It’s been a heated few weeks in Canada’s tech sector, as leaders nationwide continue to voice strong concerns about key elements of Budget 2024, released in April.
In particular, the Council of Canadian Innovators (CCI) issued a second open letter to Finance Minister Chrystia Freeland, calling for a reversal of the plan to raise the capital gains inclusion rate from 50% to 66.7%.
With signatories like the Canadian Chamber of Commerce, the Canadian Federation of Independent Business (CFIB), the Canadian Venture Capital and Private Equity Association (CVCA), and others, a critical mass is pushing back against what they call “shortsighted” tax changes.
Although the new capital gains inclusion rate—set to take effect June 25—is projected to generate $19.4 billion CAD in revenue over five years, the CCI warns that this change “will limit opportunities for all generations and make Canada less competitive and less innovative.”
Even though estimates suggest only about 40,000 people will be directly affected if the change goes ahead next month, the ripple effects on job creation could be significant. As the CCI points out, this new tax regime will simply make investing in Canadian startups less appealing, period.
“With higher capital gains taxes, VC funds now face lower after-tax returns, which means less funding or smaller stakes left for founders,” explains Laurent Carbonneau, CCI’s Director of Policy and Research, in their latest statement.
These latest appeals build on an initial open letter published in April opposing the capital gains hike, which has now gathered over 2,000 signatures.
Ontario announces new provincial funding measures
While it’s still unclear if the federal budget will be amended before key June deadlines, the Ontario Securities Commission (OSC) has launched new initiatives through the province’s TestLab to help startups access more capital.
Specifically, the OSC has introduced new Dealer exemptions that let businesses raise funds through crowdfunding portals or angel investor groups without registering as a Dealer with the Ontario government. This means eligible companies can secure up to $3 million CAD from approved nonprofit sources, with fewer regulatory hurdles.
These temporary measures—available until October 2025—target innovative, early-stage Ontario startups with fewer than 100 employees. Companies focused on real estate, mortgages, or other investment assets (like crypto) are not eligible.
The OSC also announced similar Dealer registration exemptions for angel groups, allowing them to invest in Ontario startups without registering as dealers. To qualify, these groups must be nonprofits based in Ontario, and all members must be accredited or eligible to self-certify as investors.
The goal of these measures are to combat a continued lag in venture funding within the greater Toronto area as businesses across Canada—and the world—face a bevy of micro- and macro-economic factors that have made fundraising difficult.
Make your innovation investments go further
Even as federal and provincial governments work to balance their budgets amid ongoing economic uncertainty, Canadian businesses of all sizes still have opportunities to drive growth in today’s market.
Key to the measures from the OSC and elsewhere are prioritizing support for businesses that are driving true innovation, which is rooted in research and development (R&D).
Any businesses that are embarking on R&D initiatives that tackle Technological Uncertainty, follow a Systematic Investigation and embrace Technological Advancement could be able to recoup up to 64 percent of their key innovation investments through SR&ED.
And while established businesses may be well aware of this key source of funding, the fear of an audit—or even just the time that could go into dealing with the CRA—disincentivizes many eligible companies from even seeking this key source of capital that could make or break their growth trajectory.
With Boast, teams can rest assured that not only will the claims our in-house experts and AI platform compile leave-no-stone-unturned in identifying SR&ED opportunities, but the unmatched detail of our SR&ED reports is pivotal in defending our customer’s claims when audits inevitably happen.
And with government budgets tighter than ever, the CRA is arguably taking a closer look at every claim and auditing with greater veracity than ever before. Lucky for Boast customers, we take on the complete audit defense for you, with an industry-leading recovery rate of over 90 percent.
Want to see how Boast can help you get more out of your investments and scale in the current environment? Speak with an expert today.
Canadian Funding FAQ
- What is the Council of Canadian Innovators (CCI) opposing? The CCI has issued open letters urging the federal government to reverse its plan to raise the capital gains inclusion rate from 50% to 66.7%, arguing this will restrict investment and innovation in Canada.
- What new funding initiatives were announced in Ontario? The Ontario Securities Commission introduced temporary exemptions allowing early-stage startups to raise up to $3 million from crowdfunding portals and angel investor groups without dealer registration. Angel groups can also invest in startups without registering.
- Why did Ontario introduce these funding measures? The goal is to boost access to capital for innovative startups in Ontario, as the province continues to lag in venture funding amid economic headwinds.
- How can the SR&ED program benefit innovative businesses? Companies advancing technology through R&D can recover up to 64% of their eligible expenses through the SR&ED tax incentive program.
- What advantages does Boast offer for maximizing SR&ED claims? Boast’s AI platform and technical experts identify every eligible SR&ED opportunity and provide thorough documentation to support your claim during CRA audits, with recovery rates above 90%.
