Canada is facing a troubling decline in new business creation that should serve as a “massive wake-up call” for policymakers, according to entrepreneurship advocate and Build Canada CEO Lucy Hargreaves. The trend reflects not a lack of entrepreneurial spirit, but rather systemic barriers that are pushing Canadian founders to pursue opportunities elsewhere.
Hargreaves argues that while Canada has the fundamental ingredients for economic success—land, talent, and energy—policy choices are preventing the country from unlocking its potential. The Hub spoke with Hargreaves to better understand the challenges facing Canadian entrepreneurs and what’s driving them to leave.
Here are five key takeaways from the conversation:
1. Tax policies are driving entrepreneurs south of the border: Canada’s capital gains incentives simply cannot compete with U.S. policies, particularly for small businesses, creating a significant disadvantage for Canadian startups.
2. Regulatory burden is crushing small business growth: Canadian entrepreneurs faced 735 hours lost to paperwork in 2024, with complex programs like SR&ED tax credits requiring expensive consultants to navigate.
3. Cultural attitudes toward risk-taking need to change: Unlike the United States, Canada doesn’t celebrate entrepreneurial success and risk-taking as part of its default culture.
4. Basic public services are failing entrepreneurs: High-tax-paying business owners struggle to access family doctors and quality education for their children, undermining the value proposition of staying in Canada.
5. Scale is possible but requires determination: While companies like Shopify prove Canadian businesses can grow and remain Canadian, entrepreneurs must be exceptionally determined to overcome systemic obstacles.
Tax policies are driving entrepreneurs south of the border
The most significant barrier facing Canadian entrepreneurs is an uncompetitive tax structure, particularly around capital gains policies. Hargreaves points to the stark differences between Canadian and American approaches to supporting small business growth.
“When you look at our capital gains policies, which has been a really big issue that many in this ecosystem have been talking about for the last number of years, our capital gains policies are simply not competitive with the U.S., especially for that small business cohort,” Hargreaves explained.
The disparity is substantial. The U.S. Qualified Small Business Stock (QSBS) program offers a cap of $15 million—about 10 times the original investment amount and five times higher than Canada’s capital gains incentives. Making matters worse, Canada’s Cumulative Eligible Investment (CEI) cap uses a phased approach that won’t reach full effect until 2029, while the superior U.S. policy is active today. This gap is so significant that Canadian investors are asking early-stage companies to relocate to the United States to benefit from QSBS provisions.
The tax competitiveness issue has seen recent developments under Prime Minister Mark Carney’s leadership. While the previous government under Justin Trudeau had proposed increasing the inclusion rate of the capital gains tax from 50 percent to 67 percent in the 2024 budget, Prime Minister Carney announced on March 21, 2025, that his government would cancel this proposed hike. However, even with this reversal, Canada’s tax structure remains less competitive than the U.S. system. Canada did increase its Lifetime Capital Gains Exemption to $1.25 million as of June 25, 2024, and will be indexed to inflation going forward, but this still falls far short of the U.S. QSBS program’s $15 million exemption for qualified small business stock.
Regulatory burden is crushing small business growth
Beyond tax policy, Canadian entrepreneurs face a maze of regulatory requirements that consume valuable time and resources. The compliance burden has reached alarming levels, with small business owners losing more than a month of productive time annually to paperwork.
“Small business owners report heavy regulatory drags,” Hargreaves noted, citing a 2025 CFIB report showing substantial hours per year lost to paperwork.
Even programs designed to help entrepreneurs create additional friction. The SR&ED tax credit, specifically intended to support research and development, has become so complex that it has spawned an entire consulting industry. “Up to 30 percent of the actual amount of that credit actually gets siphoned off from consultants just helping businesses with their applications,” Hargreaves revealed. This means entrepreneurs lose nearly one-third of their intended government support to administrative costs.
The scale of Canada’s regulatory burden is staggering, according to recent data. The combined cost of regulation to businesses from all three levels of government in Canada reached $51.5 billion in 2024, with approximately 35 percent of that—just under $18 billion—spent on red tape, according to the Canadian Federation of Independent Business. The regulatory complexity varies dramatically across provinces, with significant variation in regulatory requirements across jurisdictions, ranging from around 36,000 in Prince Edward Island to nearly 150,000 in Ontario, as reported in CFIB’s comprehensive regulatory count study.
The latest 2025 data reveals an alarming escalation in regulatory burden that is crushing small business productivity. According to CFIB’s most recent findings, small businesses now lose over 256 hours per year to red tape specifically—a 35 percent increase from 189 hours in 2020, as reported by MRO Magazine in January 2025. This translates to businesses spending 768 million hours on regulatory compliance nationwide, equivalent to nearly 394,000 full-time jobs. The smallest businesses bear the heaviest burden, spending $7,310 per employee annually on compliance, while the government acknowledged in July 2025 that approximately $17.9 billion of the total $51.5 billion regulatory cost can be attributed to unnecessary red tape. Ironically, while Canadian red tape costs have remained high, similarly sized American businesses now face even higher costs at $11,904 per employee, suggesting that regulatory burden is becoming a continent-wide competitiveness challenge.
Cultural attitudes toward risk-taking need to change
Canada’s entrepreneurship challenge extends beyond policy into cultural territory. Unlike their American counterparts, Canadian entrepreneurs operate in an environment that doesn’t naturally celebrate business success or risk-taking behaviour.
“In Canada, we don’t have a great track record of celebrating risk-taking entrepreneurs and the successes that they achieve when they go out on a limb and try new things,” Hargreaves observed. “We don’t tend to celebrate that ambition as a default part of our culture.”
This cultural difference matters because entrepreneurship requires not just individual courage but societal support. When successful entrepreneurs aren’t celebrated, it becomes harder to inspire the next generation of business builders and creates a self-reinforcing cycle of risk aversion.
Basic public services are failing entrepreneurs
Perhaps most frustrating for Canadian entrepreneurs is the disconnect between high tax rates and declining public service quality. Business owners who contribute significantly to government revenues through taxes find themselves unable to access basic services that should be guaranteed to all citizens.
“Here I am even struggling to get the basic education and health care benefits that I would expect as a Canadian citizen,” Hargreaves said, describing feedback from entrepreneurs in her network who “pay high taxes” but “can’t get a family doctor” while watching their “kids’ local public school having decreased in quality over time.”
This creates a particularly bitter irony: the very people generating economic growth and tax revenue cannot access the services their contributions are supposed to fund.
The health care access crisis has reached unprecedented levels across Canada. Physicians across Canada reported a median wait time of 30 weeks between a referral from a GP and receipt of treatment in 2024, up from 27.7 weeks in 2023, according to the Fraser Institute’s annual health care wait times report. Meanwhile, in Ontario, the average wait time for the thousands of prospective patients on the province’s list looking to be connected to a family doctor is around 90 days, CBC News reported, though this represents only the average experience.
Scale is possible but requires determination
Despite these challenges, Hargreaves maintains that Canadian companies can achieve significant scale while remaining Canadian. Companies like Shopify demonstrate that success is possible, though it requires exceptional determination and likely involves taking capital from international sources.
“We have the land, the talent, and the energy to be the most abundant nation on earth,” Hargreaves emphasized. “And the only question is whether we’re going to choose to unlock that.”
The path forward requires addressing systemic barriers while recognizing that global capital flows are inevitable for scaling businesses. Success stories exist, but they succeed despite the system rather than because of it—a dynamic that ultimately limits Canada’s entrepreneurial potential.
This commentary draws on a Hub podcast. It was edited using AI. Full program here.
