Montreal-native Robert Imbeault, co-founder of the billion-dollar Canadian tech company Assent Compliance Inc., says he no longer sees a future for large-scale entrepreneurship in Canada.
In Assent’s early years, Imbeault spent countless, sleepless nights working in the basement of his Ottawa home. The company now operates at a global scale and employs more than 1,000 Canadians.
“The early days [we were] … taking all of the risk … and definitely social sacrifice,” said Imbeault.
Imbeault sold most of his stake in Assent in 2020. He has spent the years since then investing in other companies and co-founding Heartee Foods, a mushroom product supplier.
Now, he finally feels ready to build another “unicorn” — the term given to companies that achieve billion-dollar valuations.
But Imbeault does not plan to do it here.
“There’s no way I’m staying to do that again, because we’re up to 66 per cent [inclusion rate] of capital gains,” said Imbeault, who is preparing to move from Ottawa to Arizona.
Imbeault is referring to Canada’s recent capital gains tax hike — and the uncertainty surrounding it. The changes are a deterrent to entrepreneurs building businesses in Canada, he says.
In Arizona, the tax on long-term capital gains is a maximum of 1.87 per cent, and the same tax federally is a maximum of 20 per cent. In Canada, Imbeault says, “I’m giving it all away — whatever I build.”
‘Reached their max’
Dan Kelly, president of the Canadian Federation of Independent Business, says Ottawa’s messaging around its capital gains tax increase “sends a really bad message” to business owners.
In its April 2024 budget, the federal government announced plans to increase the capital gains tax inclusion rate for individuals from 50 per cent to 66.67 per cent on annual gains greater than $250,000. For corporations, the hike applies to all capital gains.
However, efforts to implement this increase have been fraught.
In September, Ottawa tabled a Notice of Ways and Means Motion to have the House of Commons consider the increase. A parliamentary stalemate held up most legislative business throughout the fall.
On Jan. 6, Prime Minister Justin Trudeau prorogued Parliament, which annulled the motion. Yet, on Jan. 7, the Canada Revenue Agency issued a press release saying it planned to enforce the capital gains tax increase.
“[C]onsistent with standard practice, the CRA is administering the changes to the capital gains inclusion rate effective June 25, 2024, based on the proposals included in the [Notice of Ways and Means Motion] tabled September 23, 2024,” the agency’s statement said.
In a statement to Canadian Affairs, the Canada Revenue Agency said, “Parliamentary convention dictates that taxation proposals are effective as soon as the government tables a Notice of Ways and Means Motion.”
But Kelly says this move has frustrated entrepreneurs.
“Every day we hear from business owners that … they’ve reached their max and that they are looking for greener pastures to do business,” said Kelly.
‘Quiet quitting’
Elena Yunusov is executive director of the Human Feedback Foundation, a networking non-profit for professionals working with AI. Yunusov says entrepreneurs are “quiet quitting” Canada — meaning she is discovering they have left when she sends them invitations to foundation events.
“It’s been a recurring pattern” since October, said Yunusov. She says entrepreneurs will tell her, “‘I can’t [attend], because I’m in the process of moving to New York or the US’.”
In the past three weeks alone, three entrepreneurs have told her they have left when Yunusov reached out about an upcoming Toronto event.
Yunusov says the main reason entrepreneurs cite for leaving is the US’s better business policies. Canada’s capital gains tax hike felt “like a slap on the face to many.”
And this will have knock-on effects, she warns. Without an ecosystem of highly-skilled technology workers, other talented workers could also choose to leave.
Tech entrepreneurs are not the only ones leaving. Physicians — a majority of whom self-incorporate — feel the capital gains tax hike has become an additional stressor.
Many have decided to leave Canada, says Dr. Joss Reimer, president of the Canadian Medical Association. This will have broad societal repercussions, she says.
“We already have 6.5-million Canadians who don’t have access to a family doctor,” said Reimer. “Making doctors consider leaving practice is really concerning for the way it’s going to impact accessibility to health care for Canadians.”
‘Political uncertainty’
The “political uncertainty” in Ottawa is not helping matters, Yunusov says.
The Conservatives, who are leading in the polls, announced in a Jan. 16 press release that they would not implement the capital gains tax hike if they win the next election.
In Kelly’s view, it is a “real overreach” on the part of the Canada Revenue Agency to enforce the capital gains tax increase, given the likelihood of a new government scrapping the measure.
On Jan. 17, the C.D. Howe Institute, a think-tank, published a report advocating for Ottawa to abandon the increase, or to at a minimum delay the effective date to Jan. 1, 2025 or later.
A delay would “spare taxpayers the gamble of filing 2024 returns under a measure that may never pass,” the report said.
Benjamin Bergen, president of the Council of Canadian Innovators, a national business council, says there is a silver lining to the “crisis point” the country has reached.
““The conversation has moved from how do we redistribute, to how do we grow,” said Bergen. “We’ve got both of our national political parties debating what is the economic way forward for Canadians.”
But for some entrepreneurs, this talk is too little, too late.
“I literally have a tattoo, a Canadian Maple Leaf on me,” said Imbeault. “[But] I think anything I feel about Canada … is definitely usurped by the opportunity I’m giving my kids [by moving to the US] — that’s first and foremost.
“I want to have big ideas, and it’s hard to have big ideas and chase them in an ecosystem that doesn’t support them and then penalizes them — which is how the taxes felt.”
Re cap gain tax. There is no mention of small business rate. No mention of holding company for share allocations or family trusts. Historically with professional advice business income does get treated different than salaried income. Interesting no mention made of effective tax planning to reduce taxable cao gains.