Carney to propose scrapping Canada’s capital gains tax increase

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(Bloomberg) — Mark Carney will scrap a proposed increase to Canada’s capital gains tax and introduce a middle-class tax cut if he wins the Liberal Party leadership race and becomes prime minister, he said Wednesday.

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Carney — the former governor of the Bank of Canada and Bank of England — also pledged to raise Canada’s defense spending to 2% of its gross domestic product by 2030, and to stimulate private investment to get millions of homes built.

But he promised to keep the pricey social programs put in place by Prime Minister Justin Trudeau’s government, such as the universal child-care subsidy, making it unclear how Carney would pay for the billions of dollars in tax relief and new military spending.

“In the coming weeks, I’ll propose a new approach to federal budgeting that will save precious taxpayer dollars while catalyzing the enormous investments that Canada needs to fully realize its promise,” Carney said, speaking in Windsor, Ontario.

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Liberal members will vote on a new leader March 9 to replace Trudeau.

Last spring, Trudeau’s government said it would increase the so-called capital gains inclusion rate — the amount of an investment gain that’s subject to income tax — to raise billions of dollars in revenue for housing and other programs. The tax hike has been in limbo because the government hasn’t been able to pass the legislation; it’s now supposed to come into effect in January 2026.

The hike is now unlikely to happen at all. Carney’s chief rival in the Liberal contest, former Finance Minister Chrystia Freeland, has said she wouldn’t go forward with it. Conservative Leader Pierre Poilievre has also rejected the tax change.

It’s the second major Trudeau policy Carney has vowed to scrap. Last week he announced he would immediately move to cancel the consumer carbon tax, a flagship environmental policy Trudeau implemented in 2019 but that has become deeply unpopular as it rises each year.

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Business leaders have denounced the capital gains hike as bad for investment.

“Let’s just kill that and think about how do we reduce capital gains taxes in Canada so we can incent Canadians to invest in Canadian companies for growth,” said John McKenzie, chief executive officer of TMX Group Ltd., the parent company of the Toronto Stock Exchange.

Carney also suggested he would make a broader tax cut but did not provide details. “Canada needs a middle-class tax cut and my government will give them one,” he said.

To address the trade uncertainty due to US President Donald Trump’s tariff threats, Carney said his government would seek to break down regulatory barriers to free up trade between provinces, and would look to diversify Canada’s exports away from the US.

“We know we shouldn’t put all our eggs in one basket,” he said. “We should become the essential trading partners of countries that share our values, including the UK, the EU, and leaders in Asia. We can do so through our leadership in clean energy, in critical minerals and in the intelligence infrastructure of the AI revolution.”

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