Startup investors press Ottawa for a U.S.-style capital gains break and a tax-deferred reinvestment rollover

More than 150 investors and executives are urging Ottawa to use the coming federal budget to reward Canadians who put money into young domestic companies, with a U.S.-style capital gains break and a way to defer tax when gains are reinvested at home. The open letter, sent Tuesday to Finance Minister François-Philippe Champagne, was organized by the Canadian Venture Capital and Private Equity Association (CVCA) and the Council of Canadian Innovators, The Canadian Press reported.

Published under the banner Bet on Canada, the letter makes two requests. The first is a “meaningful Canadian QSBS-style incentive” modelled on the U.S. Qualified Small Business Stock regime: the signatories propose raising the cap to $15 million for each taxable event, removing restrictive ownership thresholds and broadening eligibility so that founders, early employees and investors all benefit. The second would let more entrepreneurs and investors, including those investing through corporations or funds, defer capital gains when proceeds from one qualifying Canadian business investment are reinvested in another. “The tax would be deferred rather than eliminated while the capital remains invested,” the letter says.

The first request builds on the Canadian Entrepreneurs’ Incentive, proposed in the 2024 federal budget, which would have reduced the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains, BetaKit reported. Ottawa scrapped that incentive when it cancelled planned capital gains changes amid a backlash from the business community, The Logic reported. In the U.S., the QSBS regime allows early stockholders to exclude up to 100 per cent of federal capital gains when a company sells, BetaKit noted. CVCA chief executive Benjamin Bergen told BetaKit that reinvested gains would have to go into another Canadian-owned corporation rather than the subsidiary of a foreign company.

Bergen argued the measures would keep successful founders investing in Canada rather than taking their money out of the country, possibly to the U.S. “This doesn’t impact a tremendous amount of people, but it impacts entrepreneurs and people who are willing to take big risks and it’s in those big risks that you get companies of the future,” he told CP. The letter says the incentive “is not a tax break for the technology industry,” and that most investors who stand to benefit “are not large institutional players, but ordinary Canadians.” BetaKit reported that the groups want the policies to extend to industries such as advanced manufacturing and mining.

Six industry groups are leading the campaign: the CVCA, the Council of Canadian Innovators, the National Angel Capital Organization, C100, CPA Ontario and the Chartered Business Valuators Institute, according to BetaKit. Signatories include Dayforce chief executive David Ossip, Koho founder Daniel Eberhard, Borrowell co-founder Andrew Graham, Two Small Fish Ventures co-founder Eva Lau and Float Financial co-founder Rob Khazzam, CP reported. “We’re two years… into a trade war where we’re competing for capital and talent, so we’re not competitive. So, this is about getting competitive,” Patrick Searle, chief executive of the Council of Canadian Innovators, told iPolitics.

Champagne’s office would not comment directly. “While the government regularly reviews the tax system, it would be inappropriate at this time to speculate on any potential or prospective changes to the tax system,” press secretary John Fragos said in an email to CP. Champagne is expected to table the budget next month, though the timing could shift, iPolitics reported. Conservative small business critic Brad Vis voiced support for the campaign on social media and pointed to a Conservative proposal to eliminate capital gains taxes for anyone who reinvests the proceeds of an asset sale in a Canadian business, iPolitics said.

Not everyone is convinced. Jack Mintz, the president’s fellow at the University of Calgary’s School of Public Policy, pointed CP to a June paper by University of Florida researchers who studied the U.S. incentive. They found that when such a program is available, venture capitalists shift toward riskier ventures such as pre-commercial startups and firms carrying existing debt, contributing to higher failure rates and greater funding gaps among tax-qualified startup investments. “You’re basically subsidizing risk,” Mintz said. He added that the research also found the U.S. incentive helps companies achieve higher valuations and makes them more likely to reach a valuation above $1 billion. “So whether (the signatories’ proposed policies are) a good or a bad thing, I think depends on how you look at these things,” he said.

The push follows the Productivity Mega Deduction announced at last month’s Canada Investment Summit, which lets companies immediately deduct the full cost of most new equipment and other business assets, The Logic reported. Bergen said the proposed incentive would complement that measure by supporting younger companies at a riskier stage. The Senate banking committee has spent much of 2026 studying how to strengthen growth capital for domestic startups and plans to release recommendations in the coming months, The Globe and Mail reported.

This article is general information and is not investment advice.

Sources: The Canadian Press via CityNews Toronto; Bet on Canada open letter; BetaKit; The Logic; iPolitics; The Globe and Mail.