In the 2024 federal budget, Canada increased the capital gains inclusion rate to two thirds for gains above $250,000. The government framed this as a fairness measure, a way to ensure that wealthy Canadians pay their share. What it actually did was send a clear signal to every investor, founder, and fund manager paying attention: the rules are changing in ways that make Canadian investment less attractive, and the direction of travel is toward higher costs for taking risk here.
Investment decisions are made at the margin. Nobody builds a company or deploys capital into a real estate development or funds a startup by looking only at the upside. The after-tax return on eventual exit is a central part of the calculation from day one. When that return shrinks relative to what an investor could achieve by deploying the same capital in the United States or the UK or Australia, some share of that capital goes elsewhere. This is not greed. It is how any rational allocation decision works.
The argument that capital gains taxes only affect wealthy individuals misreads how capital formation actually works. The people who invest in early-stage businesses, fund development projects, and back entrepreneurs are predominantly the same people who have accumulated capital through prior successful investments. Make the tax treatment of those gains worse and you do not simply redistribute from the wealthy to everyone else. You reduce the total pool of capital available for productive investment, and the people who lose most are the entrepreneurs and workers who would have benefited from that capital being deployed.
There is also an inflation problem that the current framework ignores entirely. Canada taxes nominal gains rather than real ones. An investor who bought an asset twenty years ago and held it has often seen much of the nominal appreciation offset by inflation, yet the full nominal gain is included in income for tax purposes. The result is a real effective rate that frequently exceeds even the stated inclusion rate, particularly on long-held assets. Indexing capital gains for inflation is a reform that almost every serious economist across the political spectrum supports. Canada has not done it.
A coherent reform agenda would bring the inclusion rate back to a level competitive with peer countries, index gains for inflation, and create meaningful distinctions between short-term speculative activity and long-term productive investment. None of this requires abandoning progressive taxation. It requires designing a system that encourages investment in Canada rather than treating it as a penalty to be managed.