Canadian business groups urge government to scrap capital gains tax hike

By Divya Rajagopal

TORONTO (Reuters) - Some of Canada's biggest business lobby groups on Thursday asked Prime Minister Justin Trudeau's Liberal government to scrap a planned tax hike on capital gains, a move they said would stifle growth and investment climate in the country.

The federal government disclosed last month its plan to increase the share of capital gains subject to taxation to 66.7%, up from the current 50%, for individuals with annual investment profits exceeding C$250,000 ($181,752), companies and trusts, as it seeks to raise revenue to fund public programs.

The hike, set to take effect on June 25, would raise C$19.4 billion ($14.2 billion) in revenue over a five-year period, according to the government.

The Council of Canadian Innovators (CCI) and Canada Federation of Independent Business, (CFIB) are the latest business groups to urge Finance Minister Chrystia Freeland to reverse the decision. Doctors, mining companies and others previously objected to the tax plan.

"It is outrageous that the federal government has not yet shared draft legislation to allow small business owners and their advisors to understand the full implications of the capital gains changes," Dan Kelly, CFIB president, said in a statement.

"We are calling on the federal government to scrap this disastrous tax hike on investment, and listen to the innovators who are trying to create a more prosperous future for every generation," the CCI added.

The CFIB said that a survey of its small business members found that about 72% responded that the proposed capital gains tax will harm investment climate and growth in Canada.

Several economists and investor groups have said that the increased tax would further deteriorate Canada's productivity and choke investments in key sectors.

"We've seen a remarkable consensus develop among business leaders and economic advocacy organizations: the capital gains tax hike will harm Canada's economic prosperity," said CCI President Benjamin Bergen.

The government has defended the plan.

"The wealthy, who tend to earn relatively more income from capital gains, disproportionately benefit compared to the middle class," Freeland said last month, adding the new measure would affect only 0.13% of the population.

For most of these industry groups, a primary concern is that there could be a flight of capital from Canada at a time when entrepreneurs are struggling to raise capital due to high interest rates.

John Ruffolo, founder of Maverix Private Equity and part of CCI leadership, told Reuters that the planned hike attacks the very people driving the productivity and innovation in Canada.

$1 = 1.3683 Canadian dollars)

(Reporting by Divya Rajagopal; Editing by Will Dunham)