Capital Gains Proposal Disrupted by Prorogation, CRA Guidance Still Pending

Justin Trudeau’s decision to step down and prorogue Parliament will delay the implementation of proposed changes to capital gains for now. However, Canadians may still have to deal with tax matters in the future.

The proposed changes would increase the portion of capital gains subject to taxation for companies to two-thirds from one-half. This policy would also impact individuals with capital gains earnings exceeding $250,000.

Initially introduced in the government’s April budget and later as a notice of ways and means motion, these changes were stalled in Parliament due to gridlock over Conservative demands for documentation related to alleged misspending in the green technology fund.

Proroguing Parliament clears the order paper, necessitating the reintroduction of bills and motions once the House of Commons reconvenes.

If the Liberals fail a non-confidence vote expected at the start of the new parliamentary session on March 24, the process for reintroducing the proposed changes could be delayed or abandoned.

Larry Nevsky, the head of Dentons’s tax group in Toronto, highlighted a unique aspect of the proposed capital gains changes due to the ways and means motion.

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“Only a minister can propose a ways and means motion which, once introduced, grants the government the authority to impose taxes immediately,” noted Larry Nevsky in a Monday LinkedIn post.

Concerning the capital gains changes, Jamie Golombek from CIBC Private Wealth indicated that the CRA informed accountants last year about the application of the proposed measures on capital gains realized post-June 25, 2024, even without legislation in place.

With the prorogation of Parliament, there has been no update from the CRA on how they will handle taxes affected by the Liberal’s proposal, raising questions from The Canadian Press since Monday.

Advising clients to prepare for the higher capital gains taxes, Golombek pointed out the potential consequences of not paying now and waiting for legislation to pass.

Benjamin Bergen of the Council of Canadian Innovators noted that the proposed changes are currently inactive but could resurface if the new leader decides to reintroduce them.

This move is viewed positively by CCI and its members, who were concerned about the impact of the changes on entrepreneurs and innovation.

Kim Furlong of the Canadian Venture Capital and Private Equity Association emphasized the urgent need for clarity from the CRA as businesses navigate tax filings and investment plans in the coming months.