150+ Investors and Tech Leaders Push Carney Liberals for U.S.-Style Capital-Gains Breaks

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Canada’s effort to keep more investment dollars and entrepreneurial wealth at home is moving deeper into tax policy. More than 150 investors and technology leaders have signed an open letter urging Finance Minister François-Philippe Champagne and Prime Minister Mark Carney’s Liberals to adopt a stronger U.S.-style incentive for early investors and make it easier to defer capital-gains tax when proceeds are reinvested in Canadian companies.

The “Bet on Canada” campaign lands as Ottawa prepares Budget 2026 after already cancelling a proposed capital-gains inclusion-rate increase, lifting the Lifetime Capital Gains Exemption and expanding business-investment tax incentives. Supporters argue the next gap is risk capital: rewarding people who back young Canadian firms and encouraging successful founders and investors to put exit proceeds back to work. The harder question is how much tax relief is justified, and who ultimately benefits.

A Coordinated Push Lands Before Budget 2026

The campaign is being led by the Council of Canadian Innovators and the Canadian Venture Capital and Private Equity Association, with participation from groups including the National Angel Capital Organization, C100, CPA Ontario and the Chartered Business Valuators Institute. More than 150 investors and technology leaders signed the letter sent to Champagne. Their request is built around two measures: a Canadian incentive modelled on the U.S. Qualified Small Business Stock regime and a broader capital-gains rollover for people who reinvest proceeds from one Canadian business into another.

The coalition is deliberately presenting the proposal as more than a technology-sector tax break. Its advocates say the rules should also support areas such as advanced manufacturing and mining, where young Canadian companies can require years of patient capital before reaching scale. The timing is significant. Federal pre-budget consultations for Budget 2026 closed in September, and Finance Canada has said the fall budget will focus in part on investment, competitiveness and helping businesses grow. That puts the request directly inside a policy debate the Carney government is already having.

The First Ask Is a Much Bigger Exit Incentive

Canada already provides a substantial tax preference when owners dispose of qualifying small-business shares. The federal government says the Lifetime Capital Gains Exemption has been increased to $1.275 million for eligible entrepreneurs. The new campaign argues that this ceiling is too small to meaningfully change the economics for investors taking repeated bets on early-stage companies. Its proposed Canadian version of the U.S. model would raise the potential benefit dramatically, with advocates calling for a maximum of $15 million per transaction rather than relying on one comparatively limited lifetime amount.

The groups also want eligibility to reach beyond founders. BetaKit reported that the proposal would include early stockholding employees and investors, reflecting how startup equity is often spread among people who take financial or compensation risk long before a company becomes valuable. There is recent Canadian precedent for trying a broader incentive: Budget 2024 proposed a Canadian Entrepreneurs’ Incentive with a 33.3 per cent inclusion rate on as much as $2 million of eligible lifetime gains. That measure was ultimately cancelled as part of the government’s decision not to proceed with its earlier capital-gains package.

The U.S. Benchmark Became More Generous in 2025

The American comparison matters because the U.S. Qualified Small Business Stock rules became more generous in 2025. Under current federal law, qualifying stock acquired after the July 2025 change can receive a 50 per cent gain exclusion after three years, 75 per cent after four years and 100 per cent after five years or more. The stock generally must be original-issue shares in a qualifying domestic C corporation that meets active-business requirements, so the benefit is targeted rather than a blanket exemption on every private-company investment.

The size of the U.S. preference is also far larger than Canada’s general small-business exemption. For newly eligible stock, federal law sets a US$15-million per-issuer dollar limit, while also retaining an alternative limit based on 10 times the taxpayer’s adjusted basis in the shares. The gross-asset ceiling for a qualifying small business was raised to US$75 million. Those details help explain why Canadian advocates see the American regime as a competitive benchmark: it rewards long holding periods while allowing exceptionally large gains from a successful young company to receive favourable federal tax treatment.

Canada Already Has a Rollover — the Campaign Wants It Broader

The second proposal needs an important qualification: Canada already has a capital-gains rollover for certain small-business investments. Section 44.1 of the Income Tax Act allows an individual to defer tax on a gain from qualifying small-business shares when proceeds are reinvested in another qualifying small business. Parliament expanded those rules in 2026. The changes allow preferred shares to qualify, raise the relevant corporate asset ceiling from $50 million to $100 million and extend the replacement-investment window through the full calendar year after the disposition. The amendments apply to qualifying dispositions from January 1, 2025.

What the “Bet on Canada” coalition is seeking is a broader and more usable recycling mechanism. Its advocates want investors who realize gains on one Canadian business to be able to redeploy those proceeds into another Canadian-owned corporation and defer the tax rather than immediately remove a portion of the capital from the next investment. The distinction matters: a rollover generally postpones tax; it does not automatically erase it. The policy argument is therefore about keeping more successful exit capital circulating through Canadian companies for longer.

The Venture Data Explain Why the Pitch Is Resonating

Canadian venture financing is not collapsing, but the 2026 data show why investors are concerned about depth and continuity. CVCA reported $2.69 billion invested across 250 venture-capital deals in the first half of 2026. Dollars were up 17 per cent from a year earlier, yet deal count fell 8.8 per cent, marking a fifth consecutive first-half decline. Capital was also concentrated: just 16 financings worth at least $50 million absorbed 59 per cent of all venture dollars deployed during the period.

The later-stage numbers sharpen the concern. Foreign investors participated in 56 per cent of later-stage rounds, up from 30 per cent a year earlier, while U.S. investors appeared in 44 per cent, compared with 19 per cent previously. Canada recorded 18 venture-backed exits worth $716 million in disclosed value, all through mergers and acquisitions, with no venture-backed IPOs. None of those figures proves that a tax break is the answer, but they illustrate the environment behind the campaign: larger Canadian companies increasingly rely on global capital while domestic exit channels remain relatively thin.

Research Suggests Tax Incentives Can Change Investor Behaviour

There is evidence that capital-gains incentives can influence startup finance. A 2020 study published in the Journal of Financial Economics examined the U.S. move to a full federal exemption for qualifying small-business stock and estimated that the change increased investment per startup funding round by about 12 per cent. The researchers also estimated that roughly one-third of the tax benefit was captured by investors, an important reminder that a subsidy intended to help young companies can ultimately be shared between the company raising money and the people supplying it.

Newer research points to another effect: risk-taking. A July 2026 NBER working paper studied roughly 158,000 investor-firm pairings and found that stronger QSBS subsidies shifted venture capitalists toward riskier opportunities, including more pre-commercial companies, more startups receiving their initial capital and more firms carrying pre-existing debt. It also identified strategic investment timing around tax-eligible holding periods. The evidence supports the argument that taxes can change investor behaviour, but it does not establish that copying the American rules in Canada would automatically generate more total investment or better-performing companies.

The U.S. Experience Also Shows Who Can Capture the Benefit

A generous exclusion can produce a very uneven distribution of benefits. Research by economists at the U.S. Treasury’s Office of Tax Analysis examined tax returns from 2012 through 2022 and found that Qualified Small Business Stock exclusions were highly concentrated. Taxpayers with average total positive income above US$1 million represented about 26 per cent of individual returns claiming the exclusion but accounted for nearly 75 per cent of excluded gains. The median annual exclusion among individual claimants was only US$2,810, while the 90th percentile was US$590,940.

That does not mean a Canadian version would produce the same outcome; eligibility rules, company definitions and benefit caps could be designed differently. It does show why Ottawa would have to look beyond the headline goal of attracting capital. The same Treasury research noted that the prospect of increasingly valuable untaxed gains creates incentives for tax planning. For Canadian policymakers, that makes anti-avoidance provisions, ownership tests, holding periods and limits on how much one taxpayer can shelter central design questions rather than technical details to be settled later.

Ottawa Has Already Shifted Toward Investment-Friendly Tax Policy

The campaign is arriving after a series of federal moves intended to make investment more attractive. The Carney government cancelled the previously proposed increase in the capital-gains inclusion rate and raised the Lifetime Capital Gains Exemption to $1.275 million. In September, Finance Canada also announced the Productivity Mega Deduction, which expands immediate expensing for many categories of new business investment. The department estimates that, after the measure, Canada’s overall marginal effective tax rate on new business investment would be 6.4 per cent in 2026, compared with 16.9 per cent in the United States.

Ottawa has also already broadened the small-business rollover through Bill C-15, which received royal assent in March. That history changes the political framing. The 150-plus signatories are not asking a government hostile to investment incentives to reverse direction; they are asking it to extend an existing pro-investment shift from machinery, equipment and qualifying business owners more directly toward angels, venture investors, founders and early employees. Whether Finance Canada sees that as the next logical step—or as an expensive overlap with existing preferences—will be crucial.

The Real Decision Is How Narrowly Ottawa Draws the Rules

As of October 6, the proposals are an organized industry request, not announced federal policy. That leaves Ottawa with a long list of design choices before any measure could be written into the tax system: which companies qualify, how long shares must be held, whether the benefit follows the investor or each company, how employees are treated, what counts as Canadian ownership and how a broader rollover would interact with the exemption Canada already provides under section 44.1. The U.S. experience shows that seemingly small technical choices can materially change who receives the largest benefit.

The political trade-off is equally clear. A narrowly targeted incentive could make successful Canadian exits more valuable and encourage some investors to recycle gains into another domestic company. A broad one could also deliver large tax savings to people who might have invested anyway. The campaign’s strongest case is therefore not simply that the United States offers a bigger break, but that Canada is competing for mobile capital and talent. The government’s task is to decide whether matching that incentive improves Canadian company-building enough to justify the forgone revenue and distributional consequences.

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