How the capital gains hike is likely to play out
JANUARY 21, 2025
The proposed increase in the capital gains inclusion rate from 50% to 66.67% has not passed into law and it now appears unlikely that it will. The following is a quick refresher on how we reached this point:
1. The government announced the proposed change in the spring 2024 budget.
2. The change was introduced in a ways and means motion in June, 2024 and amendments were added in the fall; however, the bill never made it through the full legislative process.
3. Parliament is now prorogued, meaning all in-progress legislation is delayed.
To make the tax change effective for 2024 the legislation would have to pass before the government falls. Given the promises by the opposition this doesn’t seem likely.
The polls indicate that the Conservatives are very likely to win a majority. Last week, Conservative leader Pierre Poilievre made it clear: if they form government, they will not go ahead with the tax hike. He even called on the CRA to stop collecting the higher tax.
CRAs approach to the uncertainty
With tax season upon us, the CRA is facing a decision point. They have two options:
1. Drop the tax increase because it’s not law (and likely never will be), or
2. Risk creating chaos for taxpayers and accountants filing their taxes by implementing proposed legislation that is highly unlikely to become law.
CRA says it’s going to choose the second route on the basis that implementation of government proposed tax changes is consistent with past practice. However, in this case it is illogical given the prorogue status of Parliament and the looming election.
Choosing the chaotic route isn’t new for the CRA. Remember that they extended the Underused Housing Tax filing deadline on the day it was due. And that they ditched the bare trust filing requirement one business day before the deadline. Those moments were minor compared to this capital gains potential mess.
CRA has left taxpayer’s in a position where they need to assess probability and assess how conservative they want to be. Very conservative taxpayer’s, wishing to take no risk of unwanted interest expense, may choose to pay based on the possible increase.
The likely outcome
The most likely result is that the CRA will back down. They won’t be able to enforce the 66.67% inclusion rate because they have no legal footing. The proposed change will fizzle out and never become law.
A Final Thought
CRA’s job should be to enforce tax laws and minimize filing challenges for Canadians. They shouldn’t choose based on politics. Canada’s rule of law applies to taxpayers and the CRA alike.
If you have any questions relating to your individual situation and how best to manage this challenge, please reach out.