- What The CRA is administering the capital-gains inclusion increase even though Parliament is suspended
- Why Parliamentary convention dictates that taxation proposals are effective when a Notice of Ways and Means Motion is tabled
- What next The increase will be effectively killed if it isn’t revived when Parliament resumes
Canada’s tax collection agency is administering an increase to the country’s capital-gains inclusion rate, even though the related bill can’t be approved in the near term because Parliament has been suspended.
In an email to Green Street News, a Department of Finance official confirmed that the tax collection body, the Canada Revenue Agency, is administering the changes to the capital-gains inclusion rate.
The change means businesses and investors can expect to pay federal tax on two-thirds of their capital earnings after disposing of assets, including commercial real estate, up from 50%. The increase also applies to individual investors when they have gains over $250,000 in one tax year.
The CRA said it would apply the increased capital-gains inclusion rate effective to June 2024, when then-Finance Minister Chrystia Freeland revealed that the government planned to table a bill to facilitate the increase.
“Parliamentary convention dictates that taxation proposals are effective as soon as the government tables a Notice of Ways and Means Motion; this approach provides consistency and fairness in the treatment of all taxpayers,” the Department of Finance official told Green Street News.
For the increase to become permanent, however, the bill would have to be reintroduced in the House of Commons and approved or the government would have to signal its intent to do so.
Whether the Liberals plan to proceed with the unpopular tax measure when Parliament resumes in March has yet to be seen. The governing party is planning to choose a new leader in the meantime, and it’s not known yet whether the dozen or so candidates vying to be party leader support the idea enough to revive it. The new leader will become prime minister automatically when Justin Trudeau steps down in March.
If the bill is not brought back and approved by a majority in the House of Commons, the increased tax inclusion rate dies.
“Upon resumption of Parliament, if no bill is passed in the House of Commons, and the government signals its intent to not proceed with the proposed measures, the CRA would cease to administer them,” the official said.
The increased capital-gains inclusion rate originally was proposed to help fund billions of dollars in spending related to affordable housing.
The forms to allow businesses and investors to file in accordance with the increased capital-gains inclusion rate are still not ready. The CRA said they will be issued by the end of January.
“Arrears interest and penalty relief, if applicable, will be provided for those corporations and trusts impacted by these changes that have a filing due date on or before March 3, 2025,” the official said.
The increase in the capital-gains inclusion rate was not well received in the commercial real estate sector.
“The Canadian commercial real estate sector has strong underlying growth fundamentals, but any government policy can have unintended consequences,” CBRE Canada president and chief executive Jon Ramscar wrote in a blog post.
“We are now left wondering if this tax increase undermines Canada’s competitiveness more than it is able to deliver the proposed broader benefits.”
