Reasserting the Alberta Advantage: The Case for Capital Freedom and Abolishing Capital Gains Taxation

Research Paper using practical international examples, statistical estimation, and theoretical foundations to make a comprehensive case for eliminating capital gains taxation in Alberta

Related Content

Think tank calls on Alberta to eliminate capital gains tax, says move would boost incomes by $1.1 billion (Western Standard, July 23, 2026) How eliminating the capital gains tax can restore the Alberta Advantage (The Hub, July 30, 2026) Kill the capital gains tax to save the Alberta Advantage (Western Standard, August 3, 2026)

This Research Paper was prepared by Gerard Lucyshyn, Vice President of Research & Senior Economist at the MEI.

EXECUTIVE SUMMARY

This paper makes a comprehensive case for abolishing capital gains taxation in Alberta. It shows how eliminating this tax will increase capital freedom, drive investment, and reassert the Alberta Advantage.

The paper is structured into five chapters. Chapter 1 provides an overview of the existing capital gains tax framework in Canada, the historical rationale behind it, and the recent political uncertainty surrounding it.

Chapter 2 reviews the different types of adverse impacts capital gains taxation creates, such as the lock-in effect, the distortion of investment decisions, the stifling of innovation and entrepreneurship, and the influence on wealth migration.

Chapter 3 scrutinizes and dispels the misconception that capital gains taxation is about fairness and equity.

Chapter 4 simulates and models the elimination of capital gains taxation in the province of Alberta using Statistics Canada’s Social Policy Simulation Database and Model (SPSD/M), focusing on lost provincial revenues, Albertans’ increased disposable incomes, and job creation.

Finally, Chapter 5 explores the concept of the Alberta Advantage and uses classical liberalism’s theoretical foundations to provide justification for eliminating the capital gains tax in Alberta, and thereby reasserting the Alberta Advantage.

Since the inception of capital gains taxation in Canada, numerous papers and authors have written on its negative consequences. What sets this paper apart is that it reconciles practical international examples, statistical estimation, and theoretical foundations to make a comprehensive case for abolishing capital gains taxation in Alberta, and by extension in the rest of Canada.

INTRODUCTION

A Buck Is a Buck Is a Buck

The catchphrase “a buck is a buck is a buck” became the mantra of the Carter Commission in 1962 as it was tasked with reviewing the Canadian tax system.(1) Tackling the holy grail of a country’s legislation, its tax code, is no simple matter, especially when it had not been reviewed since its inception in 1917. Over those 45 years, tax legislation had become overly complex and inconsistent. It took the Carter Commission five years to complete its analysis and produce its final report.(2)

That report contained a laundry list of recommended improvements which, six decades later, have become common practice and are generally accepted without question. One of those practices is collecting tax on capital gains. Back in the 1960s, the concept of taxing capital gains was considered a radical reform. However unconventional and controversial that was, the Carter Commission held fast to its rationale that capital gains be taxed in the same manner as any other source of income, such as employment income and business income. Hence, the Commission’s tagline, “a buck is a buck is a buck.”

After the release of the report, the government took three years to produce a white paper on how they planned to implement capital gains taxation. The proposed method, at the time, was to include all or a portion of a taxpayer’s capital gains in the taxpayer’s income and then apply the applicable marginal rate(3) to the total sum.

The rationale behind this methodology was that it would make the tax system more progressive. In fact, the government argued that it would make things easier on the wealthy, since at the time, high income earners were subject to extremely high rates of taxation (in some cases up to 80% or more). Under the new system, the government would no longer need to impose such a high tax rate on high-income earners. The government acknowledged that taxing capital gains by adding a portion of them to a taxpayer’s income was controversial and complicated, but it was believed that such a step “must be taken if Canada’s tax system is to be fair, and if it is to be effective.”(4)

V-Day

A major concern at the time was how to ensure that capital gains realized by taxpayers prior to the new rules taking effect would not be subjected to the new tax. To address this concern, the government set Valuation Day (V-Day) for December 31, 1971. For any property acquired before V-Day and sold after V-Day, only the capital gained between V-Day and the date the property was sold would be counted, with any appreciation that occurred prior to V-Day being exempt.(5)

While the idea of V-Day and the implementation of capital gains taxation seemed relatively simple and straightforward, it would very quickly become muddled in complexity. Numerous preferential treatments would immediately emerge, with certain types of capital gains not included in a taxpayer’s income. For instance, only 50% of the realized capital gains from shares of widely-held corporations(6) would be counted, versus 100% of gains on private company shares and real estate. Meanwhile, realized capital gains from principal residences and property owned for personal use would be exempt.

How did the Carter Commission’s recommendations rooted in the principle of equality of income regardless of its source morph into a complex system of this-is-and-this-isn’t? The answer is found in the differences between the Commission’s rationale, the government’s interpretation, and the reality of implementation.

The 1969 Government White Paper

The 1969 government white paper on implementation was narrowly focused on a certain unidentified group of wealthy individuals who were believed to be avoiding taxes by earning income from the realization of capital gains instead of employment income. The government never actually defined or further described this unidentified multitude. Rather, it repeatedly referred to “them” throughout the paper. In fact, the Department of Finance, at the time, admitted it had no idea what the implications of imposing tax on capital gains would be, but it was basing its estimates on numbers from the United States.

The rationale of fairness fades as the white paper progresses and the authors became increasingly focused on how much government revenue taxing capital gains could generate. It was estimated at the time that capital gains taxation could ultimately account for more than 5% of total Canadian personal income tax, or over $390 million (equivalent to approximately $4.15 billion today).(7)

Despite the mounting evidence that proves differently, six decades later, the same rationales, justifications, and misconceptions continue to form the basis for supporting the taxation of capital gains.

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