Make Canada Worth the Bet: Why Canada Needs a QSBS Tax Incentive

By Daniel Perry,
Director of Federal Affairs

Canada has no shortage of promising founders, sharp engineers, and breakthrough ideas. Across the country, builders are turning scientific discoveries into companies, developing new technologies, and tackling some of the world’s most pressing challenges. From artificial intelligence and clean technology to life sciences and advanced manufacturing. They are creating jobs, attracting investment, and laying the foundations for the next generation of Canadian businesses.

Canada lacks a tax system that rewards the people willing to bet on them. The founders, early employees, and investors who put their capital, careers, and savings on the line are treated as though they are making ordinary investments, rather than helping create the next generation of Canadian companies.

That sends the wrong signal. If Canada wants more people to build ambitious companies here, it must make it more attractive to take the risks, and share in the rewards, of doing so.

To level the playing field and empower founders, Ottawa should adopt a Canadian version of the Qualified Small Business Stock (QSBS) exemption in Budget 2026. This policy has quietly become one of the most effective tools in the American innovation economy.

In the United States, QSBS lets founders, early employees, and investors sell shares in eligible companies without paying capital gains tax, or paying only a reduced rate, once those shares have been held long enough. Since 2010, gains have been excluded on a stepped schedule that now reaches 100% after five years, on qualifying stock in small C-corporations with under $75 million USD in assets. The exemption is deliberately targeted: it excludes low-growth sectors like law, consulting, hospitality, and farming, so the benefit flows to R&D and IP-intensive firms where innovation spillovers are highest.

The results speak for themselves. Since the 2010 QSBS expansion, it has driven a substantial increase in patenting and other innovation outputs, and it has pushed venture capital toward riskier, earlier-stage bets in emerging industries. That's exactly the kind of risk-taking Canada needs more of.

Canada already has the Lifetime Capital Gains Exemption, but it caps out at $1.275 million and doesn't come close to matching what founders and investors can access south of the border. That gap has real consequences. Investors have less incentive to fund early-stage Canadian companies. Scaling firms, which can't compete on salary, rely heavily on equity to attract talent, and a weaker capital gains regime makes that equity worth less to the people being asked to bet their careers on it.

The upshot is a shallower domestic capital market and a steady pull of companies and talent toward the United States. Bringing Canada in line with QSBS would at least mean we are not at a tax disadvantage with our largest trading partner. As it stands, we've heard from many entrepreneurs that the United States is simply a more favourable place to start and grow an innovative business. But even if Ottawa adjusts CEI, that alone will not be good enough.

This isn't a new argument for CCI members. When Ottawa first raised the capital gains inclusion rate in Budget 2024, we pointed to QSBS as a workable model for reform. In a May 2024 piece, we noted that the U.S. exemption "is structured similar to the new Entrepreneurs' Incentive but is capped at $10 million," and argued that a government looking to rebuild goodwill with founders "might look to that as a starting point for reworking the Canadian Entrepreneurs' Incentive."

By the time the capital gains hike took effect that June, we had made the case  that adjusting CEI to resemble QSBS would help close the gap with the U.S. — but that alone would not be enough. That argument became a pillar of Prosperity for Every Generation, the national advocacy campaign CCI launched in 2024 and has led for more than two years, mobilizing over 2,500 Canadians around the case that Canada cannot tax its way to prosperity by making it harder to take risks and build companies here.

Today, CCI has proposed a modified Canadian Entrepreneurs' Incentive that would raise the cap to $15 million per issuer, remove restrictive ownership thresholds, and broaden eligibility, closing the gap with the U.S. system rather than offering a partial substitute. Done right, this policy does double duty: it gives investors a real incentive to back high-risk, high-upside companies in areas like AI, clean tech, and life sciences, and it gives founders and their early employees a genuinely competitive reason to build and stay in Canada rather than relocate.

CCI raised this proposal in testimony before the House of Commons Standing Committee on Finance, where we explained that a QSBS-style credit is about incentivizing investment into riskier, intangible-heavy asset classes that sophisticated investors are willing to take on, provided the after-tax return justifies it. We also made clear that this is as much a talent policy as a capital policy: harmonizing our capital gains treatment with the U.S. equivalent is essential to keeping founders and their teams building here.

This is a policy with a proven track record and broad support from Canada's fastest-growing companies. We're calling on the federal government to include a QSBS-style tax incentive in Budget 2026. The tools to build a stronger, more competitive Canadian innovation economy exist. It's time to use them.

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About the Council of Canadian Innovators (CCI)

The Council of Canadian Innovators (CCI) is Canada’s business council for the 21st century economy. We are a collective of over 175 of Canada’s fastest-growing and most ambitious companies, and the founders, CEOs, and executives behind them, working together to improve the business conditions that help more homegrown companies scale, compete globally, and drive long-term prosperity. Learn more at canadianinnovators.org.