Canada’s personal income tax system as well as its taxes on capital gains and dividends are weighing on the country’s tax competitiveness, according to a new study that ranks Canada 15th among 38 countries.
The Tax Foundation’s Centre for Global Tax Policy released its 2026 International Tax Competitiveness Index on Oct. 19, giving Canada an overall score of 72.2, down slightly from 72.3 in 2025, when it also placed 15th.
Canada ranked 28th in the index’s individual taxes category, which covers taxes on wages, capital gains, and dividends. Its taxes on capital gains and dividends ranked 34th among the 38 countries.
The index evaluates more than 40 variables measuring tax rates and how tax systems are structured, with an emphasis on competitiveness and neutrality.
Canada ranked 17th in corporate taxes, eighth in consumption taxes, 25th in property taxes, and 28th in cross-border tax rules.
The United States ranked 17th this year, slightly behind Canada, with an overall score of 71.2. It ranked eighth in corporate taxes, 17th in individual taxes, third in consumption taxes, 27th in property taxes, and 37th in cross-border taxes. The country fell from 16th place in 2025, when it scored 71.9.
The report highlighted several changes to Canada’s tax system in 2025, including the abolition of its digital services tax, cancellation of a planned increase in the capital gains inclusion rate, and reinstatement of full expensing for machinery and the accelerated investment incentive for buildings.
In September 2026, after the cut-off date for the current index, the federal government announced it would make full expensing for machinery and patent rights permanent and extend that to a large share of assets, the document noted. Ottawa also introduced temporary full expensing for buildings used in manufacturing and processing until 2029.
The report identified several strengths of Canada’s tax system, including low consumption taxes, full expensing for business investments in machinery and intangible assets, above-average cost recovery for investments in industrial buildings, and the absence of levies on wealth, estate, or inheritance.
The report also identified several weaknesses in Canada’s tax system, including a capital gains tax rate of 26.8 percent, compared with the Organization for Economic Co-operation and Development (OECD) average of 19.7 percent, and a dividend tax rate of 39.3 percent, compared with the OECD average of 24.7 percent.
Canada’s corporate tax rate of 26 percent also exceeded the OECD average of 24.2 percent. The report further cited high withholding taxes of 25 percent on interest, dividends, and royalties.
Internationally, the report warned that governments have increasingly used tax and trade policies to exert economic pressure through measures such as import tariffs, digital services taxes, and extraterritorial taxes, rather than focusing solely on raising revenue and encouraging investment.
“In this environment, policymakers should refocus on neutral, internationally competitive tax policies that raise revenue with minimal harm to investment and economic growth,” the report said. “A competitive tax code is one that keeps marginal effective tax rates low.”
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