'Mark my words': Canadian tech investor warns Trudeau of capital flight after tax hike

A prominent Canadian technology investor joined the chorus of Canadian businesses criticizing Prime Minister Justin Trudeau's decision to raise the capital-gains tax, arguing it will cause capital flight from the country.

John Ruffolo, founder of tech-focused Maverix Private Equity in Toronto, said the government's move to tax Canadian companies on two-thirds of their capital gains, up from the previous level of a half, will make it harder for innovative companies to raise money and drive investors south of the border.

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Ruffolo said it "feels like 2009 all over again" in terms of capital investment in Canada, a reference to the bleak period of slow growth that followed the global financial crisis.

"That same narrative is starting to play out again, and at a time when not only is the innovation sector starting to feel the pain on the rest of the economy — we're suffering from the lack of productivity due to the lack of investment," Ruffolo said Tuesday during an event in Toronto.

The capital-gains change, announced in Finance Minister Chrystia Freeland's budget a week ago, will also apply to individual taxpayers in years when they book capital gains in excess of $250,000. Business leaders and trade associations were quick to slam the decision, saying it will diminish growth and investment in the country.

Ruffolo said the country's productivity slump is related to a long-term shortage of investment by Canadian firms in productivity-enhancing technology. Taxing capital gains at a higher rate, he said, runs the risk of "creating a situation that's antagonistic for investors" and may prompt them to prefer to invest in US startups instead.

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"Mark my words, if this tax change stays the way it is, we're going to see an outflow of angel capital for sure," Ruffolo said. "Foundations, high-net worth folks that are holding the capital into companies — that's going to be gone."

Bloomberg.com

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