Federal government may reverse course on capital gains tax by delaying increases

The federal government is likely to reverse course on increases to the capital gains tax that were announced in the last federal budget, CBC News has learned. 

The Liberal government could delay implementing those changes, according to a high-level source with knowledge of the government’s plans. CBC News is not naming the source because they weren’t authorized to speak publicly.

The exact plan hasn’t been finalized, but a key option on the table includes ordering the Canada Revenue Agency (CRA) to stop collecting the new taxes for now.

Delaying collection would likely push any final decision about the changes until after the next federal election, which could effectively kill the tax increase.

“It is a surprise,” said Dan Kelly, president of the Canadian Federation of Independent Business (CFIB). The industry lobby group had opposed the increase to capital gains taxes since they were first announced.

“But it is welcome news,” he said, adding that he said the CFIB are unclear on what exactly is being changed.

‘Fairness for every generation’

The changes had been considered a core part of the last federal budget, which was branded as a plan bringing “fairness for every generation.”

It proposed increasing taxes on capital gains above $250,000 for individuals, changing what is called the “inclusion rate” from one-half to two-thirds for them.

All capital gains for corporations and trusts would have increased to two-thirds as well.

When the measure was introduced, the finance minister at the time, Chrystia Freeland, said it was intended to address what she called issues of tax fairness. Freeland had previously said the government needed the revenue from the changes to fund programs like pharmacare, dental care, child care and the green energy transition.

Freeland has since disavowed her signature tax policy, as she seeks the Liberal leadership.

The proposed increases were unpopular with business groups, including many in the technology and medical sectors. 

“We certainly welcome this policy shift; however, we shouldn’t have been here in the first place,” said Deborah Yedlin, president of the Calgary Chamber of Commerce in an emailed statement to CBC News.

“Increasing the capital gains inclusion rate is a negative signal for investment,” wrote Yedlin, whose organization has expressed concern that higher taxes on corporations and trusts would make it more difficult for businesses to invest gains or profits in new opportunities. 

She said it’s “unclear at this point” how the change will be enacted. 

Increase was already being collected

The CRA had been collecting the increased tax rate already, as if it had taken effect, even though the relevant legislation had not been passed and was functionally dead after Prime Minister Justin Trudeau prorogued Parliament.

This is standard practice, the federal agency said earlier this month. 

“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,” it said in a statement to CBC News.

Both the CFIB and the Calgary Chamber of Commerce are calling for a firm announcement from the government.

The CFIB is specifically asking for details on whether a potential cancellation of the tax increase will be retroactive, or only apply moving forward.

“I’m not going to breathe a full sigh of relief just yet — until we know that this proposal has effectively been killed,” said Kelly. “Right now, I would describe it as being on life support.”