Thank you, Mr. Chair.
Good afternoon. Let me introduce myself. My name is Philippe Noël. I'm the vice‑president of public and economic affairs for the Fédération des chambres de commerce du Québec, or FCCQ.
I'm pleased to be joined by my colleague, Hubert Rioux, an economic advisor at the FCCQ and head of our entrepreneurship as well as financial services, capital and savings committees.
Through our extensive network of 120 chambers of commerce and over 1,000 member companies, we represent more than 45,000 businesses operating in all economic sectors throughout Quebec's 17 regions. As the largest network of business people and companies in Quebec, we're both an association of chambers of commerce and the Quebec chamber of commerce.
We're pleased to be here. We want to thank you for the invitation.
On behalf of the Fédération des chambres de commerce du Québec and its members, we're here today to share our concerns about the financial and economic impact of the increased capital gains inclusion rate. I say “concerns”, but I could also talk about the discontent, astonishment and incomprehension felt by entrepreneurs and business people. This government measure sends the message that you shouldn't invest in your business, because you'll face penalties down the road on the tax front.
Like a number of experts, we find that this measure lacks any rationale other than the need to generate additional tax revenue to cover the budget deficit and additional spending planned by the current government.
The financial sector—and the venture capital industry in particular—will be the first to feel the impact. This industry is vital to maintaining a strong entrepreneurial ecosystem. A highly profitable exit can help offset the substantial losses generated by the inherent risks of investing in start‑ups. Higher taxation of these gains not only discourages risk‑taking, but also jeopardizes or delays the reinvestment of capital gains in new projects. In our view, this will hamper what is known as “entrepreneurial recycling”. Entrepreneurs are usually able to reinvest in venture capital or create new businesses through the sale of shares.
The increased taxation of capital gains will also have a negative impact on the transfer of businesses and on entrepreneurial succession. This primarily affects SMEs, as we enter a historic phase of business succession. Approximately 64,000 companies with employees across Canada plan to sell or transfer their business in the next 12 months alone.
For many career entrepreneurs, the sale of shares plays a key role in planning a well‑deserved retirement. Yet the proposed measure will particularly penalize the people who achieved the greatest success in growing their businesses.
The incentive for entrepreneurs introduced at the same time won't offset the increase's impact on investors, entrepreneurs and transferors. This is primarily due to the number of excluded sectors, the ineligibility of businesses and the five‑year phasing‑in period. Moreover, this decision comes at a time when the government wants to boost investment and productivity in Canadian businesses. We share the view of many experts that these plans are at odds with each other.
We were quite surprised to hear the government claim that the proposed increase won't make any difference in this area. Yet in its own 2024 report on tax expenditures, the Department of Finance explicitly states that the partial inclusion of capital gains seeks to encourage investment and support competitiveness.
The capital gains tax may be higher in many countries in the Organisation for Economic Co‑operation and Development, or OECD. However, undermining this competitive advantage is actually likely to exacerbate our significant lag behind many of these countries in terms of business investment; tangible and intangible assets; research and development; and productivity.
Lastly, a number of the businesses that we represent felt that there was no need to rush things and set an effective date as early as June 25. This forced many entrepreneurs to hastily review their succession and retirement plans.
We're asking the federal government to reverse this decision, retroactive to June 25, 2024. Otherwise, we propose that a lower limit of $500,000, indexed to inflation, be applied to the increase in the capital gains inclusion rate for SMEs and that the incentive for Quebec and Canadian entrepreneurs be extended to all sectors.
Thank you again for your interest in our organization and the Quebec business community and for your attention. We look forward to answering your questions.
Thank you.