Capital gains questions linger as filing deadline approaches

The federal government’s recent prorogation of Parliament has cast uncertainty on the fate of controversial capital gains tax changes and other key tax legislation, creating confusion for tax filers ahead of the April 30 deadline.

Tax measures, including the proposed capital gains changes introduced in the 2024 federal budget, are unlikely to be enacted before the filing deadline, with Parliament prorogued until Mar. 24 and a potential election looming.

More from John Oakey, CPA Canada’s vice-president of tax

The prorogation of Parliament has sent ripples through the tax community with all motions and bills tabled in the House of Commons ending abruptly. As a result, I have received numerous questions about the future of proposed capital gains changes and other tax legislation.

The concern is how the Canada Revenue Agency (CRA) will administer tax laws, especially since some changes may be retroactive to the 2024 taxation year.

Both the Department of Finance and CRA have stated that the CRA will follow standard practice to administer the proposed capital gains changes, as noted in the notice of ways and means motion tabled on Sept. 23, 2024.

A notice of ways and means motion signals the government’s intention to introduce new tax measures.  A non-statutory practice within the House of Commons, referred to as “provisional implementation of taxation,” unofficially establishes the effectiveness of a motion on the date it was tabled, even if that motion doesn’t result in a bill due to prorogation or dissolution of Parliament.

The CRA typically follows the government’s intent when administering tax legislation, based on the notice of ways and means motion.

Historically, successor governments have honoured this practice to avoid uncertainty, but it is not legally binding, meaning there’s no guarantee the proposed changes will be implemented.

While the CRA is updating its forms and systems for the proposed capital gains changes, taxpayers are ultimately responsible for deciding whether to file based on current or proposed law. The CRA cannot enforce filing under proposed legislation. However, if the changes, effective June 25, 2024, are later passed, taxpayers who file based on current law may face arrears interest.

While much attention has focused on capital gains uncertainty, other proposed tax measures are also in limbo. The Sept. 23 notice of ways and means motion proposed increasing the lifetime capital gains exemption to $1.25 million, effective for dispositions on or after June 25, 2024. Additionally, more proposed tax measures were announced by the Department of Finance on Aug. 12, 2024, and in the Fall Economic Statement on Dec. 16, 2024.

This is not the first time Parliament has been prorogued or dissolved with outstanding tax measures unresolved, but this is the first time in my career that I have seen this volume.

The CRA faces a significant challenge, especially with retroactive effective dates affecting 2024 tax returns. Other than the Sept. 23 notice of ways and means motion, all other tax measures don’t fall under the non-statutory common practice of provisional implementation of taxation. Without guidance from prorogued Parliament, the CRA must determine how to administer them.

Here is a non-exhaustive list of some of the proposed measures with retroactive effective dates:

• Amendments to the alternative minimum tax impacting resource deductions, investment management fees and gains on donations of flow-through shares – Effective Jan. 1, 2024
• Disability supports deduction – Effective Jan. 1, 2024
• Employee ownership trust tax exemption and expansion to worker cooperatives –   Effective Jan. 1, 2024
• Accelerated CCA for productivity-enhancing assets – Effective April 16, 2024
• Accelerated CCA for purpose-built housing – Effective April 16, 2024
• Amendment to EIFEL for exclusion of purpose-built rental housing – Effective for taxation years on or after Oct. 1, 2023
• Amendment to substantive CCPC’s involving CDA and GRIP – Effective for taxation years beginning on or after April 7, 2022
• Implementation of clean electricity investment tax credit – Effective April 16, 2024
• Expansion of eligibility for clean technology investment tax credit to support generation of electricity and heat from waste biomass – Effective March 28, 2023
• Expansion of clean technology manufacturing investment tax credit to include polymetallic mining – Effective Jan. 1, 2024
• Amendments to trust reporting exemptions – Effective for years ending after Dec. 30, 2024 (i.e. 2024 trust returns)
• Amendment to the loss carry-back for graduated rate estates to extend the time period for carrying back a loss – Effective Aug. 12, 2024
• Amendments to clean electricity and clean hydrogen investment tax credits announced in the Fall Economic Statement – Effective Dec. 16, 2024
• Electric vehicle supply chain tax credit announced in the Fall Economic Statement – Effective Dec. 16, 2024
• Amendments to scientific research and experimental development announced in the Fall Economic Statement – Effective for taxation years beginning on or after Dec. 16, 2024
• Reinstatement of the accelerated investment incentive and immediate expensing announced in the Fall Economic Statement – Effective Jan. 1, 2025
• Extension of deadline for making donations eligible for tax support in the 2024 tax year announced on Jan. 3, 2025, until Feb. 28, 2025.
• Canada carbon rebate for small businesses announced as tax-free, pending amendment to the Income Tax Act

CPA Canada’s tax team will continue engaging with the CRA to seek clarity on how these announced measures, and others, will be administered.