New Capital Gains Inclusion Rates: Proposed Rules, CRA’s Approach, and What Taxpayers Can Do
Disclaimer: The information in this blog post is for general informational purposes only and does not constitute legal, tax, or financial advice. Legislative developments are fluid, and you should consult a qualified professional for the most up-to-date advice pertaining to your specific situation.
Update January 31, 2025:
Earlier this morning, the government deferred the start date for the proposed capital gains inclusion rate changes to January 1, 2026 (previously June 25, 2024).
This means any new capital gains rules—if eventually enacted—would not apply to dispositions before January 1, 2026.
The legislation still has not received Royal Assent, and the possibility remains that these rules could be amended, further delayed, or dropped altogether.
Introduction
Canada’s capital gains tax framework is in the spotlight yet again following proposed changes to the inclusion rates for individuals and corporations. While the new rules were announced to take effect from June 25, 2024, the Notice of Ways and Means Motion (NWMM) enacting these changes was only tabled on September 23, 2024 and has not yet received Royal Assent.
Despite these rules being proposed and not yet legislated, the Canada Revenue Agency (CRA) has indicated—both in official communications and quoted in major newspapers—that it will continue to administer these capital gains changes during prorogation. This creates a significant level of confusion and uncertainty for taxpayers.
In this blog post, we will:
Summarize the proposed new inclusion rates.
Explain how the CRA can administer such changes even though they’re not technically law.
Discuss what taxpayers can do to protect themselves in this uncertain environment.
The Proposed Capital Gains Inclusion Rates
Under the current (long-standing) system, 50% of any capital gain is included in taxable income for both individuals and corporations. The new proposal, however, introduces higher rates:
Effective Date: The changes are stated to apply to dispositions on or after June 25, 2024.
Individuals
On capital gains up to $250,000: The inclusion rate remains 50%.
On the portion of capital gains exceeding $250,000: The inclusion rate increases to 66.67.
Corporations
All capital gains realized by corporations would be subject to an inclusion rate of 66.67.
If these proposed rules receive Royal Assent without amendment, taxpayers would be required to report any gains incurred on or after June 25, 2024, under these higher or tiered inclusion rates.
The Legislative Limbo: Why the Confusion?
In Canada, a Notice of Ways and Means Motion is the mechanism by which the government formally announces amendments to tax laws. Normally, the steps to enact a tax change are:
Tabling of the NWMM in the House of Commons.
Draft legislation is introduced and must pass in both the House of Commons and the Senate.
The legislation must receive Royal Assent to become law.
However, Parliament has since been prorogued (i.e., suspended), which means all pending bills and motions can be put on hold. If Parliament does not resume debate on the NWMM or if the government chooses not to re-introduce the legislation, the changes can die on the order paper—never becoming law.
Yet, the CRA often begins administering new or higher tax rates based on the date specified in the NWMM, leading to a mismatch between what is de facto being enforced and what is de jure (in law).
The CRA’s Position During Prorogation
Over the past few months, several CRA communications and national newspaper articles (e.g., coverage in the Financial Post, Globe and Mail, and CBC News online) have quoted CRA officials stating they will proceed as though the capital gains changes are in place for transactions after June 25, 2024.
The CRA typically justifies this stance by referencing its long-standing administrative practice:
“Announced tax measures will generally be administered as of the proposed effective date, unless the government announces otherwise.”
While this might seem efficient from an administrative standpoint, it puts taxpayers in the awkward position of choosing whether to:
File returns strictly based on current law (the 50% inclusion rate), risking a future reassessment if the rules eventually pass retroactively, or
Comply with the CRA’s “early adoption” of the proposed rules.
Potential Outcomes If the Rules Do Not Pass
What happens if Parliament ultimately does not enact these changes?
Return to the Existing 50% Inclusion Rate If the legislation dies on the order paper (does not receive Royal Assent), we revert to the existing law—an inclusion rate of 50% for individuals and corporations alike.
CRA Adjustments or Reassessments The CRA may need to issue reassessments for taxpayers who filed under the proposed 66.67% (or tiered) rate. This could result in refunds or adjustments if overpayments were made.
Reintroduction in a Future Session The government could reintroduce the measure—possibly with modifications—in a subsequent parliamentary session, leading to ongoing uncertainty and speculation.
What Taxpayers Can Do
Navigating these unlegislated changes can be challenging. Here are some proactive steps taxpayers can take:
Stay Informed
Keep track of official CRA updates and any Department of Finance announcements.
Watch for credible news sources discussing the status of the proposed legislation.
Maintain Thorough Documentation
Whether you choose to file under the existing law or plan for the proposed changes, keep detailed records of any dispositions and how you calculated your gains.
Should the law be enacted or dropped, you will want clear documentation for any necessary amended returns or CRA audits.
Seek Professional Advice
Given the complexity and potentially large sums at stake, it’s wise to consult a tax professional (CPA, tax lawyer) who can guide you based on your specific circumstances.
A professional can help you weigh the risks of an immediate adoption of the CRA’s position vs. filing under current law—and prepare for a possible amendment if the legislation either passes or fails.
Consider a “Dual Reporting” Approach
In certain cases, taxpayers may file under the current law but disclose in their return (through a letter or note) what the tax liability would be if the proposed rules were in effect.
This transparency can help mitigate potential interest and penalties if the CRA eventually insists on reassessing your return according to the new rates.
Stay Flexible
The legislative environment can change rapidly, and decisions made now might need revisiting if Parliament reconvenes and passes (or declines to pass) the changes.
Keep an eye on the legislative calendar and be prepared to make adjustments.
Final Thoughts
The new capital gains inclusion rates—50% for individual gains up to $250,000, 66.67% for gains above that threshold, and 66.67% for corporations—represent a significant shift from Canada’s long-standing 50% inclusion regime. Although they were slated to take effect on June 25, 2024, the uncertainty caused by prorogation means these measures may never become law.
At the same time, the CRA’s indication—through official communications and coverage in newspaper articles—that it will administer these changes as if they are already in force has left taxpayers in a bind. Ultimately, the best approach for most individuals and businesses is to:
Stay current with announcements and legislative developments.
Work closely with knowledgeable tax professionals.
Document all capital transactions meticulously.
Prepare to file or adjust returns as needed, once there is a clear resolution in Parliament.
Until then, caution and thorough planning are key to avoiding unpleasant surprises—and possible overpayments—in this ever-shifting tax landscape.
Need personalized guidance? If you have questions about how the unlegislated capital gains inclusion rates might affect your tax liabilities—or if you’re unsure how to file during this period of prorogation—reach out to a qualified Canadian tax professional. They can help you evaluate your options, minimize uncertainty, and prepare for any outcome.
Disclaimer: The information in this blog post is for general informational purposes only and does not constitute legal, tax, or financial advice. Legislative developments are fluid, and you should consult a qualified professional for the most up-to-date advice pertaining to your specific situation.
Update January 31, 2025:
Earlier this morning, the government deferred the start date for the proposed capital gains inclusion rate changes to January 1, 2026 (previously June 25, 2024).
Introduction
Canada’s capital gains tax framework is in the spotlight yet again following proposed changes to the inclusion rates for individuals and corporations. While the new rules were announced to take effect from June 25, 2024, the Notice of Ways and Means Motion (NWMM) enacting these changes was only tabled on September 23, 2024 and has not yet received Royal Assent.
Despite these rules being proposed and not yet legislated, the Canada Revenue Agency (CRA) has indicated—both in official communications and quoted in major newspapers—that it will continue to administer these capital gains changes during prorogation. This creates a significant level of confusion and uncertainty for taxpayers.
In this blog post, we will:
The Proposed Capital Gains Inclusion Rates
Under the current (long-standing) system, 50% of any capital gain is included in taxable income for both individuals and corporations. The new proposal, however, introduces higher rates:
If these proposed rules receive Royal Assent without amendment, taxpayers would be required to report any gains incurred on or after June 25, 2024, under these higher or tiered inclusion rates.
The Legislative Limbo: Why the Confusion?
In Canada, a Notice of Ways and Means Motion is the mechanism by which the government formally announces amendments to tax laws. Normally, the steps to enact a tax change are:
However, Parliament has since been prorogued (i.e., suspended), which means all pending bills and motions can be put on hold. If Parliament does not resume debate on the NWMM or if the government chooses not to re-introduce the legislation, the changes can die on the order paper—never becoming law.
Yet, the CRA often begins administering new or higher tax rates based on the date specified in the NWMM, leading to a mismatch between what is de facto being enforced and what is de jure (in law).
The CRA’s Position During Prorogation
Over the past few months, several CRA communications and national newspaper articles (e.g., coverage in the Financial Post, Globe and Mail, and CBC News online) have quoted CRA officials stating they will proceed as though the capital gains changes are in place for transactions after June 25, 2024.
The CRA typically justifies this stance by referencing its long-standing administrative practice:
“Announced tax measures will generally be administered as of the proposed effective date, unless the government announces otherwise.”
While this might seem efficient from an administrative standpoint, it puts taxpayers in the awkward position of choosing whether to:
Potential Outcomes If the Rules Do Not Pass
What happens if Parliament ultimately does not enact these changes?
If the legislation dies on the order paper (does not receive Royal Assent), we revert to the existing law—an inclusion rate of 50% for individuals and corporations alike.
The CRA may need to issue reassessments for taxpayers who filed under the proposed 66.67% (or tiered) rate. This could result in refunds or adjustments if overpayments were made.
The government could reintroduce the measure—possibly with modifications—in a subsequent parliamentary session, leading to ongoing uncertainty and speculation.
What Taxpayers Can Do
Navigating these unlegislated changes can be challenging. Here are some proactive steps taxpayers can take:
Final Thoughts
The new capital gains inclusion rates—50% for individual gains up to $250,000, 66.67% for gains above that threshold, and 66.67% for corporations—represent a significant shift from Canada’s long-standing 50% inclusion regime. Although they were slated to take effect on June 25, 2024, the uncertainty caused by prorogation means these measures may never become law.
At the same time, the CRA’s indication—through official communications and coverage in newspaper articles—that it will administer these changes as if they are already in force has left taxpayers in a bind. Ultimately, the best approach for most individuals and businesses is to:
Until then, caution and thorough planning are key to avoiding unpleasant surprises—and possible overpayments—in this ever-shifting tax landscape.
Need personalized guidance?
If you have questions about how the unlegislated capital gains inclusion rates might affect your tax liabilities—or if you’re unsure how to file during this period of prorogation—reach out to a qualified Canadian tax professional. They can help you evaluate your options, minimize uncertainty, and prepare for any outcome.
Read Next
Maximizing Revenue from Whistler Rental Properties
Fixed vs. Variable Mortgages in a Shifting Rate Environment
Navigating Canada’s Proposed Capital Gains Tax Changes
Student Housing 101: A Parent’s Investment Guide