TORONTO — Finance Minister Chrystia Freeland on Friday made a renewed case for the Liberal government’s changes to a key tax provision, after meeting with several prominent tech leaders amid backlash to the measure. 

Tuesday’s federal budget proposes to raise the inclusion rate on capital gains, the profits on sales of shares, bonds or other assets. Currently, half of any such earnings are counted as taxable income. Ottawa plans to raise that to two-thirds beyond the first $250,000 annually, while instituting a new carve-out for entrepreneurs.

Venture capitalists and startup and scale-up executives have slammed the change, arguing it will discourage investment, drive entrepreneurs out of the country and hurt firms’ ability to recruit workers. 

Following the backlash, Freeland’s office invited executives from some prominent Canadian scale-ups, venture funds and sector organizations to a meeting in Toronto on Friday morning. 

Attendees included John Ruffolo, managing partner of Maverix Private Equity; Ben Bergen, president of the Council of Canadian Innovators (CCI); Jordan Jacobs, managing partner of Radical Ventures; Alison Nankivell, CEO of MaRS Discovery District; Martin Basiri, CEO of Passage; and Raquel Urtasun, CEO of Waabi. 

Speaking Friday evening, Bergen said he left the meeting with many questions still unanswered, with the scale-ups he represents seeking more information about how the changes will work, who they will impact and why the government is making them. He repeated CCI’s call for the inclusion-rate increase to be reversed. The lobby group’s open letter calling for Ottawa to scrap the changes has now amassed more than 1,300 signatures, he said, including from some of the country’s most prominent scale-ups and VC firms. 

The Liberals have tried “to make it seem as if this budget challenge, this housing crisis and this cost of living crisis that we have are somehow the fault of innovators and of some of the most productive members of our society,” he said. “When in fact, it’s actually their government for the last eight years that hasn’t been able to deliver on growth [and] prosperity.” Bergen said CCI will continue to engage with Ottawa on the measure.

Speaking at an event at the University of Toronto (U of T) following the meeting, Freeland again strongly defended the capital-gains changes. She noted the increase helps pay for other budget proposals, including billions allocated for productivity-focused measures like research funding, AI compute programs and the top-up of the scientific research and experimental development incentive, as well as priorities like housing. 

“You are driving Canadian prosperity and you’re benefiting from what the whole society does,” she said, speaking of entrepreneurs and others who will be affected by the capital-gains changes. “And so we’re gonna ask you to contribute a little bit more so that we can afford these absolutely essential investments.” The alternative, she said, was taking on more debt that would hurt the economy, investment climate and futures of young people.

Speaking earlier, Alàn Aspuru-Guzik, the U of T professor and startup founder in whose lab the event was held, endorsed the tax hike, saying it will help pay for science and talent development.

Tech executives have criticized the Liberals particularly for what they say was a lack of consultation or notice before including the hike in the budget. 

Katherine Cuplinskas, a spokesperson for Freeland, said Ottawa made the capital-gains proposals “following consultations with external stakeholders and following in-depth analysis on how the changes will keep Canada’s economy globally competitive.” The minister’s office would not name on the record any tech executives or investors with whom it had consulted, or identify the research it had reviewed.

“We carefully designed the changes to the capital gains inclusion rate so that they would spur investment while making our tax system fairer,” Cuplinskas said, noting that the government has increased the lifetime exemption and added a new carve-out for entrepreneurs that total $6.25 million per person. Those measures keep Canada competitive with places like New York and California, she said.

This story has been updated to add quotes from Chrystia Freeland and Ben Bergen, and to incorporate information as it became available