On January 6, 2025, Parliament was prorogued, and a new session will begin on March 24, 2025.
All government bills that have not received royal assent prior to prorogation cease to exist. For government bills to be continued within a new session, they must be reintroduced as new bills or they may be reinstated, if Parliament adopts a motion to this effect.
Many proposed tax measures, including the increase to the capital gains inclusion rate from one-half to two-thirds, were not tabled as formal bills. They were tabled as a Notice of Ways and Means Motion (NWMM) to introduce a bill to amend the Income Tax Act. The NWMM for the capital gains inclusion rate change was tabled on June 10, 2024 with modifications tabled on September 23, 2024. Given Parliament is on hold, the proposed tax changes cannot be introduced in a bill until the next session of Parliament. It is uncertain whether these measures will be enacted by the new Liberal leadership or a new government if the current government falls.
The CRA announced on January 7, 2025 that although the proposed changes are subject to parliamentary approval, they are administering the changes to the capital gains inclusion rate effective June 25, 2024, based on the proposals included in the NWMM tabled September 23, 2024. This is consistent with the CRA’s historical administrative policy. However, the CRA Audit Manual does state that if proposed legislation is not beneficial to a taxpayer, the CRA cannot require them to file based on proposed legislation. It is unlikely the CRA will change their position despite their audit manual policy.
This uncertainty puts many Canadians and advisors in difficult positions. If taxpayers follow CRA policy and file based on the proposed legislation, they will have to amend their returns and obtain refunds for any overpayments if the proposals are not passed into law. On the other hand, if taxpayers file based on current legislation and the proposals move forward, they could be subject to interest. Ultimately, taxpayers are responsible for deciding whether to file based on current or proposed law after assessing the interest risk.
As discussed in our publication CRA Announces Interest & Penalty Relief for Capital Gains Increase, the CRA reiterated in their January 7, 2025 announcement that arrears interest and penalty relief will be provided for corporations and trusts impacted by these changes that have a filing due date on or before March 3, 2025. It’s unclear whether this relief will be extended beyond March 3, 2025, given the next session of Parliament will not begin until March 24, 2025.It may be appropriate for CRA waive interest beyond the current cut off given the uncertainty of the proposed measures.
Resources
House of Commons – Prorogation January 6, 2025
CRA Announcement – Administering Proposed Legislation January 7, 2025
FP Publication – CRA Announces Interest & Penalty Relief for Capital Gains Increase
FP Publication – Capital Gains Inclusion Rate Set to Increase June 25
The information in this article is of a general nature and is in summary form. Contact one of our tax professionals to discuss these matters in the context of your situation before acting upon such information