What to know as Canada’s capital gains tax changes remain in legal limbo
The federal government’s capital gains inclusion rate increase has yet to become law. There’s a slight chance it may never come to pass.
Advertisement
The federal government’s capital gains inclusion rate increase has yet to become law. There’s a slight chance it may never come to pass.
In its 2024 budget, the federal government proposed to increase the capital gains inclusion rate. In April, it gave Canadians just over two months’ notice before the potential changes were to come into effect on June 25, 2024. Here’s how the situation has played out since then.
The capital gains inclusion rate would change for capital gains realized on or after June 25, 2024. Instead of the one-half (50%) capital gains inclusion rate that has applied since 2000, exempting one-half of a capital gain from tax, the following would apply:
Also read
The federal government introduced a notice of ways and means motion on June 10 to amend the Income Tax Act and outline the capital gains tax change. The motion passed, but the amendment must still be formally made into law. A subsequent notice of ways and means motion containing a draft version of the bill was tabled on September 23 but has not yet passed.
There have been two non-confidence votes for the Liberals initiated by the Conservatives this fall, aimed at setting in motion a federal election. One option for the prime minister is to prorogue parliament to take the political pressure off temporarily. This would effectively suspend parliament, and house committees would need to be re-established. Legislative changes, like the capital gains inclusion rate amendment in the Income Tax Act, could continue to be delayed.
If there was an election prior to the tax change being enacted into law, there is at least a chance it never comes to pass.
There’s a possibility those who opted to sell investments prior to June 25 to trigger capital gains at a lower tax rate will have done so unnecessarily. They may end up paying tax they could have deferred by not selling in the first place.
Those who sold real estate in a rush may be particularly disappointed. The short time horizon to sell may have led to sellers accepting lower prices to close prior to June 25. Many buyers knew this and bid accordingly in an already weak housing market.
If the capital gains inclusion rate change does not pass and the Conservatives are elected, it seems unlikely they would proceed with the change after voting against the notice of ways and means motions twice. But anything is possible.
Tax planning can be difficult even when the rules are clear. When the rules are in flux and hinge on a government being able to pass a new law, there’s always a chance a taxpayer acts prematurely. Sometimes, a consultation period for a tax change can even lead the government to reconsider the amendment or delay it.
This fall has been a contentious time in U.S. politics with the recent election. A federal election is brewing in the next year in Canada, which promises to make for some political excitement on this side of the border as well.
Newsletter
Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
Is the government allowed to collect this new Capital Gains tax. Our accountant, and many others they know, are following the new rules b/c the gov’t bulletins have not told them anything new since June. According to them, the new Capital Gains increase is the law. Is it or isn’t it??