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Entrepreneurs already leaving Canada due to capital gains hike, Wattpad founder Allen Lau says



Tech entrepreneurs are leaving Canada following the federal government's proposed increase in the capital gains tax, says Allen Lau, former CEO of Wattpad.


In April, Canada’s federal government introduced its 2024 budget, which includes raising the inclusion rate on capital gains taxes from one-half to two-thirds for all gains above $250,000 realized by corporations and trusts.


The Canadian tech community has voiced concerns about this hike, focusing on its potential to hurt Canada’s productivity. Allen Lau, now co-founder of Two Small Fish Ventures, believes this move endangers the country’s tech talent.


"Higher taxes mean less capital available, diminishing ownership and economic benefit," said Lau. He noted significant anger from the start-up community, adding that his venture capital firm is often the only Canadian investor in local startups.


Lau argues that policymakers are not supporting the tech startup community effectively. “We are transitioning from the industrial age to the information age. We need to own these technologies and companies, but we are moving backward," he said.


A survey by MaRS, a Toronto-based tech innovation lab, revealed that 95% of over 150 tech founders surveyed do not see Canada as the best place to grow a technology company. Lau fears that the tax hike will make it harder to find Canadian companies to invest in, with foreign investors increasingly owning these startups.


Lau’s experience includes co-founding Wattpad, a Toronto-based entertainment platform, which sold for $754 million in 2021 to South Korean company Naver Corp. He noted that U.S. investors are aggressively buying shares in young Canadian companies.


The new tax policy could stifle innovation, especially in AI. "This is a five-alarm fire situation," Lau warned, mentioning a Canadian venture fund planning to relocate. "This is not an empty threat; this is really real for Canada."


Lau emphasized that while big tech entrepreneurs should contribute fairly, losing startup ownership will diminish the economic benefits of Canada’s tech community. "This will have a long-term impact, leaving the next generation with breadcrumbs," he said.


As an experienced leader, Lau advised against the false dichotomy of choosing between raising taxes or investing in the right programs for Canadians, urging for better policy decisions to keep tech talent in Canada.


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