Prime Minister Mark Carney is making investment a central part of his economic agenda.
He has appointed Dominic Barton as chair of Invest in Canada and Gurinder Grewal as CEO. Ottawa has brought major investors to Toronto and is encouraging capital to flow into Canadian energy, resources, technology, defence and infrastructure. The government says its first Canada Investment Summit generated nearly $500 billion in new investment commitments.
Good. Canada should want investment.
It is also encouraging to see Ottawa speaking more openly about the advantages Canada already possesses: energy, minerals, natural resources, technology and an educated workforce. Clean energy remains part of the agenda, but conventional energy, critical minerals, defence, AI and major infrastructure are now being promoted as well.
Canada currently accounts for about 1.4% of global greenhouse-gas emissions. That does not make our emissions irrelevant, but it is worth remembering the scale when deciding how much economic activity we are prepared to sacrifice in pursuit of reductions.
Ottawa is also trying to make investment more attractive through taxation.
The government has introduced its Productivity Mega Deduction, which would allow immediate expensing for a much broader range of qualifying capital investment. Ottawa estimates that roughly two-thirds of capital investment would become eligible for immediate expensing.
That sounds sensible. But it contains a paradox. A business must first decide to invest before it can claim an accelerated write-off.
If uncertainty about Canada causes a company to postpone an investment, cancel it or make it somewhere else, the deduction is worth precisely nothing.
An accelerated write-off can improve the economics of a project once the investment decision has been made. It cannot, by itself, create confidence in Canada.
Which brings us to the more important question:
How do we make Canada itself worth investing in?
Canada certainly attracts foreign capital. Foreign direct investment reached $96.8 billion in 2025, its highest annual level since 2007. At the same time, Canadian direct investment abroad totalled $79.4 billion, while Canadian investors bought a net $112.5 billion in U.S. securities.
There are perfectly sensible reasons to invest internationally. Diversification is one of them. But the figures still raise a useful question:
Why should Canadian capital prefer Canada?
That question becomes particularly important when our economic relationship with the United States is less predictable.
I would call what Canada is experiencing an involuntary Canexit, borrowing from Brexit. Nobody voted to leave our largest trading relationship. But uncertainty around access to the American market can still affect where businesses choose to deploy capital. This is therefore a good moment to think more fundamentally about how we tax investment.
I like metaphors. Imagine that you plant a seed and grow an apple tree. The tree is your capital. Every year it produces 100 apples. Those apples are your income. One day somebody offers to buy the tree because he believes he can make it produce 200 apples a year. That should be good news.
The tree moves into more productive hands. Society gets more apples. The new owner earns more income and pays tax on that additional income. But suppose the tax consequences of selling the tree are so severe that what remains after tax cannot be reinvested in anything capable of producing a comparable return. You may decide not to sell. The tree continues producing 100 apples instead of 200.
The point is simple:
Taxes do not merely collect revenue. They change behaviour.
The previous government proposed increasing the capital-gains inclusion rate from one-half to two-thirds in certain circumstances. That increase was subsequently cancelled, leaving the one-half inclusion rate in place. Why stop there?
Canada could ask whether our treatment of investment is sufficiently competitive in the first place.
Here are seven possibilities worth discussing.
1. Lower the capital-gains tax burden
Canada could consider reducing the capital-gains inclusion rate below its current level.
Switzerland provides an interesting comparison. Capital gains on movable private assets, including securities, are generally tax-free for private individuals. Canada does not have to become Switzerland. But we should at least be willing to ask whether taxing successful investment less might encourage more investment in the first place.
Success is not a natural resource waiting to be taxed. Someone normally had to risk something to produce it.
2. Give new residents a temporary tax window
The United Kingdom now offers qualifying new residents a four-year regime under which eligible foreign income and gains can receive 100% relief from UK tax. It is available during the first four years of UK residence following at least ten consecutive years of non-UK residence. Canada could examine something similar.
Suppose an entrepreneur, investor or highly skilled professional is deciding where to live.
Would Canada rather collect the maximum possible tax from that person immediately — or make Canada sufficiently attractive that he or she lives, invests and perhaps builds businesses here for the next 30 years?
Sometimes collecting less today may produce more tomorrow.
3. Reward people who build businesses
Canada already recognises this principle through preferential treatment for qualifying small-business shares.
But we could think more ambitiously.
Suppose an entrepreneur creates a company employing 1,000 people and keeps those jobs in Canada for ten years. Now imagine that, in return, Canada promises favourable capital-gains treatment when that entrepreneur eventually sells the company.
Take an intentionally exaggerated example.
Assume each of those 1,000 jobs produces a combined fiscal benefit of $25,000 a year through taxes and payroll contributions paid and public support no longer required. Over ten years, that represents a hypothetical fiscal benefit of $250 million. Suppose the company is later sold for $100 million and favourable capital-gains treatment saves its founder $30 million.
Was that unfair? Or did taxpayers forgo $30 million of potential tax revenue after receiving $250 million in hypothetical fiscal benefits?
The numbers are deliberately illustrative. The principle is not.
Fairness cannot be judged only by asking how much tax a successful person paid.
We should also ask what was created and what behaviour the tax system encouraged.
The same applies to risk.
The person who takes a risk and succeeds should not be compared only with the person who never took the risk. He should also be compared with the many people who took the same risk and failed.
If we want people to risk their savings, careers and time creating businesses, success has to carry a reward.
4. Compete for talented people as seriously as we compete for capital
Capital is mobile. So are people.
Sweden offers special tax relief for certain foreign experts, researchers, executives and other key employees, specifically to make it easier to recruit skills that are difficult to find domestically. Canada should ask the same question.
When an engineer, scientist, entrepreneur or executive is deciding between Toronto, New York, London, Stockholm or somewhere else, how competitive are we? We are not simply competing for companies. We are competing for the people who create them.
5. Make Canada attractive for intellectual property
Ireland has used preferential corporate-tax treatment for qualifying income generated from intellectual property such as patents and copyrighted software.
Canada does not have to copy Ireland. But in an economy increasingly built around software, patents, research and artificial intelligence, we should not merely ask:
Where was the idea invented?
We should ask:
Where will its owner choose to keep it, develop it and commercialise it?
Intellectual property may be the most mobile capital of all.
6. Reconsider withholding taxes on new foreign investment
If Ottawa is travelling the world encouraging international investors to finance Canadian companies and infrastructure, it should also examine the taxes those investors face when capital crosses the border.
Canada could consider lower withholding taxes — or temporary preferential treatment for qualifying new investment — where treaty obligations and sensible safeguards permit it.
Perhaps five or ten years of more favourable treatment would be worth examining for genuinely new capital. The principle should be simplicity.
Instead of inviting investors to negotiate special arrangements and seek individual rulings, make the general rules attractive enough that they do not need to.
7. Increase the TFSA limit — and learn from Sweden
And then there are Canadians.
If we want Canadians to invest more, why not give them greater room to do precisely that?
The annual TFSA contribution limit is currently $7,000.
Increase it.
The TFSA is one of the simplest mechanisms Canada already has for encouraging saving and investment. Canadians contribute money on which tax has already been paid and can then invest and grow that capital without paying Canadian tax on income and gains earned inside the account.
But perhaps we should go further and look again at Sweden. Sweden’s Investeringssparkonto, or ISK, is in some respects comparable to the TFSA, but it works very differently.
There is no upper account-balance limit. Instead of separately taxing every dividend, interest payment or capital gain, Sweden applies a standardized annual tax based on the value of the investments held in the account.
From 2026, the first 42,000 CAD of qualifying savings is effectively sheltered from that annual tax. That takes care of most ordinary people. Above that level, the 2026 effective tax is 1.065% of the relevant capital base. The rate is derived from Sweden’s government borrowing rate — the statslåneränta — plus one percentage point, with the resulting deemed income then taxed at 30%.
The beauty of the system is its simplicity. The ordinary saver gets a meaningful tax-free allowance.
Someone with considerably more invested can continue saving without encountering an arbitrary contribution ceiling, but the government still receives revenue every year.
And the investor does not have to calculate and report each individual dividend, interest payment or capital gain. Those returns are not taxed separately inside the ISK; the annual standardized tax takes their place.
We could ask whether there is something worth learning from a system that encourages people to accumulate much larger pools of investment capital in Canada while still producing annual tax revenue once their savings exceed a reasonable threshold.
There is something slightly peculiar about spending enormous amounts of political energy asking foreign investors to put more money into Canada without simultaneously asking how we can help Canadians become larger investors themselves.
Before asking the world to invest here, give Canadians every reason to do the same.
None of these seven ideas needs to be adopted exactly as described.
Some would cost revenue. Some would require safeguards. Some might prove more effective than others.
But they force us to ask the right question:
Are we making Canada competitive for capital, talent, entrepreneurship and intellectual property?
That does not mean running larger deficits.
If Canada wants to tax productive investment less, it should also be willing to discuss where taxation should fall instead.
One possibility is consumption.
A higher HST need to be accompanied by compensating credits for lower-income households. The higher we raise the HST, the more fiscal room we get for the tax proposals above and for lowering the marginal tax rate on ordinary income.
The objective is not simply less taxation. It is better-designed taxation.
And that brings us back to Ottawa’s accelerated investment write-off.
An investment must first be made before it can be written off.
A generous deduction helps a company that already has enough confidence in Canada to buy machinery, develop a mine, establish a research operation or make another qualifying investment here.
It does nothing for the project that is never built. Government can improve the financial return on an investment. It cannot substitute a tax deduction for confidence.
Ottawa is clearly trying to encourage more investment. That is welcome. But the ambition should be larger than persuading investors to choose a collection of individual Canadian projects.
The objective should be to create a country in which Canadians and foreigners alike look at the tax system, resources, workforce, productivity, institutions and access to markets and conclude:
This is where I want to invest.
Capital is mobile. Talent is mobile. Intellectual property is mobile.
Canada competes for all three whether we acknowledge it or not.
We cannot tax investment into existence. But we can certainly tax it out of Canada.