Small business owners across Alberta are preparing for significant federal tax changes taking effect April 1, including a higher capital gains inclusion rate and revised passive income rules that accountants say will disproportionately affect owner-operated businesses. The changes, first announced in the 2025 federal budget and passed into law last fall, have generated significant concern among entrepreneurs who say the new rules will reduce their ability to save for retirement and invest in their businesses.
The most impactful change is the increase in the capital gains inclusion rate from one-half to two-thirds for gains exceeding $250,000 annually. For many small business owners, the sale of their business represents their primary retirement asset, and the higher inclusion rate will mean a significantly larger tax bill when they exit.
Real-World Impact
Calgary accountant and tax advisor Harmeet Gill said his firm has been fielding a surge of calls from business owners trying to understand the implications. "A lot of my clients are small business owners in their 50s and 60s who have spent decades building their companies," Gill said. "They were counting on the proceeds from selling their business to fund their retirement, and now the rules have changed on them."
The revised passive income rules are also causing concern. Under the new framework, small business corporations that earn more than $50,000 in passive investment income will see their access to the small business tax rate reduced more aggressively than under the previous rules. Business groups say this penalizes companies that have accumulated savings to weather economic downturns.
Calls for Reconsideration
The Canadian Federation of Independent Business has launched a campaign calling on the federal government to exempt small business sales from the higher inclusion rate, or at minimum to increase the Lifetime Capital Gains Exemption — currently $1.25 million — to offset the impact. CFIB president Dan Kelly said the changes "punish the very people who create jobs and drive local economies."
The federal government has defended the changes as a matter of tax fairness, arguing that the previous system disproportionately benefited high-income individuals. Finance Minister Chrystia Freeland has pointed to the increased Lifetime Capital Gains Exemption, raised from $1 million to $1.25 million in 2025, as evidence that the government is "protecting genuine small business owners." Alberta-based business owners say the exemption increase does not go far enough to offset the higher inclusion rate, particularly in a province where business valuations are often inflated by real estate holdings.