The Canadian Chamber of Commerce is calling on the federal government to restore clarity to the upcoming tax filing season by pre-emptively nixing its proposed changes to capital gains taxes.
Those measures, which would see the taxable portion of capital gains rise to two-thirds from half in some circumstances, are currently in limbo and at risk of not being made law.
The Canada Revenue Agency nonetheless intends to administer the changes outlined in the Liberal government’s proposal. A Department of Finance official confirmed as much in a statement to Global News this week, citing “Parliamentary convention” and a need for “consistency and fairness” for taxpayers.
But the Canadian Chamber of Commerce said in a statement Thursday that going ahead with the controversial changes in a period of significant political uncertainty would only sow confusion.
“Given the likely possibility that this tax increase may no longer be enacted in 2025, it is imperative that the government provide certainty to Canadians and direct the CRA not to enforce this measure until after an election, if at all,” Jessica Brandon-Jepp, the chamber’s senior director of fiscal and financial services policy, said in a statement.
The House of Commons’ work was stymied for months amid a Conservative filibuster in the fall, capped off by outgoing Prime Minister Justin Trudeau’s move this week to prorogue Parliament until March 24 while a Liberal leadership race to replace him is held.
The capital gains changes were proposed in the 2024 budget and set to take effect for all gains realized after June 25, 2024, but the Liberals have yet to pass legislation making the proposed measures law.
The House of Commons voted to pass a ways and means motion in June 2024 to approve the changes, but such a move did not formally enshrine them in legislation. The government tabled a followup amendment to the ways and means motion and a bill to do so in September, but a planned confidence vote on passing capital gains changes into law never took place.
The CRA has nonetheless indicated it will follow the guidance of the ways and means motions as it handles returns for the upcoming tax season.
John Oakey, vice-president of taxation with CPA Canada, confirmed to Global News that there is an “unwritten rule” that the CRA will follow the last intent of Parliament in administering tax laws.
“I know there’s going to be a lot of people out there saying, ‘Well, you know, now that the government’s prorogued, we should just can this whole capital gains thing and just go back to the way it should have been.’ Well, CRA doesn’t really have that option,” he said.
He added, however, that the agency is in a “really bad situation” as it’s far from certain that the capital gains changes will be passed in fresh legislation when Parliament resumes, with opposition leaders signalling they’ll topple the Liberal government at their earliest opportunity.
A new government would need to reintroduce capital gains legislation to get the new rules passed. The Conservatives have in the past opposed the contentious changes, which also earned flak from many business groups when first proposed.
While the two-thirds inclusion rate would only apply to individual Canadians making more than $250,000 in capital gains annually, businesses and many trusts would face the higher rate on all such proceeds.
Brandon-Jepp said it was “inappropriate” for the government to continue to implement the tax change based on the notice of ways and means alone, “with the clear threat of a non-confidence motion and no clear timeline to table legislation.”
“This increased uncertainty compounds the impact of this tax increase in driving away new investment and entrepreneurship from our country at the exact moment we need it most,” she said.
If Canadians file their taxes according to the proposal, paying the higher inclusion rate on capital gains earned in 2024, Oakey said they’ll likely have to revise their tax return after the fact to receive a refund. If taxpayers file according to the old rules and the legislation does pass, they could then be hit with penalties on interest for underpaying what they owe to the CRA.
The Canadian Taxpayers Federation also said in a statement on Wednesday that Ottawa ought to nix the planned capital gains hike, calling the administration of the unpassed legislation “undemocratic.”
Capital gains tax changes were a key pillar of the Liberals’ 2024 budget, allowing the government to fund other proposed spending plans while maintaining some of Ottawa’s fiscal anchors.