To finally end the confusion, Finance Minister Dominic LeBlanc on Friday said the government will delay implementing the capital gains tax hike until Jan. 1, 2026—well after a new government is chosen. But rather than delay it, the government should abandon the hike—not only because it takes more money from Canadians but because it makes Canada less competitive with other countries. 

First, a bit of context.

When you purchase an asset (think property or stock in a company) and sell it for a higher price, that difference is called a capital gain. For many years, the federal government would include one-half (50 per cent) of that gain as taxable income. But the Trudeau government proposed to increase that amount—called the inclusion rate—to two-thirds (66.7 per cent) for individual gains exceeding $250,000 per year and for all corporate capital gains. 

Despite the government’s rhetoric that this would only impact the “wealthiest” Canadians, many middle-class Canadians would also face higher taxes due to the hike. And raising capital gains taxes would make it more expensive for businesses to invest in Canada, which means less business investment, stagnant wages and lower economic growth. Capital gains taxes are simply among the most economically damaging forms of taxation.

More broadly, should the hike be implemented, Canada’s capital gains taxes would be higher relative to other countries. 

According to a new study published by the Fraser Institute, with a capital gains inclusion rate of 50.0 per cent, Canada ranked in the middle of the pack for the top capital gains tax rate, ranging from 17th to 23rd (depending on the province) out of 37 advanced countries. 

However, by raising the inclusion rate to 66.7 per cent, Canada’s top capital gains tax rate would rank between 8th and 13th highest (depending on the province), meaning more than three-quarters of OECD countries would have lower tax rates than Canada. This would make it much harder for Canada to attract and retain the business investment necessary for a strong economy, and would worsen Canada’s overall lack of tax competitiveness.

Rather than simply abandon the capital gains tax hike, the next federal government should actually lower the tax to improve Canada’s competitiveness.

For example, if the government reduced the inclusion rate to one-third (33.3 per cent), Canada’s top capital gains tax rate would rank between 30th and 31st out of 37 OECD countries. As a result, we would enjoy a lower top capital gains tax rate than most OECD countries including the United States, the United Kingdom and Germany. This would help make Canada a more attractive destination for investment, which ultimately leads to a stronger economy and higher wages.  

Regardless of how the situation plays out on Parliament Hill, the government should improve the competitiveness of Canada’s tax system. That means lowering taxes, not raising them. 

Jake Fuss and Grady Munro are analysts at the Fraser Institute.