A Montreal-based public policy think tank is calling on Alberta to eliminate its provincial capital gains tax, arguing the move would increase Albertans' disposable income by an estimated $1.1 billion annually while encouraging entrepreneurship, job creation and economic growth.In a new research paper released Thursday, the Montreal Economic Institute (MEI) says capital gains taxes discourage spending, reduce productivity and slow innovation by making investors less likely to move money into new businesses and projects."Capital gains taxes weaken the incentives that fuel entrepreneurship, innovation, and long-term economic growth," said Gerard Lucyshyn, the MEI's vice-president of research and author of the report. "This effect reverberates throughout society, as it leads to less employment, fewer made-in-Alberta innovations, and ultimately, slower growth in Albertans' paycheques."Capital gains are realized when an asset is sold for more than its purchase price, such as when a business owner sells a company after years of building it. Under Canada's current tax system, 50% of the gain is included as taxable income.The MEI argues the tax creates a so-called "lock-in effect," encouraging investors to hold onto older assets instead of reallocating capital to newer and more productive opportunities.According to the report, eliminating Alberta's provincial capital gains tax would leave Albertans with an additional $1.1 billion in disposable income each year while reducing provincial tax revenue by an estimated $431 million.The institute contends the economic benefits would outweigh the fiscal cost by increasing consumer purchasing power and making more capital available for business expansion and investment.The report also estimates eliminating the tax could reduce between 58% and 97% of Alberta's projected labour shortages in the coming years by encouraging greater business activity and job creation.Lucyshyn points to a nearly 18% decline in the number of self-employed Canadians with paid employees over the past two decades despite population growth, arguing taxes on capital only add to the barriers facing entrepreneurs.The paper also references Ottawa's abandoned proposal to increase the capital gains inclusion rate from 50% to 66%, saying the debate demonstrated how sensitive investors are to changes in capital gains taxation."Investment follows incentives," Lucyshyn said. "Lowering the tax burden on capital allows money to flow toward new businesses, innovation, and productive projects instead of remaining locked in existing assets.".The MEI argues Alberta could strengthen its competitive position by following jurisdictions that have reduced or eliminated capital gains taxes.The report cites Singapore, New Zealand and the United Arab Emirates as countries that exempt capital gains from taxation or provide significant preferential treatment. It also notes that nine U.S. states do not impose a state-level capital gains tax, with Missouri recently eliminating its tax on individual capital gains and planning to phase out taxes on corporate capital gains by 2029."Reasserting the Alberta Advantage means creating an environment where entrepreneurs choose to spend, innovate, and build businesses here," Lucyshyn said. "Eliminating the capital gains tax would demonstrate that Alberta is committed to rewarding spending and economic growth rather than taxing it."
