Tax Trend: Capital Gains Changes – Cancelled?
It is increasingly likely that the capital gains changes will be cancelled.
A quick fact check:
• The capital gains changes (increasing the inclusion rate from ½ to ⅔) is not law
• It was introduced to Parliament in September but did not go through the legislative process
• Parliament is now prorogued meaning any legislation in process is cancelled
• The legislation would have to be reintroduced and start over
• The strong likelihood is that this will not occur before an election is called
• Based on current polls, the Liberals have a less than 1% chance of being reelected and even a coalition will come nowhere near to a majority
• The Conservatives have a 99% chance of winning a majority
• Today, Pierre Poilievre said that the Conservatives will not proceed with the changes and called on CRA to stop collecting the higher tax
Although anything can happen in politics, it seems very likely that the tax hike is going to take a hike.
Capital Gains Chaos
CRA still maintains that it will collect the higher tax, but the legal basis for this is an illusion. CRA cannot legitimately collect a tax that is not law. In fact, it is unlawful.
We are entering tax filing season. A decision must be made on tax forms and tax filing software. CRA must make a decision soon and it will have two choices; drop the tax increase because it is not law and may now never become law or risk chaos.
We are becoming used to chaos and last-minute decisions from CRA. Remember the filings for Underused Housing Tax, extended literally on the filing due date, and bare trust filings abandoned one business day before the deadline. These were minor in comparison.
Our Prediction
CRA will give up the fight and not try to enforce the ⅔ capital gains inclusion. They will have no choice.
The capital gains changes will not become law, and will be dropped.
What We Should Remember
CRA administers the tax system and enforces tax laws. It does not write them. In fact, it has no power to write tax laws or enforce laws that are not in place. We follow the rule of law in Canada and it applies equally to taxpayers and to CRA.
Canada Tax Team
