Capital gains rate cut

First, the inclusion rate of capital gains in taxable income falls to two-thirds from three quarters effective immediately.

Next, Ottawa is resolving a situation that hurts small business in attracting capital even though the venture capital market has expanded in recent years. Currently, investors disposing existing investments in businesses to reinvest in other companies have to pay tax on the capital gains they realize. As a result, venture capitalists have tended to stick with established businesses rather than start-up companies.

The budget proposes to allow investors to defer capital gains tax on investments in eligible small businesses if the proceeds are reinvested in another eligible small business by the earlier of 120 days after disposition or 60 days after the end of the calendar year.

Eligible investments cannot exceed $500,000. Eligible small business investments are newly created shares in companies with assets not exceeding $2.5 million before the investment is made and not exceeding $10 million after the investment is made.