Justin Trudeau’s choice to resign and suspend Parliament has currently stalled the proposed changes to capital gains tax legislation. However, Canadians may still face potential tax liabilities. The proposed modifications, which were revealed in the government’s April budget, aim to increase the tax portion on companies’ capital gains from half to two-thirds and would also affect individuals with capital gains earnings exceeding $250,000.
These changes were previously brought to Parliament’s attention but did not pass due to a deadlock over the Conservative’s request for documents concerning alleged misuse of the government’s green technology fund. The suspension of Parliament wipes the legislative slate clean, meaning that these changes would need to be reintroduced when the House of Commons reconvenes.
However, the process may face further delays if the Liberals fail to win a confidence vote, which is expected to occur shortly after the new parliamentary session starts on March 24. Despite the hold-up, tax expert Larry Nevsky from law firm Dentons points out that due to the ways and means motion, the government can still collect revenue through taxes once a minister has proposed the motion.
The Canada Revenue Agency (CRA) has not yet provided an update regarding the proposed capital gains changes since Parliament was prorogued. Jamie Golombek of CIBC Private Wealth advises clients to prepare for the higher capital gains taxes, reasoning that if the legislation is not passed, those who have paid will likely receive a refund. But if it is passed and they did not pay, they could face late payment interest fees.
The Council of Canadian Innovators sees the delay as a positive step. The council, which represents over 150 CEOs from rapidly growing Canadian companies, feared the changes would deter entrepreneurs from raising capital. They argue that if it becomes less appealing to raise risky capital in Canada compared to other countries, it could lead to a ‘brain drain’ of entrepreneurs, talent, and money.
While the Trudeau government argued that the changes would only affect the wealthiest 0.13%, generating $19.3 billion in revenue over five years, the potential negative impact on entrepreneurs and the tech industry has sparked concern. Companies like Shopify Inc. have voiced their opposition, seeing the proposal as a tax on innovation and risk-taking, rather than a wealth tax. The Canadian Venture Capital and Private Equity Association has also expressed concern, saying it could “significantly dampen Canada’s entrepreneurial spirit.”
As Canadian businesses prepare to file their taxes and plan their investment activities for the coming months, they need greater clarity from the CRA on how it will handle taxes subject to the Liberal’s proposal. Now, more than ever, it’s crucial for Canadians to stay informed on these potential changes to capital gains tax.
