Canada’s tax system needs an overhaul. In this series, The Globe and Mail explores the bold policy choices that would attract capital, boost investment and raise Canadian living standards for generations to come.

Just over a century ago, the first incarnation of the Income Tax Act was roughly the size of a pamphlet.

Today, it measures a whopping 3,827 pages, a living testament to the policy ambitions and blunders of governments past. Every year, the tax system becomes more complex, leaving households and businesses to navigate a labyrinth of credits and benefits.

The issues go beyond complexity. Compared with other rich countries, Canada leans heavily on personal taxation to raise revenue – a serious headwind to retaining (and attracting) talent and capital. The country’s corporate tax advantage has vanished, and lacklustre business investment has become a multidecade conundrum, contributing to today’s productivity crisis.

It’s no wonder that business leaders and economists make perennial calls for tax reform, which Canadian policy-makers haven’t pursued in decades.

Prime Minister Mark Carney recently announced a “productivity mega deduction” that will allow companies to immediately expense the costs of a range of capital investments, from fibre-optic cables and rail track to software and patents. The tax incentives will apply to two-thirds of capital assets – up from a previous 15 per cent – and are permanent.

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It’s a step in the right direction, according to tax experts. But they insist that more changes are desperately needed.

With that in mind, The Globe and Mail asked 11 notable figures – from the C-suite to the ivory tower – to pitch a big, bold change to the tax system. Here’s what they recommend.

A moonshot tax review

Darryl White, chief executive officer, BMO Financial Group

The productivity mega deduction is exactly the kind of pro-investment tax reform Canada needs to unlock private-sector growth. Now we should build on that momentum. Canada’s last comprehensive tax review occurred before Neil Armstrong walked on the moon. Since then, layers of credits, exemptions and complexity have accumulated.

It’s time for a moonshot review with a simple goal: make Canada the easiest place in the world to start, grow and invest in a business. That means putting everything on the table, from what we tax to how the system is administered. The prize is significant. CFIB estimates Canadian businesses spent 768 million hours in 2024 on regulatory compliance, effectively its own sector with 394,000 full-time jobs. Meanwhile, the Bank of Canada says we have a productivity emergency.

The productivity mega deduction has created momentum. The biggest mistake would be to treat it as the destination rather than the launch pad. Time to aim higher, and simpler.

Open this photo in gallery:Treat machines like workers

Trevor Tombe, economics professor, University of Calgary

Companies pay taxes on profits – what’s left after costs. Hire a worker, and the wage counts right away. Buy a machine, and the cost has traditionally been spread over many years. Since a dollar tomorrow is worth less than a dollar today, delayed deductions are worth less. That makes taxes on new investment higher.

That’s a problem. Business investment drives productivity and wages, and it has been weak for years. With trade uncertainty mounting, we need it now more than ever.

The fix is simple: Let firms write off 100 per cent of capital spending, right away, permanently, across the board. That’s much like a zero tax rate on new investment returns.

The government has now done most of that. September’s productivity mega deduction makes immediate expensing permanent and covers roughly two-thirds of capital investment, up from about 15 per cent. Credit where it’s due – it’s the most significant pro-investment federal tax change in decades.

One step remains: make it universal and available to all capital investments without exception.

Open this photo in gallery:Make every tax break expire, and renew only the ones that earn it

Pamela Steer, president and CEO, CPA Canada

Tax breaks should solve specific problems and improve Canada’s overall economy, not live forever. Yet credits, deductions and preferential rates often remain long after their purpose has faded, making Canada’s tax system more complex and costly to administer.

Every new tax break should come with a legislated expiry date. Before it can be renewed, government should publish evidence that it still serves a public purpose and delivers value for money.

That scrutiny is long overdue. Even a decade after the Auditor-General warned that Canada lacks a systematic process to evaluate them, many remain largely untested. Ottawa forgoes about $150-billion a year through tax incentives, which function much like government spending programs. The small business deduction is one example. Economists continue to debate whether it helps firms grow or encourages them to stay small, while increasingly complex anti-avoidance rules have made compliance more burdensome and expensive.

The need for discipline is becoming more urgent as Canada develops responses to U.S. tariffs. Some targeted tax measures may be necessary, but temporary fixes have a habit of becoming permanent as well as those who are hired to manage them. Measures that work should be renewed for a fixed term. Those that don’t work should end. If a tax break serves the public interest, government should provide the proof.

Make Canadian companies more investable

John McKenzie, CEO, TMX Group

Recent federal measures to strengthen business investment, including the new productivity mega deduction, are important steps toward improving Canada’s competitiveness. But more needs to be done.

In a hyper-competitive global marketplace, Canada must build on this momentum with policies that attract investment, strengthen our capital markets and ensure more homegrown companies are built, funded and scaled here.

As a broad-based measure to encourage domestic investment, Canada should introduce a preferential inclusion rate for capital gains on investments in public companies that are domiciled and headquartered in Canada, whether held directly or through qualified diversified investment funds, and subject to an appropriate minimum holding period. In addition, Canada should reform and expand the tax-free savings account to focus on Canadian-based investments.

Meanwhile, as a targeted measure to support Canadian growth-stage companies, the federal government should implement a reduced corporate tax rate for a five-year period following a corporation’s go-public event. This should apply to qualifying Canadian public companies with a market capitalization below $1.5-billion that are incorporated and headquartered in Canada and listed on a recognized Canadian stock exchange.

Open this photo in gallery:Redesign Canada’s tax system for a digital economy

Fatima Laher, deputy chair, Deloitte Canada

Canada has an opportunity to do more than digitize the tax system we have today. We should be asking what it would look like if we designed it now for a digital economy, and for the people and businesses that rely on it.

That starts with the experience of using it. Resetting a CRA My Account password should take minutes. Taxpayers should have one clear view of their relationship with the CRA, including what has already been filed and whether any action is required. They should not have to navigate multiple systems or repeatedly provide information that the government already has. Assessments should also happen faster. Businesses making decisions in real time cannot always wait months or years for tax rulings or disputes to be resolved.

Technology creates opportunities to improve the system further. Data and AI could help catch mistakes before they turn into disputes, while allowing the CRA to focus its attention on genuine risk. Modernization should also extend to the tax code itself so that it reflects how business models and the economy are changing.

There is an economic case for getting this right. Canada is competing globally for capital and for the people who will build the next generation of Canadian companies. A modern tax system can give businesses greater certainty and remove some of the friction that can make it harder to grow here. It can help make Canada a place where more people choose to put down roots and build for the long term.

Open this photo in gallery:Tax mansions, not founders

Brice Scheschuk, managing partner, Globalive Capital

Canadian entrepreneurs lack access to capital to scale up. Consider that new venture capital investment for growth-stage companies was next to nil in the first quarter – a terrible outcome for the country’s trajectory.

It’s time to eliminate capital gains taxes on primary investments in active Canadian businesses made at entry valuations under $100-million. Further yet, expand the definition of an active Canadian business so that more can qualify for capital gains exemptions and ensure that these rules are not caught by the alternative minimum tax. By my calculations, this move would result in a $5-billion annual hit to revenue, a manageable amount for a $3-trillion economy.

At the same time, Canada’s largest tax shelters are primary real estate residences. But the goal isn’t to punish – and tax – the typical seller. Bring in a lifetime capital gains exemption limit of $750,000 per individual ($1.5-million per couple) on gains from sales of primary residences. This will ensure that the vast majority of Canadians are untaxed on home sales.

The goal is to incentivize the wealthiest Canadians to allocate more of their money to early-stage companies – a big win for the country’s entrepreneurs.

A 100% immediate depreciation deduction

Keith Creel, president and CEO, Canadian Pacific Kansas City

Now is the time to unlock new private-sector investment, strengthen productivity and build the infrastructure needed to compete in a rapidly changing global economy.

One important way to do that is by extending 100-per-cent immediate depreciation across the transportation and warehousing sector. Railways, ports, terminals and supply chain operators invest billions of dollars in long-lived assets that keep Canada’s economy and trade moving. Allowing businesses to immediately deduct the full cost of those investments would encourage faster capital deployment, improve Canada’s competitiveness and help attract investment that might otherwise go elsewhere.

Similar policies have proven effective in attracting capital to the United States, the United Kingdom and other countries. Canada should not allow its industries to be at a disadvantage when competing for capital investments.

We applaud Prime Minister Carney’s recent announcement of a productivity mega deduction. Canada’s Parliament must adopt the necessary legislation without delay to unlock private capital, strengthen supply chains and build the more competitive, resilient economy Canadians deserve.

Fund tax cuts on business investment by reducing subsidies

John Lester, fellow in residence, C.D. Howe Institute

Lower taxes on business investment will give productivity in Canada a much-needed boost, particularly if the tax cuts favour innovative activity. But the size of the boost depends on how the tax cuts are financed.

Borrowing more to finance business tax cuts looks harmless but it is not. Increased debt interest payments keep tax rates higher than they would be otherwise, and high tax rates harm economic performance by hurting incentives to work, save and invest.

The better option is to cut spending. And the first item on the chopping block should be business subsidies. In 2023-2024, business subsidies were $40-billion. My analysis suggests that about half of that amount harmed rather than helped Canada’s economic performance. Financing lower taxes on business investment by reducing business subsidies would therefore result in a double dividend for Canadians: more productive investment and less wasteful spending.

Open this photo in gallery:Rein in tax relief for seniors

Jennifer Robson, professor and director of the graduate program in political management, Carleton University

Seniors in Canada enjoy the lowest rate of poverty of any group in Canada. That’s a policy success story, thanks to tax and transfer policy in the last 50 years.

But that policy mix has gotten out of balance in recent years, continuing to direct significant tax relief to seniors who now claim 30 per cent of personal tax credits but only account for 25 per cent of all returns and pay just 21 per cent of federal and provincial personal income taxes. Seniors can stack up the age credit, the pension income credit, pension income splitting and their share of the disability tax credit and medical expenses credit, on top of other tax-planning strategies.

Across just these measures, I estimate that seniors receive some $10.2-billion in federal tax relief, reducing both federal and provincial revenues that could otherwise go toward health and long-term care services for seniors, systems that are already under significant pressure.

It’s time to bring these tax credits back into better balance with the reality of an aging and wealthier older population. The new pressures on Canada from geopolitical uncertainty, trade disruptions and higher defence spending add to the urgency. Seniors are a powerful voting bloc. But they are also patriotic and recognize the benefit of the peace dividend they have received in their lifetimes.

Bring in U.S.-style tax rules for rental construction

Mike Moffatt, founding director, Missing Middle Initiative

It takes financial capital to build a rental apartment building, and a commonly used source of construction capital is to sell an existing building to an operator that specializes in managing older buildings. The sale of that building, however, triggers a capital gain and the taxes that go along with it. This causes builders to delay their sales for tax purposes, which slows new construction.

Canada can address this problem by introducing a “like-kind exchange” capital tax provision for new apartment construction. What this would do is treat the investment in a new apartment building, with the proceeds coming from the sale of an old building, as a trade (“exchange”) rather than a sale, so no capital gain is triggered. A like-kind exchange does not eliminate or even reduce the capital gain taxes that are eventually owed, but it does allow the builder to defer them.

Introducing an exchange mechanism would accelerate the construction of apartments, as builders would no longer need to time their sales, and it would keep more construction capital in Canada rather than flowing through the U.S., which has had such a provision (known as Section 1031) for well over 100 years.

Create provincial tax room to fund local infrastructure

Jimmy Jean, chief economist, Desjardins Group

Canada finances local infrastructure backward.

Transit authorities in Montreal, Toronto and Vancouver are pressing Ottawa to restore funding, accelerate approvals and make support more predictable. Yet routine capital needs – such as transit maintenance, local roads and water systems – still depend on bilateral agreements, application cycles and shifting federal priorities.

Ottawa already has a better model in the Canada Community-Building Fund, which provides other levels of government with predictable, formula-based funding without requiring federal approval for individual projects.

This principle could go further. For recurring local capital needs, Ottawa should gradually replace discretionary grants with permanent tax room for provinces. The federal government would reduce its tax take, allowing provinces to raise an equivalent amount themselves and use the resulting revenues to fund municipalities through transparent, formula-based transfers.

Ottawa should focus on where federal involvement adds better value. This includes trade corridors, ports, major energy links and exceptional megaprojects with national spillovers.

In other words, local infrastructure should be financed locally, with adequate fiscal capacity. Federal project financing should be reserved for infrastructure that is genuinely national.

The payoff would be clearer accountability, more predictable funding and potentially faster delivery, as it would imply fewer applications and intergovernmental negotiations, and less waiting for Ottawa before shovel-ready local projects can proceed.