canadians and stakeholders to email their comments on these enhancements, which are further detailed in draft legislation released today, to consultation-legislation@fin.gc.ca by September 11, 2024.
Quick Facts
- In Budget 2024, the government is delivering fairness for every generation with a housing plan that includes nearly 4 million new homes; transformative expansions to Canada’s social safety net to make life cost less and ensure Canadians get the care they need; and investments in innovation and productivity to create good jobs and economic growth. The government’s plan for tax fairness makes these investments in younger generations possible by increasing capital gains taxes on 0.13 per cent of Canadians, in any given year, to generate $19.4 billion in new revenue over five years.
- The Canadian Entrepreneurs’ Incentive is one tool among many to support Canada’s tech sector. It complements other measures, such as the Venture Capital Catalyst Initiative, which helps increase the availability of capital; the Scientific Research and Experimental Development (SR&ED) tax incentive program, which the government is committed to enhancing; and the $2.4 billion investment in artificial intelligence to secure Canada’s competitive advantage.
Related Products
- August 12, 2024: Government consults Canadians on Budget 2024 measures to deliver fairness for every generation
- Draft Legislation: Legislative Proposals Relating to the Income Tax Act and the Income Tax Regulations - Canadian Entrepreneurs' Incentive