The competitiveness of Canadian firms is being hampered by tax policies that discriminate against and penalize companies as they seek equity to fuel growth, says a new report from the C.D. Howe Institute.

In “Entrepreneurial Finance and Economic Growth: A Canadian Overview,” author Pierre Lortie examines the dynamics of Canadian private and public equity capital markets, and their efficiency in providing access to financing for innovative, high-growth small and medium-sized enterprises.

“Given the complementary role played by both public and private equity markets,” says Lortie, “Governments need to consider policies that support both and do not create an impediment to growth when Canadian companies become public.”

The report notes in 2009-10, Canada ranked ninth on the Global Competitiveness Index; in 2018, it had fallen to twelfth place. This trend could be reversed with easier access to equity capital to fuel companies scaling up.

The report recommends:

·         Adopting a tax measure similar to the U.S. Small Business Jobs Act of 2010, which provides for full exemption from federal taxation of capital gains realized on the sale of shares of certain small businesses.

·         Reducing the capital gains tax on shares issued by qualified SMEs when they list on a Canadian stock exchange and are held by individual investors for a reasonable period of time.