Alternative federal budget 2026-27: Taxation

This is from a larger publication, Alternative federal budget 2026-27: Bridge to independence

Introduction

Dominant narratives tell us that wealth and power are separate: wealth is the realm of the market and power is the realm of politics. We must leave the market to distribute wealth as it sees fit, while power will be effectively shared through electoral democracy. But, in reality, we know that these two things go hand-in-hand. With great power, wealth often follows, and with great wealth comes significant political influence.¹

That is why Canadians are concerned about the extreme concentration of wealth,²which is reaching unprecedented levels. Forty Canadian billionaires alone hold over half a trillion dollars in wealth.² The wealthiest one per cent of Canadian households hold nearly $4 trillion in wealth, nearly one quarter of total household wealth.³ And we are seeing with our own eyes where this path can lead. Billionaires are playing a disproportionate role in the Trump administration that is threatening civil rights, democratic processes, and environmental progress.⁴ Canadians do not want to go down that same path.

The tax system is an important tool that we have to raise revenue, but also to structure markets so that wealth (and power) cannot concentrate indefinitely. The AFB makes significant changes to Canada’s tax system to fund the investments and programs in the rest of the budget while reducing the concentration of wealth and power.

Overview

People are calling on their governments to use the tax system to limit extreme wealth and power all around the world.⁵ Canada is no different. We feel the consequences of runaway inequality everyday as the cost-of-living crisis deepens and the climate crisis accelerates. Now is the time for bold ideas that can put Canada on a different path. A path of security, inclusivity, sustainability, and justice—where everyone can prosper.

Taxing the ultra-wealthy to prevent extreme wealth concentration

Canada’s tax system is not as progressive as it seems at first glance. Although we have a progressive income tax system, the wealthy accrue wealth in many ways that are not taxed under the typical income tax system. When income is accrued within corporations, it faces a far lower tax rate than personal income. When assets like stocks and bonds increase in value, no tax is incurred even though the wealthy can borrow against that increased wealth. When the wealthy finally sell those assets, they are taxed at half the rate as ordinary income. Sales taxes and property taxes are regressive: lower- and middle-income people pay a greater share of their income in these taxes than the ultra-wealthy. And the progressivity of the income tax system stops at just over $250,000, so someone collecting $10 million has the same marginal tax rate as someone collecting $300,000.

All this adds up to a tax system where the richest one per cent pay only 23.6 per cent of their income in taxes while the average tax rate is 36.7 per cent, when all forms of income and taxes are considered.⁶ This structure facilitates the concentration of wealth since the wealthy have more money left over to invest and further grow their wealth.

The AFB will rectify this by implementing a tax on wealth over $10 million, introducing a comprehensive inheritance tax to prevent wealth from being passed down across generations, and make the income tax system more progressive. These measures would affect only a tiny proportion of Canadians but would raise significant revenue and go a long way towards redistributing wealth and power.

Fixing the corporate tax system and shedding light on corporate tax abuse

Another mechanism through which wealth and power become concentrated is through corporations. Large corporations have significant price-setting power that allows them to profit off crises and raise the cost of living for the rest of us over time. They can also afford to hire expensive tax lawyers to exploit loopholes in the tax code. Successive governments have lowered corporate tax rates and introduced new corporate tax exemptions that have steadily reduced corporations’ contributions to public revenues.

During 2026, oil and gas companies have reaped enormous windfall profits due to the illegal U.S. war on Iran. These profits are coming directly at the expense of consumers who are paying higher prices for gas and heating their homes. The AFB would implement a windfall profits tax on the oil and gas industry that can be triggered during future crises. It would also end all other subsidies for the oil and gas industry, reverse the new corporate tax handouts, improve corporate tax transparency and finally put an end to the use of tax havens.

Actions

The AFB will create a new personal income tax bracket on income above $1,000,000. The personal income tax system is more than a revenue generation mechanism—it also shapes how corporations and individuals choose to distribute income. It is no coincidence that when Canada began slashing its top marginal income tax rates in the 1970s, top incomes exploded.⁷ Today, there is no difference in tax rates between the $260,000th dollar of income and the $260 millionth dollar. This proposal would disincentivize incomes over one million dollars, creating a more equal distribution of income and wealth while generating considerable revenue. Recent examples in the U.S. demonstrate that this policy works. A new four per cent surtax on incomes over $1 million in Massachusetts raised more than double its initial projected revenue.⁸ Despite billionaire-led opposition, capital flight has not happened. Washington state, which has no state income tax, recently passed a 9.9 per cent tax on income over $1 million. A new federal income tax bracket, with a rate of 37 per cent on income over $1,000,000, would affect only 45,000 people, or 0.135 per cent of tax filers, deter outsized salaries, and raise $1.4 billion in 2027.

The AFB will tax extreme wealth directly. Today, billionaires often accrue wealth through appreciation in asset values without triggering any income tax. Because of the failure to tax the gains of the ultra-wealthy, 1,685 families in Canada have an average of $448 million in wealth—4,041 times the average wealth of the bottom half of Canadian families. The top one per cent hold nearly $4 trillion in wealth, or almost a quarter of all household wealth in Canada.⁹ To prevent the extreme concentration of wealth, and the power that comes with it, from continuing, Canada should implement an annual wealth tax. A progressive wealth tax on net worth over $10 million would redistribute wealth and power, while raising over $39 billion in the first year¹⁰¹¹—99.4% of Canadians would not be affected by this tax.

The AFB will tax large inheritances to prevent concentrated wealth from being passed down across generations. Canada is the only G7 country without a comprehensive inheritance tax—this is one reason why Canada’s richest families, like the Thomsons, Rogers, and Westons, have remained among Canada’s richest families for generations. An inheritance tax is an essential tool to redistribute power and wealth, and ensure equality of opportunity. Canada’s current patchwork system includes deemed disposition of capital gains upon death, which has a tax base only about 16 per cent of the size of the total wealth that gets passed on each year. Canada should implement a 50 per cent tax on total lifetime inheritances greater than $2.5 million. Only about 0.01 per cent of Canadians would be impacted by this tax annually and it could raise $1.1 billion in revenue.

The AFB will tax the windfall profits of the oil and gas industry and use that revenue to end our dependence on volatile fossil fuels markets. Canada’s oil and gas industry is projected to collect $16 billion in windfall profits in 2026 due to the U.S. war on Iran.¹² Just like during the post-pandemic oil price shock, Big Oil will use these profits to funnel cash to largely foreign shareholders, as opposed to reinvesting in Canada and creating good jobs. These profits are coming directly from the pockets of Canadians who are facing massive increases in fuel prices. Canada should implement a 50 per cent tax on these windfall profits and use that revenue to provide cash transfers to offset the rising cost of living and to invest in renewable energy infrastructure. This tax could be implemented anytime, like the Canada Recovery Dividend, which was retroactive. It should also have a clause that allows it to be triggered to apply to any industry engaged in profiteering during future crises.¹³ Such a tax could raise $8 billion from the oil and gas industry alone and the AFB would spread payments over three years.

The AFB will restore the federal corporate income tax rate to 20 per cent. Since the 1980s, federal and provincial governments across the political spectrum have lowered corporate income tax rates, supposedly to spur investment. Across this time period, the proportion of profits paid in taxes has fallen from about 40 per cent to about 18 per cent. Despite this significant giveaway to corporations, corporate investment has stalled, with non-financial corporations investing less in 2025 than they did in 2011.¹⁴At the same time, dividends and stock buybacks have drastically increased. Canada should reverse the costly corporate tax cuts that have not led to increased investment, but only increased shareholder payouts. This could raise over $30 billion in revenue annually starting in 2027-28.

The AFB will eliminate the capital gains loophole so that income from wealth is taxed like income from work. Currently, income from capital gains (increases in asset values) is taxed at half the rate as income from employment. Corporations engaged in speculation, like real estate companies and alternative asset managers, are some of the biggest beneficiaries of this loophole.¹⁴ On the individual side, two thirds of this tax break go to people making more than $250,000 a year.¹⁵ This is one of the most significant ways in which our tax system privileges the wealthy over everyone else. Because men own more assets than women, it also disproportionately benefits men.¹⁶ The AFB would fully include capital gains in income while adjusting initial asset values for inflation so that only real changes in asset values are taxed. This would apply to both individual and corporate capital gains and would raise $13 billion a year.

The AFB will prohibit tax avoidance by large corporations and the wealthy through tax havens. Canadian assets in tax havens reached $682 billion in 2024, more than all the foreign assets Canadians hold outside the U.S.¹⁷ Instead of tackling this issue, the government exempted U.S. companies from the OECD Pillar Two agreement on corporate minimum taxation, rendering it effectively useless.¹⁸ There remain massive incentives for corporations and the wealthy to shift their profits to tax havens. The AFB will require companies to have a genuine business reason to set up foreign subsidiaries in tax havens, end tax information exchange agreements with known tax havens, and require companies to publicly disclose their revenue, assets, employees, profits and taxes paid in each jurisdiction in which they operate. These measures could raise $10 billion in revenue per year.

The AFB will reverse cuts made to the Canada Revenue Agency (CRA) and ensure the CRA has the resources it needs to tackle tax avoidance by the wealthy and large corporations. The CRA is currently projecting to cut over 2,500 jobs between 2025-26 and 2028-29.¹⁹ Since CRA employees are responsible for enforcing Canada’s tax laws and collecting tax revenue, this will make it even harder to prosecute the complex tax planning schemes used by the ultra-wealthy, resulting in lost government revenue.²⁰ The Parliamentary Budget Office (PBO) estimates a payback of $4-5 for every extra dollar invested in business tax compliance.²¹ The AFB will put an extra $2 billion, over three years, into the agency.

The AFB will eliminate all subsidies and financing for the fossil fuel sector. Canada urgently needs to transition away from fossil fuels and invest in renewable energy infrastructure. However, despite its longstanding pledge to end fossil fuel subsidies, the new government has introduced several new subsidies for the sector. This includes a tax credit for carbon capture projects that extract more oil, a tax credit for liquified natural gas projects, and the pause of the federal fuel excise tax.²² Further support for the industry is just lining the pockets of the largely foreign-owned oil and gas industry.²³ The AFB will end these subsidies and all public funding to this sector, which contributes more to Canada’s carbon emissions than any other sector.²⁴ See the Environment and Climate Change chapter for how the AFB would change the carbon pricing system.

The AFB will end costly, ineffective corporate handouts through tax expenditures. Corporate tax credits and accelerated deductions are introduced in nearly every budget despite the fact that they have never been proven to increase investment.²⁵ Over the past year, the government has reinstated accelerated capital cost allowances, expanded a “scientific research” tax credit, which is known to be largely captured by tax consultants, and expanded tax credits for fossil fuels and the mining industry. The AFB would cancel these new credits and review all corporate federal tax expenditures to ensure that all expenditures serve a distinct social purpose. Remaining expenditures, such as tax credits for clean energy investment, would be subject to strict labour and community benefits conditions that require corporations to pay sufficient wages, have high labour standards, and ensure investments met the needs of local communities.²⁶ These measures would result in $2.8 billion of annual savings.

The AFB will eliminate the First Home Savings Account. This policy disproportionately benefits higher-income households²⁷ and might reduce housing affordability through increasing demand.²⁸ Eliminating this ill-advised measure would save the federal government $1.4 billion.²⁹

The Monitor

Our Schools/Our Selves

Alternative federal budget 2026-27: Taxation

Introduction

Overview

Taxing the ultra-wealthy to prevent extreme wealth concentration

Fixing the corporate tax system and shedding light on corporate tax abuse

Actions

About the author

Alternative Federal Budget Working Group

Alternative federal budget 2026-27: Health care

Alternative federal budget 2026-27: First Nations

Budget fédéral alternatif 2026 : Fiscalité

Alternative federal budget 2026: Taxation

Alternative Federal Budget 2020

Budget fédéral alternatif 2020

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