Gerard Lucyshyn is the Vice President of Research at the MEI, a think tank with offices in Calgary, Ottawa, and Montreal.For decades, the Alberta Advantage represented something more than lower taxes. It represented the broader idea that Alberta was an environment where businesses could grow and where entrepreneurs could invest with confidence.But such advantages do not persist of their own accord; they need to be protected and renewed. Today, Alberta’s competitive edge is being whittled away by tax changes in other jurisdictions. To reassert and strengthen the Alberta Advantage, the provincial government should do away with its capital gains tax.Capital gains taxation is often portrayed as a tax on investors. That framing misses the bigger picture. This is a tax on investment itself, and the economic growth that investment brings.Under the current system, half of the value of a capital gain is included in taxable income. This affects investors’ decisions. For example, if selling an asset creates a significant tax bill, investors have an incentive to hold onto it longer than they otherwise would.Think about it: sell some assets with significant gains in the same year, and you might end up in a higher tax bracket. That means a larger share of the profit you made, on the risk you took, would be taken away by the government. Instead, you might choose to delay the sale of one asset by an extra year, so it shows up on the following year’s taxes. Doing that makes sense for you fiscally, but it means those funds can’t be invested elsewhere, incentivizing new projects.This is what’s known as the “lock-in effect.” Investors may keep money tied up in existing assets rather than moving it toward more productive opportunities..When considered in an area as large and prosperous as Alberta, this translates into a number of missed opportunities to start new businesses, expand existing firms, and create more and better-paid jobs for Albertans.By scrapping the capital gains tax, Alberta would help reduce this “lock-in effect” and thereby free up capital.This tax is being applied to quite a few Albertans. In 2023, about 360,000 Albertans reported capital gains on their income tax forms. This doesn’t just represent wealthy investors. Many are retirees selling a lifetime of investments. Others are entrepreneurs who spent decades building businesses that have created wealth and employment for the province, and are finally ready to sell. Others are families filing one last tax return for their deceased loved ones. The list goes on.The capital gains tax burden also carries other consequences, including an exodus of talent and capital. Canada has become less attractive for entrepreneurs looking to build their companies. In 2024, 48% of Canadian founders of venture-capital-backed startups worth over a million dollars were based in the United States, up from 19% in 2016. In less than a decade, Canada saw the number of promising entrepreneurs emigrating to our southern neighbour surge. The climate of uncertainty and the burden of our tax system have sent one message: Canada is closed for business.It is time to reassert the Alberta Advantage that has long defined our province.If Alberta cuts the capital gains tax entirely, the disposable income of Albertans would increase by an estimated $1.1 billion in the first year alone. That is money that stays in the pockets of Albertans to be spent or reinvested. Furthermore, it could create between 4,600 and 7,700 jobs, covering a significant portion of Alberta’s projected labour shortages over the next decade.This is not a radical proposal. Singapore and New Zealand have zero or highly preferential capital gains taxation. Just recently, the state of Missouri became the ninth US state which doesn’t tax capital gains for individual taxpayers, with its corporate capital gains tax expected to disappear as well in the next few years. These jurisdictions understand one economic reality: you cannot tax your way to prosperity.Alberta built its reputation by being a place where opportunity was encouraged, not penalized. It’s time to show the rest of Canada the way it’s done, by eliminating the capital gains tax.Gerard Lucyshyn is the Vice President of Research at the MEI, a think tank with offices in Calgary, Ottawa, and Montreal.
