The Canadian government announced a new tax incentive in Budget 2026 aimed at entrepreneurs, directly responding to a key demand from the country’s tech sector. The Canada Growth Incentive offers two major benefits: a new tax exemption on up to $15 million CAD in capital gains from successful eligible investments, and an expansion of the capital gains tax rollover for small businesses.
New Tax Break to Compete with the US
The budget document describes the double-measure as a way to “level the playing field with the United States.” It is designed to encourage founders to build companies, early employees to accept equity, and investors to back Canadian businesses. Finance Minister François-Philippe Champagne stated the government aims to be very competitive for people who want to grow companies and reinvest in Canadian ventures.
These changes follow a campaign from industry groups like the Council of Canadian Innovators and the Canadian Venture Capital & Private Equity Association (CVCA). They had pushed for a tax incentive similar to the US Qualified Small Business Stock (QSBS) regime, which shields up to $10 million USD of federal capital gains from taxes.
Under the Canadian exemption, a founder with a $15-million gain from selling their business would keep nearly 96 percent of that exit value, compared to 71 percent before. The new policy requires the business to be a Canadian-controlled private corporation with asset values not exceeding $100 million immediately before and after shares are issued. The company must be carried on primarily in Canada for at least two years after shares are issued.
A Shift in Policy for the Liberals
The measure marks a significant policy shift for the federal Liberals. That controversial policy was later reversed after the Liberal party leadership change.
Advocates for the “Bet on Canada” campaign welcomed the announcement. CVCA CEO Ben Bergen called it an “important step towards rewarding investors,” and NACO CEO Claudio Rojas said it was “the strongest signal in a decade that risk-takers and builders at the earliest stages of growth are a national priority.”
The new capital gains exemption is immediately coming into effect. The expanded capital gains rollover, which allows individuals more time to reinvest proceeds into another qualifying Canadian business, will begin on January 1, 2027. The government estimates the measures will reduce tax revenue by $715 million by 2031.
Minister Champagne defended the tax break, noting the difficulty Canadian startups face in accessing capital. “If you want to grow, there’s this kind of valley where you have to go to the United States—you cannot find capital here,” he said. The incentive is modelled to be competitive with the US QSBS measure, with the goal of creating a “circle of investment” and helping to produce more companies like Shopify.
Budget 2026 frames the Canada Growth Incentive as a key part of making the country’s tax system more competitive. It is paired with the previously announced Productivity Mega-Deduction, which allows businesses to immediately deduct the full cost of new capital investments like software, computer hardware, and patents.
Policy Turnaround and Future Outlook
The measure represents a complete policy turnaround for the federal Liberals, who, under Prime Minister Justin Trudeau in 2024, butted heads with the tech industry over a controversial capital-gains inclusion rate increase. That measure was axed the evening of the Liberal party leadership change.
The “Bet on Canada” campaign noted that the new measures should cover sectors like advanced manufacturing and mining. However, the new measures exclude companies operating as consultancies, or those in agricultural, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation, arts, recreation, or entertainment sectors.
Who Benefits and the Cost
The budget’s annex says the measure will benefit founders, early-stage employees, and shareholders in eligible Canadian corporations. Over 80 percent of them would likely have an adjusted gross income of more than $200,000.
The feds extended the time period to reinvest shares into another Canadian small business. An individual who has realized capital gains will have three years after the year they sold shares to reinvest them in a qualifying Canadian business. There’s also a provision for individuals who enter into simple agreement for future equity agreements, where the capital gain could be deferred for another two years.