Ottawa must scrap capital gains changes amid uncertainty: Canadian Chamber – National

The Canadian Chamber of Commerce is calling on the federal government to restore clarity to the upcoming tax filing season by pre-empting the 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 passed.

The Canada Revenue Agency nevertheless intends to administer the changes outlined in the Liberal government’s proposal. A Treasury official confirmed this 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 moving ahead with the controversial changes at a time of significant political uncertainty would only create confusion.

“Given the likely possibility that this tax increase may no longer pass 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 fiscal policy, said in a statement.

House of Commons work was stymied for months amid a Conservative filibuster in the fall, capped by outgoing Prime Minister Justin Trudeau’s move this week to prorogue parliament until March 24 while a Liberal leadership race is held to replace him.

The capital gains changes were proposed in the 2024 Budget and were due to come into effect for all gains realized after 25 June 2024, but the Liberals have yet to pass legislation making the proposed measures law.

The House of Commons voted in June 2024 to pass a motion to approve the changes, but such a move did not formally enshrine them in legislation. The government tabled a follow-up amendment to the ways and means proposals and a bill to do so in September, but a planned vote of confidence to pass the capital gains changes into law never took place.

The CRA has nevertheless indicated that it will follow the guidance of the movements when handling returns for the coming tax season.

John Oakey, vice-president of taxation at CPA Canada, confirmed to Global News that there is an “unwritten rule” that the CRA will follow Parliament’s final intent in administering the tax law.

“I know there’s going to be a lot of people out there saying, ‘Well, you know, now that the government is prorogued, we should just be able to do this whole capital gains thing and just go back to the way it should have been.’ Well, the CRA doesn’t really have that option,” he said.

However, he added that the agency is in a “really bad situation” as it is far from certain that the capital gains changes will be passed into new legislation when parliament resumes, with opposition leaders signaling they want to topple the Liberal government at their earliest . opportunity.

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A new government would have to reintroduce capital gains legislation to get the new rules passed. The Conservatives have previously opposed the controversial changes, which also drew flak from many business groups when they were first proposed.

While the two-thirds inclusion rate would only apply to individual Canadians earning more than $250,000 in capital gains annually, corporations and many trusts would face the higher rate on all such income.

Brandon-Jepp said it was “inappropriate” for the government to continue implementing the tax change based on the ways and means announcement alone, “with the clear threat of a vote of no confidence and no clear timeline to bring forward legislation.”

“This increased uncertainty amplifies the impact of this tax increase in driving new investment and entrepreneurship away from our country at the exact time when we need it most,” she said.

If Canadians file their taxes under the proposal and pay the higher inclusion rate on capital gains earned in 2024, Oakey said they will likely have to revise their tax returns after the fact to receive a refund. If taxpayers file under the old rules and the legislation passes, they could be hit with penalties and interest for underpaying what they owe to the CRA.

The Canadian Taxpayers Federation also said in a statement Wednesday that Ottawa should scrap the planned capital gains tax hike, calling the administration of the unenacted legislation “undemocratic.”

Changes to the capital gains tax were a key pillar of the Liberals’ 2024 budget, allowing the government to fund other proposed spending plans while retaining some of Ottawa’s fiscal anchors.

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