Changes to capital gains tax are in limbo. But the CRA still charges new fees

Parliament’s prorogation has led to confusion over the federal government’s plans to increase the tax some Canadians pay on capital gains — or profits — they make by selling assets such as stocks, a family business or a vacation home.

Last spring, the federal Liberal government proposed changes to how it taxes these capital gains.

The plan was presented in the Danish Parliament in September. It was still being debated when Parliament was prorogued at the request of Prime Minister Justin Trudeau on Monday.

This move kills all bills and proposals that had not yet received Royal Assent, meaning the proposed changes to capital gains have not been approved.

Yet, following government practice around proposed tax changes, the Canada Revenue Agency has already begun collecting capital gains taxes at the new and higher rate.

“We could be in this weird limbo period for a year or two, which creates uncertainty, which is super unfair to my members,” said Dan Kelly, president and CEO of the Canadian Federation of Independent Business.

The plan, introduced in the spring, was to increase the “incling rate” for capital gains taxation.

Under the old plan, Canadians pay taxes on 50 percent of the profit (capital gain) on the sale of assets. Under the new plan, they would instead pay tax on 67 percent of the profits. The new rate would apply to all capital gains of more than $250,000 each year.

Businesses will face the same inclusion, but the new tax will apply to all capital gains (not just gains over $250,000).

When the measure was introduced, the finance minister at the time, Chrystia Freeland, said it was intended to address what she called tax fairness issues. She said the government needed the revenue from the changes to fund programs such as pharmacare, dental care, childcare and the green energy transition.

Although the changes were never approved in Parliament, the Treasury says it already collects capital gains taxes at the new, higher rate and will continue to do so.

“Parliamentary convention dictates that tax proposals are effective as soon as the government presents a notice of ways and means; this approach provides consistency and fairness in the treatment of all taxpayers,” the department said in a statement to CBC News.

Business groups say it doesn’t make sense.

Kelly and the CFIB are calling on the Canada Revenue Agency to return to the original 50 per cent.

“I’m not sure who to lobby,” Kelly told CBC News.

He has members trying to figure out what will happen next.

There has been fierce debate about the impact of the tax increase.

The Liberals say only the wealthiest Canadians will see any changes, while critics say it will stifle growth and hurt more Canadians than the government is letting on.

Freeland has said that in any given year, “only 0.13 per cent of Canadians — with an average annual income of $1.4 million — will pay more on their capital gains.”

Others have said the move will hit many small businesses and penalize the middle class.

Economist Jack Mintz has calculated that as many as 1.26 million Canadians would pay the higher rate at some point.

But the Ministry of Finance says the only real way to get back to the original inclusion is to wait for the next session of Parliament.

“On the resumption of Parliament, if no Bill is passed in the House of Commons and the Government signals its intention not to proceed with the proposed measures, the CRA will cease to administer them,” the department said.

Kelly said the timeline is troubling. He said it is unclear how any of the potential Liberal leadership candidates will approach the capital gains tax. And while the Conservatives have been opposed to the increase, he said, it will not necessarily be at the top of the agenda if that party forms the next government.

Meanwhile, any business making money from its investments, any entrepreneur selling their business or any person selling the family holiday home will have to budget for the higher rate.

If the changes are formally scrapped, they can apply for a refund.