The report says policy-makers need to react to prevent rising income disparity that mimics the widening gap in the United States.
Without doing so, Canada faces the threat of hindering its own economic growth and long-term prosperity.
TD chief economist Craig Alexander and senior economist Francis Fong say while Canada has seen a "significant rise in inequality over the past several decades" the movement has been abated by a supply of middle-class jobs in resources and real estate and growth in the housing market.
However, the report urges "commodity and real estate booms do not last forever," and inequality could escalate if those sectors lose momentum.
Alexander and Fong say it's necessary for policies to take a mixed approach that involves both direct and indirect efforts that influence market incomes.
Policy-makers also need to consider a more progressive tax and transfer system that limits negative distortions on the economy.Suggest a correction