In Budget 2024, the federal government proposed to increase the capital gains inclusion rate from one-half to two-thirds. The change was to apply to (i) any capital gain realized by a corporation or trust, and (ii) for individuals, any net capital gains in excess of $250,000 per year. The proposed change was to apply for capital gains realized on or after June 25, 2024 (the “Capital Gains Proposals”).
The Capital Gains Proposals were included in a Notice of Ways and Means Motion of the Minister of Finance but were not incorporated into a bill when Parliament was prorogued on January 6, 2025 at the request of Prime Minister Justin Trudeau. As a result, the Notice of Ways and Means Motion to implement the Capital Gains Proposals (and all bills before Parliament) “died on the order paper”. A new session of Parliament is expected to resume on March 24, 2025. At that time, Parliament may reintroduce bills that had expired upon prorogation. The Capital Gains Proposals, however, would have to be reintroduced in full because these proposals had not progressed beyond a Notice of Ways and Means Motion.
On January 31, 2025, Dominic LeBlanc, the Minister of Finance and Intergovernmental Affairs, announced that the federal government is deferring the effective date of the Capital Gains Proposals from June 25, 2024 to January 1, 2026.
While uncertainty continues to exist, it is still possible that the Capital Gains Proposals will be enacted as proposed but with effect from January 1, 2026. Based on this announcement, capital gains realized in 2024 and 2025 will be subject to the one-half inclusion rate. Unfortunately, today’s announcement is silent about some of the related changes to the Income Tax Act (Canada) that were included in the Notice of Ways and Means Motion including proposed changes to employee deductions under the stock option rules and withholding requirements related to the disposition of “taxable Canadian property”. Hopefully, the federal government will confirm shortly that these measures will also be deferred until January 1, 2026.
These unusual developments have created unique uncertainty for Canadian taxpayers. We are continuing to closely monitor the situation. If you have any questions related to the Capital Gains Proposals, any member of the Fasken Tax Group across Canada would be pleased to assist you.
