Canada's Productivity Problem Starts in a Tax Code Nobody Can Read

In the spring of 2024, Ottawa announced it would raise the share of capital gains that gets taxed, and investors across the country began rearranging plans they'd spent years building. Some sold properties and shares early to beat the June deadline. Then the increase was delayed, and in March 2025 it was cancelled outright.

Nobody's productivity improved during that stretch. Hours went to accountants, money went to transaction costs, and decisions about when to sell got made around a rule that ended up never applying. That episode explains the real drag behind Canada's weak productivity better than any chart. Our tax code is so long and so changeable that people spend their energy managing it instead of building things, and that touches anyone in Alberta thinking about a rental property, a move-up home or growing a business.

Complexity costs money before you owe a dollar of tax

Laurent Ferreira, CEO of National Bank of Canada, recently argued that the federal tax system should be scrapped and rebuilt into something simpler and more competitive. It's a striking call from a bank chief, and it rests on a plain fact: Canada hasn't done a full review of its tax code since the Carter Commission in the 1960s.

Since then, governments have added credit after credit for renovations, specific industries and dozens of narrow purposes. Each one made sense on its own. Together they produced a code most people can't file without paying a professional. Small business owners often have to pay for professional help with accounting just to comply. That money buys no new equipment and hires nobody.

Unstable rules change behaviour more than high rates do

A high but predictable tax is something you can plan around. A rule that might change next spring is harder, because it rewards waiting. Business owners hold off on equipment purchases. Investors pick whatever structure looks safest for tax purposes instead of the one that would earn the most.

Multiply that hesitation across a whole economy and you get what Statistics Canada keeps reporting: Canada trailing its G7 peers in productivity growth. Banks and economists also point to capital heading south, where the 2017 U.S. tax overhaul gave companies a simpler set of rules to plan against. Foreign investors say the same thing about Canadian projects. Complexity scares them off before the rate even comes up.

Alberta's low rates help, and federal rules still set the ceiling

Edmonton has real advantages. Alberta's general corporate rate is 8%, the lowest in the country, and qualifying small businesses pay 2% provincially on their first $500,000 of income. Those numbers attract companies and people moving from higher-tax provinces.

But every Albertan still files a federal return, and that's where most of the complexity lives. A low provincial rate can't fix uncertainty about how a rental property's gain will be taxed in ten years, or whether a deduction you're counting on will survive the next budget.

Reform has honest trade-offs. A simpler code that collects the same revenue would likely cut some popular credits, and some people would come out behind, including possibly some first-time buyers. Even with full political agreement, designing and launching a new system would likely take years.

Judge the deal first, then the tax

In the meantime, the useful habit is to test each decision on its own merits before tax enters the picture. Does the rental cash-flow at today's rents and a realistic mortgage payment? Does the expansion pay off if the tax treatment stays exactly as it is? If a plan only works because of one specific rule, it carries a risk that the 2024 episode made very visible.

Investors around Edmonton have leaned toward holding properties longer rather than flipping them, and that instinct fits. A plan built to hold up under several possible tax regimes keeps you investing while the policy debate drags on. For the people writing the rules, the same lesson runs the other way: every year a rule stays simple and stable is a year Canadians spend building instead of guessing.