Eliminating the capital gains tax would boost investment and increase Albertans’ disposable income, says the MEI
- Eliminating Alberta’s capital gains tax could increase Albertans’ disposable income by approximately $1.1 billion.
Calgary, July 23, 2026 – Capital gains taxation limits productivity, employment, and wealth creation, and should be eliminated at the provincial level. This is the conclusion of a Research Paper published by the MEI today.
“Capital gains taxes weaken the incentives that fuel entrepreneurship, innovation, and long-term economic growth,” explains Gerard Lucyshyn, vice president of Research at the MEI and author of the paper. “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 taxes discourage investment
A capital gain is realized when an individual sells an asset for more than its original purchase price. This occurs, for instance, when an entrepreneur sells a small business after building it for 20 years. Under the current capital gains tax regime, half of the profit realized from such a sale is added to the entrepreneur’s taxable income and taxed as personal income, subject to certain exemptions.
Taxing capital gains reduces capital reallocation, creating what economists call the “lock-in effect,” whereby investors feel constrained to hold onto older, less effective assets rather than redirect capital toward newer, more productive ones. By distorting investment decisions, such taxation discourages entrepreneurship and slows economic growth, argues Mr. Lucyshyn.
The researcher points to the sharp decline in Canadian entrepreneurship over the past two decades, as the number of self-employed Canadians with paid employees fell nearly 18 per cent despite population growth. Taxes on investment only add to the barriers facing entrepreneurs and further weaken the incentives to take risks, expand firms, and create jobs.
The recent uncertainty surrounding the proposed federal hike of the capital gains inclusion rate from 50 per cent to 66 per cent demonstrated just how sensitive investors are to capital gains taxation. The changes were ultimately abandoned, barring which the impact of this hike would have been much more detrimental to the economy.
“Investment follows incentives,” says Mr. Lucyshyn. “Lowering the tax burden on capital allows money to flow toward new businesses, innovation, and productive projects instead of remaining locked in existing assets.”
A small fiscal cost with substantial economic gains
Eliminating Alberta’s capital gains tax would increase Albertans’ disposable income by an estimated $1.1 billion annually, whereas it would lower the provincial government’s tax intake by an estimated $431 million. This measure would provide households with greater purchasing power while increasing the amount of capital available for future investment.
Eliminating the provincial taxation of capital gains could also alleviate between 58 per cent and 97 per cent of the government of Alberta’s projected job shortages in the coming years.
Alberta can strengthen its competitive advantage
The paper points to numerous international examples where governments have reduced or eliminated capital gains taxation to encourage investment and improve economic competitiveness.
Countries such as Singapore, New Zealand, and the United Arab Emirates either exempt capital gains entirely or provide significant preferential treatment.
Closer to home, nine U.S. states do not levy a state-level capital gains tax, with Missouri recently joining this group by eliminating its state capital gains tax for individuals and planning to phase out corporate capital gains taxation by 2029. This signals a growing trend of using lower capital gains taxes to attract investment and entrepreneurship.
“Reasserting the Alberta Advantage means creating an environment where entrepreneurs choose to invest, innovate, and build businesses here,” concludes Mr. Lucyshyn. “Eliminating the capital gains tax would demonstrate that Alberta is committed to rewarding investment and economic growth rather than taxing it.”
You can read the MEI Research Paper here.
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The MEI is an independent public policy think tank with offices in Montreal, Ottawa, and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
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