On January 6, 2025, Prime Minister Justin Trudeau announced his resignation as PM and as the Leader of the Liberal Party of Canada. During this announcement, Mr. Trudeau also confirmed that Parliament has been prorogued – or suspended – until March 24, 2025. This announcement may impact the Federal Government’s proposed changes to the capital gains inclusion rule.
Included in its 2024-25 budget, the Government announced proposed legislation via a bill to increase to the Capital Gains Inclusion Rate to 2/3rds – up from 1/2 – on all gains earned by corporations and trusts, and on gains realized by individuals over $250,000 per person, effective June 25 2024. The proposed legislation has yet to pass Parliament.
With Mr. Trudeau resigning, a near-term election likely and with Parliament suspended until March, the pathway bringing this bill into law is uncertain. The new Capital Gains inclusion measure won’t take effect unless it is reintroduced at a later Parliamentary session. If not reintroduced at a Parliamentary session, the capital gains inclusion rate will remain at 50% across the board.
It is the Canada Revenue Agency’s (CRA) general practice to administer any previously proposed legislation when Parliament is prorogued. When Parliament re-convenes, the proposed legislation may be reintroduced. The CRA would only halt administration of the proposed legislation if a new session begins, the proposed legislation is not passed into law, and finally, if the Government signals it will not proceed with the proposal.
A common example of a capital gain exceeding $250,000 would be if you sold an investment property (in other words, a property you are not claiming the principal residence exemption on) after June 25th. Remember, if you and another individual (for instance, a spouse) sold a jointly-owned investment property, the capital gain would need to exceed $500,000 (i.e. $250,000 each) before the 2/3rds inclusion would theoretically apply.
If you, personally, triggered $250,000 or more of capital gains after June 25 2024, it may be worth assuming the bill will pass into law. This would mean holding back the necessary cash under the assumption of a 2/3rds inclusion rate above the $250,000 in realized gains. By taking this stance, you will avoid a cash shortfall if the bill does pass into law; however, since the final decision on this proposed change will not be confirmed until at least March 24th, you should wait until after that date before filing your 2024 tax return. Hopefully by then, we’ll have clarity on the situation (either the bill has passed into law, or the bill has been struck down) and can file your tax return accordingly.
Please let us know if you have questions about this, especially if you triggered $250,000 or more of capital gains in the back half of 2024.
Sources: Globe and Mail, Sun Life