Creating Canadian Champions

TMX Group’s Proposals to Supercharge Canadian Public Company Growth

Canada’s capital markets ecosystem is a vital engine of opportunity for entrepreneurs and investors, driving economic growth for our nation. Over time, our unique, two-tiered public markets have built a strong track record of innovation and global leadership, while adapting to serve the needs of companies through each stage of their life cycle.

But in a hyper-competitive global marketplace, important challenges remain. And Canada must push to keep pace and maintain our competitive edge.

TMX is highly supportive of the federal government’s stated objective of building a stronger, more resilient, more independent economy. We are proposing three steps the government can take now to ensure that the next generation of homegrown success stories is built, funded, and owned by Canadians.

TMX recommends the following measures to evolve our tax environment to boost competitiveness, unlock capital flows to Canadian companies, and incentivize domestic institutional investment to support growth-stage companies. These recommendations are aimed at supporting what we call CanCos: operating Canadian* public companies with a market capitalization under C$1.5 billion, and listed on a Canadian stock exchange.
* Incorporated and headquartered in Canada. Companies below the C$1.5B market capitalization threshold are generally excluded from major indices, which significantly limits their ability to attract institutional investors. This dynamic has become increasingly consequential as average issuer size across global markets has grown, raising the effective bar for index inclusion and institutional visibility.

1

Strategic Tax Reform to Boost Canada’s Investment Competitiveness
Canada must pursue ambitious reforms to reverse declining business investment and strengthen long-term economic growth. Simple tweaks will not suffice. The federal government should undertake bold, pro-growth tax reform focused on supporting innovation, entrepreneurship, and strengthening our competitive prospects. We need to make Canada a more attractive place to invest, build, and scale up right here at home - to the benefit of all Canadians.

This should include:
  1. Introducing a preferential inclusion rate for capital gains from investments in qualifying CanCos to encourage domestic risk-taking;
  2. Implementing a reduced corporate tax rate for a five-year period following a corporation’s go-public event to incentivize companies to remain and grow in Canada; and
  3. Allowing CanCos to fully deduct 100% of capital investment costs from the outset of a project, beginning with the first dollar invested.
Together, these reforms will strengthen Canada’s capital markets ecosystem, improve productivity and competitiveness, reward entrepreneurial risk-taking, and send a clear signal to domestic and international investors that Canada is open for business.

2

Ensure the ‘Canada Strong Fund’ Supports Growth-Stage Canadian Companies
The proposed Canada Strong Fund (the “Fund”) represents an opportunity to mobilize domestic capital in support of Canada’s economic priorities. To maximize its impact, the Fund’s mandate must include dedicated investment capacity in growth-stage CanCos.

Canada continues to face challenges in helping companies scale domestically and compete globally. While support for large-scale infrastructure and nation-building projects is critical, Canadian companies that have moved beyond the startup phase consistently struggle to access the capital needed to fund expansion, retain talent, and remain headquartered in Canada.

Including publicly listed growth-stage CanCos within the Fund’s investment mandate would strengthen Canada’s innovation and capital markets ecosystem, support the development of globally-competitive Canadian companies, and reinforce broader objectives tied to productivity, competitiveness, and economic sovereignty.

The Fund should also employ mechanisms that leverage the public markets ecosystem and allow retail investors to participate. Creating a public market vehicle attached to the Fund would help ensure liquidity while ‘democratizing’ participation in Canada’s long-term economic growth. At a time when Canada faces a once-in-a-generation opportunity to strengthen its economic resilience and self sufficiency, Canadians should have the ability to directly participate in and benefit from the country’s long-term growth and strategic investment priorities.

3

Unlocking Pension Capital for Canadian Growth
Canada’s public pension funds have the scale, incentive, and desire to drive domestic growth, but often lack access to investment vehicles that meet their requirements for size, risk, and return.

The Government of Canada should encourage Canada’s large pension funds to allocate a minimum of 1% of assets to investments in growth-stage CanCos, with the goal of mobilizing long-term domestic capital in support of national economic growth. A concrete avenue for doing so would be through participation in the proposed Canada Strong Fund, which could serve as a scalable, institutional-grade vehicle through which pension capital is directed toward CanCos.

By combining competitive tax policy with regulatory efficiency, the government can go further - creating the conditions that make domestic investment in CanCos the most compelling proposition and removing the structural friction that has historically stood in the way.

Unlocking this capital represents one of the greatest opportunities to support CanCos as they transition from domestic players to global leaders - and the recommendations outlined above can work in mutually reinforcing ways to make that happen.

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About TMX Group

TMX Group owns and operates key components of Canada’s financial ecosystem, including Toronto Stock Exchange and Montreal Exchange, our premier equities and derivatives markets. At the centre of this powerful engine of economic growth and opportunity, our purpose is to make markets better and empower bold ideas. It’s an enterprise commitment rooted in a proud history, and focused on ensuring a viable future. From our front row seat, for more than 170 years, we have seen the best of Canadian innovation, ingenuity, and entrepreneurship, and take it as our responsibility to promote investment in Canadian companies, economic growth, and international competitiveness. Recognizing the important role of government policy, TMX Group actively engages with policymakers to promote measures that support these objectives.

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