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During the 2025 election campaign, the Conservative Party campaigned on a limited capital gains deferral for assets that were disposed of if they were reinvested back into Canadian assets. Details were sparse, but it’s these kinds of ideas that need exploring.

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Apparently, Prime Minister Mark Carney agrees. On page 444 of his book Value(s), he said a “tax system to support dynamism must be developed. Consideration should … be given to deferral of capital gains that are rolled over into new investments.” Good idea. Not sure where I’ve heard that old idea before.

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Notwithstanding, critics will often gravitate back to the basic argument that providing a capital gains deferral benefits higher-income investors. Of course it does. Capital investors are the ones deploying capital and that drives jobs, innovation, business expansion and startups, which can all positively contribute to productivity growth, thereby helping all.

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Some will also argue that capital gains should be fully and immediately taxable. Many of those ideas originate from the 1966 Report of the Royal Commission on Taxation, which advocated for full taxation of capital gains (at the time, capital gains were not taxable at all).

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“A dollar gained through the sale of a share, bond or piece of real property bestows exactly the same economic power as a dollar gained through employment or operating a business,” the commission said. “The equity principles we hold dictate that both should be taxed in exactly the same way. To tax the gain on the disposal of property more lightly than other kinds of gains or not at all would be grossly unfair.”

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The famous “a buck is a buck is a buck” line was born from this thinking. I’ve never agreed with that framing. The economic output may be identical, but the risk, time horizon and capital commitment required to generate capital gains are not. Treating capital gains as identical to other economic sources may feel morally tidy, but it ignores the economic inputs required to generate them. Ignoring those inputs distorts incentives.

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Thankfully, the government of the day rejected the commission’s recommendation and instead landed on partial taxation for capital gains in 1972, but it unfortunately provided very limited deferral opportunities. That basic architecture remains today.

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What’s the result of limited capital gains deferral opportunities? Capital stays trapped in legacy investments, asset turnover slows, entrepreneurial exits are slower and reinvestment into higher-productivity assets declines.

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We didn’t work longer hours when we improved productivity at our firm; we allocated capital better. Canada faces the same challenge. If policymakers truly believe it’s time to break the glass, then tax reform must include removing friction from reinvestment.

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Capital gains deferral isn’t a loophole; it’s a productivity tool, and productivity is the only sustainable path to rising living standards.

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Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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