Budget 2026: Major tax break for entrepreneurs, investors similar to Silicon Valley incentive

The federal government has answered calls from entrepreneurs and investors to lower their taxes when they sell businesses, and plans to expand its corporate research and development incentive to cover more of companies’ costs.

Thursday’s budget sidestepped the comprehensive tax overhaul for which Bay Street has long advocated, and that Prime Minister Mark Carney’s Liberals promised during the 2025 election. But it includes measures to simplify rules and fill gaps that have long frustrated businesses.

Ottawa is proposing a new Canada Growth Incentive. It would exempt the first $15-million that founders and staff of certain private Canadian businesses –_­ and investors that back them – make when they sell shares in those companies. The measure is similar to a U.S. tax break popular in Silicon Valley. The Canada Growth Incentive also includes extending the deadline for investors to save on tax when they roll money made from a company sale into another business.

In an open letter ahead of the budget, groups such as the Council of Canadian Innovators (CCI), Canadian Venture Capital & Private Equity Association (CVCA) and National Angel Capital Organization called for such changes.

Patrick Searle, CCI’s chief executive officer, welcomed what he said was a “focus on channelling the success of one entrepreneur into the success of more entrepreneurs in Canada.”

Canadian funds are looking to invest more in domestic companies, since Ottawa is “rewarding investors who put capital into Canadian companies and stay with them as they grow,” CVCA chief executive Benjamin Bergen said in a statement.

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The new exemption only applies to shares that are issued from Thursday on, so its benefit will be limited for founders who have already launched their companies, or investors with existing stakes.

Eligibility does not extend to architects, lawyers and doctors who operate out of a professional corporation, or to companies in sectors such as agriculture, forestry, mining and insurance.

Finance Canada estimates that the new measure will cost it $565-million in tax revenue through the 2030–31 fiscal year.

The rollover change extends the deadline that people selling shares in a business have to reinvest in a new one from the year after the year in which they sell, to three. It will cost Ottawa $150-million over the next five fiscal years.

The Canada Growth Incentive allows “builders to keep more of the benefits when a business succeeds,” the budget states, using a term that founders and investors have increasingly adopted to refer to themselves.

The tech sector had strongly criticized a move in April 2024 by the Liberal government under then-prime minister Justin Trudeau to effectively raise taxes on capital gains via rule changes. Mr. Carney then scrapped the hike but rolled out a smaller tax break.

Thursday’s budget says the new exemption and rollover measure “help level the playing field with the United States.” The U.S. Qualified Small Business Stock (QSBS) incentive has a similar US$15-million cap, and is set to cost the U.S. Treasury more than US$60-billion between 2025 and 2034.

Investors in highly valued Silicon Valley companies have been big beneficiaries of the program, while critics charge that it’s an unnecessary break for wealthy investors.

These are the highlights from the 2026 federal budget

Finance Canada’s own analysis of the impacts of the budget found that the Canada Growth Incentive will predominantly benefit high-income people, though it says it will generate prosperity nationwide.

Ottawa is also proposing to expand the Scientific Research and Experimental Development (SR&ED) incentive program, widely used by technology companies and those in other innovative sectors. Businesses will now be able to claim costs for commercialization activities such as bringing new products to market and getting regulatory approval for them, as well as patenting innovations.

Startups have long complained that the existing SR&ED system does not go far enough, failing to account for the expenses they incur before they can start generating revenue from new innovations.

Finance Canada expects the expansion of the program will cost $930-million over five years.

Other tax tweaks in the budget address irritants for businesses and their lawyers and accountants. They include a proposal to let companies transfer losses between subsidiaries or projects, and a move to simplify the requirements that apply when foreign investors sell Canadian assets. Ottawa is also promising to review the rules for preferred shares, which typically give their holders special rights.

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Thursday’s budget does not include much new funding for artificial intelligence. It accounts for the $2.04-billion that Ottawa already pledged to spend on the national AI strategy released in June, which includes financing, literacy and safety programs.

Ottawa is, though, promising to use its balance sheet to boost availability of the processing power needed to train and run AI models and applications. Initiatives such as the Canada Infrastructure Bank and the Canadian Sovereign Compute Strategy are designed to spur the development of new AI compute facilities using backstops and offtake agreements – essentially guaranteeing the purchase of some of their output, or to underwrite its debt.

Data centres are typically measured by power consumption, and the budget sets a target of 500 megawatts of new capacity. That’s designed to cover the needs of Canadian startups that are developing AI models and tools, and companies that need domestic processing power that meets sovereign requirements.

By comparison, tech giants are spending hundreds of billions of dollars to secure gigawatts of new compute capacity, including on projects in Canada.