In its 2024 federal budget, the Liberal government said it would raise capital gains taxes, but eight months later, those changes aren’t law yet.
In April, Ottawa announced it would increase the share of capital gains that would be subject to income tax. Under the current rules, when someone makes a profit selling an asset such as real estate or stocks, 50 per cent of that gain is taxable. That means half of the profit is added to a taxpayer’s annual taxable income and taxed at their marginal tax rate. The government said it would push up that share to 66.67 per cent, although individuals would only be affected by the higher inclusion rate for annual capital gains above $250,000.
The federal government said the capital-gains tax hike would take effect on June 25, 2024, but political turmoil in Parliament has prevented it from passing the legislation introducing the change.
So far, the legislative impasse has mostly been a headache for corporations and some trusts that are subject to the new inclusion rate but have had to – or will have to – file before the change is reflected in updated tax forms.
But as the 2025 tax-filing season draws near and speculation increases about how long the Trudeau government will stay in power, uncertainty around the capital gains tax increase is growing.
Here’s what to know.
Does the capital gains tax change affect you this year?
Few people regularly have more than $250,000 in capital gains in a single year. But the higher inclusion rate would affect middle-class Canadians who’ve experienced a one-off financial windfall from the sale of certain assets since June 25.
For example, if you’ve recently sold a vacation home or income property at a hefty profit, the higher inclusion rate likely applies to you. (The sale of your primary residence, on the other hand, is exempt from capital gains tax.) The same holds for gains realized by selling investments in non-tax-advantaged accounts.
It’s crucial to be clear on the date when the sale that resulted in capital gains happened, said Stefanie Ricchio, a chartered professional accountant and spokesperson for TurboTax Canada.
If the transaction happened on June 24 or earlier, the higher inclusion rate does not apply.
Taxpayers who sold assets at a loss and will be applying those losses to offset capital gains for the 2024 tax year should familiarize themselves with CRA’s guidance on the matter, Ms. Ricchio said.
When the law might pass
Members of Parliament began the holiday break on Dec. 17, but Parliament will reconvene on Jan. 22, leaving roughly a month for legislators to pass the capital gains measure before tax filing season officially kicks off on Feb. 24, 2025.
The Canada Revenue Agency has said it will have tax forms reflecting the higher inclusion rate ready by the end of January.
And tax season won’t be in full swing until some time in March, said John Oakey, vice-president of taxation at Chartered Professional Accountants of Canada.
“If all goes according to plan and the legislation gets passed – the CRA is already in the process of updating the forms – everything should be okay for the personal tax season,” he said.
The issue is whether an election is called before the capital gains rules become law, Mr. Oakey told The Globe before Chrystia Freeland submitted her resignation as finance minister and deputy prime minister on Dec. 16.
What if the law hasn’t passed by the time you file your taxes?
The CRA has issued guidance advising Canadians to file their taxes based on the proposed tax changes even though the changes aren’t law yet.
This is consistent with the agency’s long-held practice to follow draft legislation, Mr. Oakey said.
In a recent example of this, the CRA updated the 2023 tax returns for taxpayers subject to the federal underused housing tax based on Ottawa’s stated intention to drop such filing requirements for Canadian homeowners. Those changes didn’t become law until after the filing deadline had passed.
Turbotax and Wealthsimple Tax, another major tax software provider in Canada, said their product will reflect the latest CRA guidance on capital gains.
What happens if you file at the higher inclusion rate and the government falls without having passed the law?
If Parliament is dissolved for an election before the higher inclusion rate has become law, the CRA will continue to administer the proposed legislation, agency spokesperson Nina Ioussoupova said via e-mail.
“The exception would be if the government dissolved as a result of a vote on a motion of non-confidence directly related to the proposed measure. In such a case, the CRA would cease to administer the proposed measure,” Ms. Ioussoupova wrote.
Once Parliament resumes, if no bill is passed in the House of Commons, and if the government signals its intent not to proceed with the measure, the CRA would stop administering it, she added.
If the tax change fails to pass, the CRA would have to reassess the returns of taxpayers who used the higher inclusion rate, which may result in a tax refund, Mr. Oakey said.
