Prime Minister Justin Trudeau’s decision to resign and prorogue Parliament means the government will refrain from implementing proposed capital gains changes for the time being, but Canadians may not yet be able to escape the wrath of tax collectors.
The change would increase the percentage of capital gains that companies pay tax from one-half to two-thirds. The policy also applies to individuals with capital gain income of more than $250,000.
The changes were announced in the government’s April Budget and subsequently introduced as a Notice of Ways and Means Motion. These changes were not passed due to a deadlock in parliament over the Conservative Party’s demands for documents related to alleged irregularities in the government’s Green Technology Fund.
The adjournment clears the parliamentary order text and means bills and motions must be reintroduced once the House reconvenes.
That process could be delayed or derailed entirely if the Liberals fail to survive a widely expected no-confidence vote shortly after the new parliament begins on March 24.
But Larry Nevski, head of the tax group at Toronto law firm Dentons, said the proposed capital gains changes have wrinkles because of the way and means they move.
“Only ministers can propose instrument motions. Once completed, the government will be protected and able to collect revenue through tax,” he said in a LinkedIn post on Monday.
“The mere placing of a ways and means motion on the agenda of a meeting of Parliament confers temporary power to impose a tax with immediate effect.”
In the case of capital gains changes, Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth, said the Canada Revenue Agency last year told accountants to follow “standard practice” and apply the proposed measures. He said he had previously told them that he would start doing so. Capital gains realized after June 25, 2024, even if the bill had not been passed.
The CRA has not provided an update since Parliament adjourned, and neither the CRA nor the Treasury Department immediately responded to questions from The Canadian Press on Monday about how taxes would be handled under the Liberal proposals. Ta.
“So people are now in a position to file their 2024 tax returns, but they don’t know what to do because there’s no law passed by Congress,” he said.
Golombek advises clients to prepare to pay higher capital gains taxes. He believes that if the bill is not passed, those who paid will likely receive a refund, but if the bill is later passed and they do not pay, they may be subject to interest on late payments. are.
Benjamin Bergen, president of the Canadian Council of Innovators, said the proposed changes are no longer valid “unless they are reintroduced by whoever takes over (in Trudeau’s place) as leader.”
“We think this is a positive step given the current state of capital gains.”
The industry association led by Bergen is comprised of more than 150 CEOs of high-growth companies headquartered in Canada.
While Prime Minister Trudeau claimed the changes would only affect the wealthiest 0.13% of people and generate $19.3 billion in revenue over the next five years, CCI members said they would hinder entrepreneurs’ ability to raise capital. I was worried that this might happen.
“As the attractiveness of raising risky capital in Canada wanes, as opposed to, say, south of the border, capital will start to flow elsewhere, entrepreneurs will start to flow elsewhere as well, and talent will start to flow elsewhere as well. ‘Maybe somewhere else,”’ Bergen said.
“So the capital gains were like a triple whammy.”
Apart from entrepreneurs and the broader innovation ecosystem, he wondered if the change would also hurt tech workers, who are often compensated with stock options.
Harley Finkelstein, president of Ottawa-based e-commerce giant Shopify, was more blunt about the potential harm caused by the proposal.
“What are you doing??” he posted on X (previously known as Twitter) in April after the budget was announced.
“This is not a wealth tax. It’s a tax on innovation and risk-taking. Policy failure is America’s interest.”
Meanwhile, Kim Furlong, president of the Canadian Venture Capital and Private Equity Association, said in April that the measure would “significantly weaken Canada’s entrepreneurial spirit and constrain economic growth in key sectors of the economy.”
“As Canadian businesses prepare to pay their taxes and plan their investment activities in the coming months, they urgently need more clarity from the Canada Revenue Agency,” the association said Monday.
This report by The Canadian Press was first published Jan. 6, 2024.
