My spouse and I’ve some long-term buddies who we get together with swimmingly, however we generally disagree, like most friendships. We work via it maturely as a result of we worth the historical past and the connection. We don’t use disagreements as an excuse to rupture one thing constructed over a long time.
That’s how I really feel about Canada and the USA proper now. Donald Trump’s strategy — the tariffs, the 51st state rhetoric, his declare that the USA doesn’t want something from us — is genuinely corrosive. Many Canadians’ response — vacuous slogans, boycotting U.S. booze, cancelling journeys, refusing U.S. merchandise on precept. It looks like solidarity — is simply remedy, not technique.
What that response misses is how lopsided the financial relationship is. Greater than 70 per cent of our merchandise exports go to the U.S. Commerce in items and providers makes up roughly two-thirds of our gross home product. This isn’t a struggle between equals and pretending in any other case doesn’t change the mathematics.
Actual diversification has been the aim for many years, with out ever coming shut, for the best of causes: we share a border and a continent with the U.S., not with whoever finally ends up on high of the worldwide financial system 50 years from now. That isn’t altering in any of our lifetimes.
If symbolic retaliation isn’t actual leverage, what’s? Making Canada a lovely place to take a position, construct a enterprise and take dangers with capital is fully inside our management. And one of many greatest levers we’ve refused to tug is modifications to our private tax system .
Canada’s high federal bracket — 33 per cent — kicks in at $258,482 of taxable earnings for 2026. That high bracket and 4 share level tax improve was launched as one in every of Justin Trudeau’s first measures after getting elected within the fall of 2015.
It was offered as a simple income seize from the rich. As a substitute, taxable earnings reported by top-bracket earners fell sharply sufficient that the change was a internet income loser as soon as behavioural results and the ensuing drop in provincial income have been accounted for.
Within the U.S., the high federal bracket of 37 per cent doesn’t begin till US$640,600 for a single filer and US$768,700 for a married couple submitting collectively.
Canada’s taxes look even worse whenever you add within the provincial charges. Ontario, British Columbia, Quebec and among the Atlantic provinces impose a mixed high marginal charge above 53 per cent, topping out at 54.8 per cent in Newfoundland and Labrador.
The U.S. vary when together with state taxes runs decrease on the backside, however isn’t uniformly so on the high. 9 states don’t levy a broad-based earnings tax on wages, leaving a excessive earner’s whole federal burden at 37 per cent, whereas New York Metropolis and California each push mixed marginal charges simply previous 51 per cent as soon as native surtaxes and uncapped state payroll levies are counted.
The ground is the place the actual hole lives, not the ceiling. Alberta, one in every of Canada’s lowest-taxing provinces, nonetheless costs 48 per cent on the high, which is at or above virtually each U.S. jurisdiction exterior New York Metropolis and California.
For a two-income skilled family — say, a doctor or a lawyer — each spouses could be paying Canada’s high charge on earnings that wouldn’t come near triggering the highest U.S. bracket for both one alone, until they occurred to stay in one in every of that nation’s two most aggressively taxed jurisdictions.
Alberta is proof that competing with the U.S. is feasible. From 2001 to 2015, the province ran a flat 10 per cent provincial charge — paired with a beneficiant exemption to scale back regressiveness — for a mixed 39 per cent high tax charge that was genuinely aggressive with a lot of the U.S.
Nevertheless, Rachel Notley’s NDP provincial authorities scrapped it in 2015 and launched the graduated construction that at this time tops out at 15 per cent provincially. Alberta stays probably the most aggressive province on account of what’s left of that legacy, however Premier Danielle Smith can be proper to revive the outdated charge.
Then there’s what occurs when an entrepreneur tries to develop or exit a enterprise. Canada’s lifetime capital positive aspects exemption — $1.275 million for 2026 — is a lifetime restrict for positive aspects on qualifying small enterprise company shares and farming/fishing property.
The U.S. equal, part 1202 ‘s exclusion for certified small enterprise inventory, can shelter as much as US$15 million of positive aspects per firm after 5 years. In contrast to Canada’s system, it will possibly apply individually to a number of qualifying firms.
The foundations for deferring positive aspects on reinvestment inform the identical story, solely extra starkly.
Within the U.S., part 1031 of the Inner Income Code lets an investor or enterprise proprietor alternate qualifying enterprise or funding actual property for different qualifying enterprise or funding actual property whereas deferring the achieve. Maintain the ultimate piece of actual property till demise and the stepped-up foundation heirs obtain wipes out the accrued income-tax achieve fully. Traders name it “swap until you drop.”
That eventuality isn’t doable in Canada. Canada’s equal — part 44 of the Revenue Tax Act — is way narrower, providing little actual potential to reinvest proceeds on a tax-deferred foundation.
Fixing this doesn’t require U.S. cooperation like a commerce deal does. It requires deciding that complete tax reform is a vital piece of bettering our financial sovereignty and is an pressing nationwide precedence.
My buddies and I by no means get anyplace by cataloguing one another’s faults. We have a look at our personal facet of the ledger as an alternative. Canada, up to now, has reached for boycotts and bumper stickers that say Canada Robust or Elbows Up.
Robust is a tax system that competes. Ours doesn’t, and pretending in any other case is the precise rupture. That’s the repair inside our management.
Kim Moody, FCPA, FCA, TEP, is the founding father of Moodys Tax/Moodys Non-public Consumer, a former chair of the Canadian Tax Basis, former chair of the Society of Property Practitioners (Canada) and has held many different management positions within the Canadian tax group. He could be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.
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