What we learned from CCI’s Tech Sector Pulse Check in June

An overwhelming majority of leaders in the Canadian innovation economy say that the federal government’s policy on capital gains tax will significantly harm the tech sector, even as they are still navigating uncertainty when it comes to the government’s implementation plans.

In total, 90% of the innovators responding to CCI’s Canadian Tech Sector Pulse Check for June 2024 say that these changes will be negative for the tech sector.

Of those people, 60% said they believe the tax hike will have a “very negative” impact on investment.

“Since the day the budget was tabled, it has been obvious that these tax changes will stifle investment, and make it more difficult for Canadian innovators to create high-paying jobs in the knowledge economy,” said CCI President Benjamin Bergen. “I’ve been hearing concern about this policy since the day the budget was tabled, and our survey results reflect the overwhelming view that the Canadian innovation economy is not in healthy shape.”

Since April, CCI has been tracking the impact of the changes to the capital gains tax hike, and thousands of innovators have signed our open letter at prosperityforeverygeneration.ca calling on the government to reverse these changes.

The inclusion rate – the portion on which tax is paid – has risen to two-thirds from one-half on capital gains realized by companies. The increase also applies to individuals on capital gains above $250,000.

The tax change was first announced in Budget 2024 which was delivered in April, but policy didn’t come into effect until June. By giving a two-month runway before the changes came into effect, the federal government anticipated that many Canadians would rush to sell their assets to lock in gains at a lower tax rate. According to the budget documents, the government expected this rush to generate approximately $7 billion in additional tax revenue. This was all done to help reduce the budget's deficit in 2024 at the expense of future tax revenue in 2025 and beyond.

Thus far, the actual enacting legislation has not been tabled in the House of Commons, and we don’t expect it to be officially enacted in law until sometime this fall.

As the legislative process unfolds, in June CCI conducted a Canadian Tech Sector Pulse Check survey, and heard from respondents from coast-to-coast. More than 60% of respondents identified as either CEO or founder of a technology company.

By far, the biggest issue voiced by survey respondents right now is around access to capital, with 67% of respondents saying that is their top challenge in business at the moment. Moreover, just over 50% of respondents said the Canadian tech sector is currently in an unhealthy state. Only 15% of respondents said they believe things are healthy right now.

”We are already looking ahead to the 2025 pre-budget consultation process, and delivering a message to government on behalf of Canadian innovators,” CCI Director of Federal Affairs Nicholas Schiavo said. “We will continue to tell the government that these capital gains tax changes are a step in the wrong direction, but more broadly, the government needs to understand that the Canadian innovation economy is not in a healthy state. Now more than ever, we need a government focused on policies that drive growth and prosperity in the 21st century innovation economy.”

Along with the concerns about investment, 86% of respondents said they believe capital gains tax changes will have a negative impact on attracting and retaining tech talent.

Most of the respondents to CCI’s survey are leading companies with fewer than 50 employees.

Methodology:
Between June 18 and July 9, 2024, CCI invited members of the Canadian tech sector to complete a survey on capital gains. Participants were asked their name, their company name, role, approximate headcount and where it was located. Participants were asked, “What impact do you think the capital gains changes will have on investment in the tech sector in Canada?” and given choices of Very Positive, Positive, Neutral, Negative or Very Negative. Participants were asked, “What impact do you think the capital gains changes will have on attracting and retaining highly-skilled talent in the tech sector in Canada?” and given the same five options. Participants were asked, “What impacts will the capital gains changes have on your business/organization? (Select all that apply):” and given a number of choices, or they could write in their own answer. Participants were asked, “How would you rate the overall health of the Canadian tech sector today?” and given choices of Very Healthy, Healthy, Neutral, Unhealthy or Very Unhealthy. Participants were asked, “What are the biggest challenges facing your business/organization in the Canadian tech sector right now? (Select all that apply):” and given a range of options, or write in their own.

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