Canada’s Delayed Capital Gains Tax Changes May Affect Founders in 2025

Canada has postponed the planned increase to the capital gains inclusion rate until January 2026. Initially introduced in last year’s budget, the proposal aimed to raise the inclusion rate from one-half to two-thirds, 50% to 66%, effectively increasing capital gains taxes for corporations, trusts, and individuals with gains exceeding C$250,000 ($172,680).

Although the higher rate was set to apply to gains after June 25, 2024, the government was unable to pass the necessary legislation due to legal challenges and opposition from key political figures. Despite this, the Canada Revenue Agency had been administering the tax under the assumption it would be enacted.

With top political candidates indicating their intentions to prevent the change as well as a federal election approaching, whether or not the change will actually be enacted remains uncertain.

The Implications for SaaS Founders

If put in place, the proposed hike in capital gains rates could notably reduce the take-home amount founders receive upon the sale of shares in their business. As such, founders should evaluate the timing of a potential acquisition or capital raise in 2025-2026 before such a tax change could take effect.

While the math will play out differently depending on a company’s growth rate and revenue, the increase in taxes paid could have an impact on proceeds to founders. Selling your business in 2025 instead of 2026 could mean taking home 16 percent more due to the potential increased tax rate. If you wait another year and grow by the same 16 percent while your multiple stays the same, your valuation may increase—but you’re only breaking even after taking on an extra year of risk.

On the other hand, selling in 2025 could effectively give you a 16 percent increase compared to waiting. In an M&A deal, that’s a significant difference, and this decision is entirely within your control.

If your business is experiencing substantial growth and everything is running smoothly, holding off on selling might make more sense for now. However, if your company is growing less than dramatically, it’s worth considering the potential risks and rewards of your exit value potentially fluctuating by 16 percent within the next year.

It’s also worth noting that any other income earned in that same year would also be subject to taxation, further impacting your overall financial outcome.

Growth & Timelines to Consider

We’re not political analysts, so we can’t tell you how probable it is that this policy would pass, and without any significant alteration changing the impact on founders. However, as investment bankers, we can speak from our own expertise and say that:

1. Running a full sale or capital raise transaction can take up to 6 months, so if you wait for surefire signs of a tax change to appear, you may be too late as the tax changes could, if approved, likely take effect in early 2026.
2. In general, founders may be better off taking some money off the table when they’re growing by pursuing a private equity recapitalization/capital raise, then swinging for the fences with a new capital partner and larger financial resources.

Steps Founders Should Consider for a Potential Tax Change

To prepare your company to sell in the event you want to transact before any changes may take place, then you as a founder might consider the following:

1. Speak to an investment bank to help determine if your revenue and growth rate put you in a position where a sale this year makes the most sense.
2. Speak to a personal wealth/tax professional about your tax & estate situation to help you capitalize on tax-advantaged vehicles like charitable trusts and gifting of stock.
3. Begin cleaning up your key metrics for selling a SaaS business and investing in business intelligence to streamline information gathering for a potential sale/capital raise.

Founders who take these steps may be better positioned to conduct a timely transaction in the event that all signs point to tax hikes. To take the first step, speak to a qualified, unconflicted investment bank.

This material is intended for informational purposes and should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney, tax advisor, and/or financial advisor. Nothing contained herein is intended to provide specific advice or recommendation of a course of action in any situation. Opinions contained herein should not be interpreted as a forecast for future events or a guarantee of future results. Outcomes will vary depending on individual circumstances. Vista Point Advisors does not provide legal or tax advice.