Prime Minister resigns: How will the increase in the capital gains inclusion rate be impacted?

On Monday, Justin Trudeau announced his intention to step down as leader of the Liberal Party of Canada and Prime Minister. He also announced the prorogation of Parliament, suspending all parliamentary business until March 24. CORPIQ provides information and answers your questions about the potential impact on capital gains.

Capital gains inclusion rate: update and implications

The capital gains inclusion rate is the percentage of realized capital gains that is taxable in computing income. In other words, this rate determines the proportion of the capital gain that must be added to a taxpayer's taxable income for a given year. In Canada, the inclusion rate for capital gains has been set at 50% since 2001. This means that half the realized capital gain is taxable. 

However, a bill was introduced in early 2024 to increase the inclusion rate to 66.67% for the portion of gains exceeding $250,000. On September 23, Chrystia Freeland, then Deputy Premier and Minister of Finance, tabled a Notice of Ways and Means Motion to introduce a bill entitled “An Act to amend the Income Tax Act and the Income Tax Regulations”. Since then, no bill has been tabled and examined by Parliament. 

 

What about the Canada Revenue Agency's position?

While the changes proposed by the federal government are subject to parliamentary approval, which would have rendered the new capital gains rate inapplicable, the Canada Revenue Agency (CRA) today decided to continue administering the changes to the capital gains inclusion rate that came into effect on June 25, 2024 - based on the proposals put forward in the September 2024 Notice of Ways and Means Motion.

According to the Department of Finance, parliamentary convention dictates that tax proposals introduced by the government last year come into effect as soon as the government tables a Notice of Ways and Means Motion.

 

What are the consequences for rental owners who sold their property in 2024? 

The new inclusion rate applies to capital gains realized on or after June 25, 2024: a rate of 66.6% for the portion in excess of $250,000.

CRA expects that the forms affected by the new inclusion rate for individuals, trusts and corporations will be on Canada.ca as of January 31, 2025.

 

What are the next steps and possible scenarios?

At the end of the parliamentary recess (March 24), several scenarios are possible - subject to confirmation. 

 

Scenario 1: Resumption of parliamentary work and adoption of a capital gains bill

The rate increase is confirmed. In the event of non-payment of taxes at the current rate, interest for late payment could be charged. 

 

Scenario 2: Resumption of parliamentary proceedings and abandonment of proposed capital gains changes

If the government announces that it will not implement the planned changes, the CRA will cease to apply the policy, and a refund of overpayments should be made. 

 

Scenario 3: Resumption of parliamentary proceedings with a vote of confidence leading to the fall of the government before passage of a capital gains bill

The increase in the inclusion rate would be cancelled, and any overpayments would have to be reimbursed. 

 

CORPIQ will continue to monitor legislative developments related to the capital gains inclusion rate. Subscribe to our PROPRIO+ newsletter to stay informed at all times.