Creating Canadian Champions
TMX Group’s Proposals to Supercharge Canadian Public Company Growth
But in a hyper-competitive global marketplace, important challenges remain. Canada must take clear-eyed, bold steps to overcome these challenges and sharpen our competitive edge.
TMX is highly supportive of the federal government’s stated objective of building a stronger, more resilient, and more independent economy. We are proposing four steps the government can take now to ensure that the next generation of homegrown success stories is built, funded, and owned by Canadians.
Together, these proposals aim to modernize Canada’s tax environment: improving our competitive prospects, unlocking critical capital flows to Canadian companies, and incentivizing more Canadians to invest in the country’s long-term economic growth.
1
Strategic Tax Reform to Boost Canada’s Investment Competitiveness
Broad-based measures to strengthen Canada’s investment competitiveness
- Introducing a preferential inclusion rate for capital gains from investments in public companies, domiciled and headquartered in Canada, whether held directly or through qualified diversified investment funds, subject to an appropriate minimum holding period, to encourage domestic investment;
- 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
- Allowing CanCos to fully deduct 100% of capital investment costs from the outset of a project, beginning with the first dollar invested.
2
Mobilize Canadian Retail Investment for Canadian Growth
Transforming the TFSA into the Maple Tax-Free Investment Account for Canadian Champions
The current TFSA framework provides no targeted incentives for Canadians who invest through TFSAs to direct their savings toward Canadian companies, including our growth-stage companies, rather than cash or cash-equivalents or foreign companies. As a result, a substantial share of tax-preferred TFSA assets is held in cash or cash-equivalent investments and foreign investments, limiting Canada’s long-term growth potential and the benefits to investors of compounding interest.
Building on the success of the existing TFSA, the federal government should transition the program into a dedicated Maple Tax-Free Investment Account, reserved exclusively for investments in qualifying Canadian companies listed on a recognized Canadian exchange, whether held directly or through qualifying diversified investment funds.
To encourage public support for and participation in the Maple Tax-Free Investment Account, the federal government should also increase the annual contribution limit to $10,000. This would provide Canadians with additional tax-free savings capacity while directing more capital toward domestic companies.
Strengthening Canada’s Asset Management Industry
Exchange-Traded Funds (ETFs) are an important and growing component of Canada’s domestic asset management industry. However, changes to the Allocation to Redeemers (ATR) methodology enacted through Bill C-32 in 2022 have reduced the tax competitiveness of Canadian-listed ETFs relative to comparable U.S.-listed products. Under the current Canadian framework, capital gains realized when an investor redeems units may remain within the fund and be allocated among continuing unitholders. This can result in long-term investors bearing tax liabilities associated with transactions initiated by other investors, reducing the tax efficiency and overall attractiveness of Canadian-listed ETFs.
By contrast, the U.S. framework - which more closely resembles Canada’s pre-2022 treatment - provides ETF managers with greater flexibility to manage capital gains tax liabilities between exiting and remaining investors, improving after-tax outcomes and making U.S.-listed ETFs more attractive to investors.
It is time to modernize the ATR framework and level the playing field for Canadian asset managers competing with U.S.-listed products. Modernizing the ATR framework by undoing the changes enacted in 2022 or through another ETF-specific, revenue-neutral mechanism would improve the tax efficiency and competitiveness of Canadian-listed ETFs and better align tax consequences with investor redemption activity.
3
Ensure the ‘Canada Strong Fund’ Supports Growth-Stage Canadian Companies
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.
4
Unlocking Pension Capital for Canadian Growth
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 viable path 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 ascend 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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