On April 16, 2024 Canada’s Finance Minister, Chrystia Freeland, proposed an increase in the capital gains inclusion rate to two-thirds, from one-half, for individuals realizing more than $250,000 in capital gains in a given year, as well as for any capital gains realized by corporations and trusts. The original date for the proposed change to the capital gains inclusion rate was set to be June 25, 2024. Many individuals, and corporations sold investments and triggering a taxable event, prior to June 25, 2024 in hopes of minimizing a larger potential future tax bill.
The capital gains bill still needed to be voted on in the House of Commons, to be passed into law. As tax season approached, the Canada Revenue Agency (CRA) advised those who would be impacted by the higher inclusion rate to file their 2024 taxes based on the proposed legislation regardless of whether it was passed.
Companies impacted by the higher inclusion rate, faced the difficult decision of filing their taxes based on the higher rate (and seek a refund if it doesn’t pass), or file taxes based on the lower rate and face penalties if it does pass.
Late in 2024, as the Liberal party was losing footing, Chrystia Freeland, the Minister of Finance and Deputy Prime Minister, resigned from cabinet on December 16, 2024, leaving her proposed tax plan in further limbo.
Subsequently, on January 6, 2025, Prime Minister Justin Trudeau announced his resignation as leader of the Liberal Party and as the Prime Minister of Canada. He also asked Governor General Mary Simon to prorogue (postpone) parliament until March 24, 2025, effectively leaving all tabled bills in limbo.
After that, on January 31, 2025 the new Finance Minister, Dominic Leblanc, announced that the federal government is deferring the date to increase capital gains from June 25, 2024 to January 1, 2026.
With Dominic Leblanc’s announcement, the crazy mess is finally and officially off the table for this year! I can almost hear every accountant breathing a massive sigh of relief as this will save a lot of time, energy, and money.
We will see some sort of change in government this year and I feel confident that a new government will want to distance itself from this fiasco.
The two leading candidates for the Liberal Party’s leadership, Chrystia Freeland and Mark Carney, are reportedly against the proposed two-thirds capital gains inclusion rate. This is a U-turn for Freeland, who actually introduced the policy. Conservative leader, Pierre Poilievre, who is leading in the polls, remains against the policy.
For some Canadians, large capital gains were triggered in 2024 to get ahead of the proposed changes, and their tax bills are still due… leaving investors feeling as though they have been penalized for being proactive.
In addition, hundreds of thousands of dollars in accounting fees have been paid unnecessarily by Canadians planning for this white elephant to come to town.
The good news is that I feel confident that this tax grab is dead and gone, but only time will tell!
And that, my friends, is how Canada’s capital gains circus played out…
- Brad Weatherill
