After it was initially believed the Liberal's capital gains tax increase would leave Parliament along with Trudeau after failing to be officially signed into law before the Prime Minister's resignation and prorogue of Parliament, a press release from the Canada Revenue Agency (CRA) is now saying otherwise.
Early Tuesday, the CRA announced that "Although [the capital gains tax] changes are subject to parliamentary approval, consistent with standard practice, the CRA is administering the changes to the capital gains inclusion rate effective June 25, 2024."
This means that any capital gains realized since June 25, 2024, would be subject to the new 67% inclusion rate after all. To assist taxpayers, the CRA says they are in the process of preparing impacted forms for individuals, trusts, and corporations, which will be available at Canada.ca on January 31, 2025. As well, corporations and trusts will have until March 3, 2024, to access arrears interest and penalty relief if they have a filing due date on or before March 3.
But the reality isn't so cut and dried. While the CRA is moving forward, Vice President of Taxation at Chartered Professional Accountants of Canada (CPA Canada) John Oakey tells STOREYS next steps for taxpayers remain less clear.
"Every taxpayer has to decide how they're going to file their taxes. Canada Revenue Agency can't force anybody to file based on proposed legislation, because it's not law," says Oakey. "So CRA is just saying we're going to administer and we're going to set it up so you can comply with the proposed legislation, but it's up to the taxpayer to make this decision."
In the interim before the capital gains changes potentially become law, which CPA Canada predicts is unlikely to happen before the April 30 tax filing deadline, Canadians have the responsibility to choose whether to report their capital gains starting at over $250,000 under the current 50% inclusion rate or the proposed 67% rate.
So, to report or not to report? Oakey says both decisions have their pros and cons. "At the end of the day, it's the taxpayers the decision on what they're going to do, and there's consequences on either side of the fence."
If you decide to report capital gains on your 2024 taxes at the higher inclusion rate and the changes fail to become law, the potential downside is that you would eventually have to go through the process of getting a refund from CRA. "You'd be tying up cash, right?" says Oakey. "But it's more of an inconvenience if you file based on the current law and the changes actually do pass, because then you would have to file an amended return, and it could be subject to arrears interest because you didn't pay enough taxes."
Still, until Parliament issues a formal statement to the contrary, the CRA will move forward as if the changes are law, partly because it's an unwritten rule in the House of Commons called the provisional implementation of taxation to do so, but also to prevent marketplace confusion. Though, Oakey says there will likely be market disruption regardless.
"People will be sitting back saying, 'Well, should I sell? But if the capital gains goes through, then maybe I shouldn't sell, but if it doesn't, then maybe I should sell.' And so there are market implications as well, because people don't know what to do based on the fact that they don't know if the legislation will ultimately go through or not."
There's also uncertainty surrounding the future of leadership within the Canadian Government, which also leaves the CRA with limited guidance on next steps.
"The only thing Canada Revenue Agency has to go on right now is the intent of Parliament, which was: they passed a motion back in the spring to implement the rules, and the finance minister tabled a new motion to introduce the rules," says Oakey. "There's been no indication from the government on anything else. We don't know if the government is ultimately going to fall. We don't know if the Conservatives are ultimately going to be the new government. And so Canada Revenue Agency has nothing else to go by other than the very last intention of Parliament, which was to introduce this into law."
