Capital Gains Tax: On or Off?

The prorogation of Parliament earlier this month led to some confusion and uncertainty around the federal government's plans to hike the inclusion rate some that Canadians pay on the capital gains they make from selling assets like stocks, a business or a secondary residence.  

Last year, the federal government proposed changes to capital gains taxation. Previously, Canadians paid taxes on 50 per cent of the profit on the sale of assets. Under the new policy, they would pay taxes on 67 per cent of the profit instead. That new inclusion rate would apply to all capital gains of more than $250,000 each year. 

The new taxation policy was still being debated when Prime Minister Justin Trudeau prorogued Parliament. Prorogation effectively kills all bills and motions that have yet to receive royal assent, meaning the proposed capital gains changes have not been approved. 

However, even though the changes were not approved in Parliament, the Canada Revenue Agency (CRA) says it is already collecting capital gains taxes at the new, higher rate, and will continue to do so. 

 How is unapproved legislation allowed to be enforced as if it’s law?  

Parliamentary convention dictates that taxation proposals are effective as soon as the government tables a notice of ways and means motion; this approach provides consistency and fairness in the treatment of all taxpayers, according to the Department of Finance.  

This means that when the government announces tax changes, the CRA can begin administering them as if they were already law, even if Parliament is prorogued before the legislation passes.  

Potential Future Outcomes for Capital Gains Changes 

The CRA will continue to collect at the new rate until Parliament reconvenes in March and provides further guidance to the CRA. This issue can play out in a few different ways:  

  1. Once Parliament reconvenes, the government can look to pass the capital gains legislation.  

  1. The Government can express its intention to not go forward with these changes. In this case, the CRA will stop collecting the capital gains and the proposed rates and revert to the original legislation. The CRA would begin the process of refunding those who paid at the higher inclusion rate. 

  1. If an election is called and a new government is formed, if no bill is introduced and passed (and the government signals its intent not to proceed with the proposed capital gains tax) the CRA would cease to administer it. 

Given the current political dynamic, it is unlikely we will see the proposed tax changes pass the House of Commons during this Parliament. It’s also unclear if a new Liberal Party Leader and Prime Minister would move forward with the proposed changes. Pierre Poilievre has stated that a Conservative government would scrap the capital gains changes if he were to form government after the next election.  

HRAI will keep you updated as further guidance becomes available from the CRA. 

For more information, contact Martin Luymes at 1-800-267-2231 ext. 235 or email mluymes@hrai.ca 


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