Tax Insights Published February 3, 2025 VOL 02 NO 02
ORIGINAL ARTICLE
By: | Dorathy Yau – BCom, MTax Vishal Raithatha – CPA, CA, MMPA, B.A.Sc. Computer & Electrical Engineering |
Planning under consideration
The uncertainty surrounding the filing of 2024 tax returns for capital gains realized after June 24, 2024, has now been resolved. On January 31, 2025, the Minister of Finance announced that the federal government will postpone the planned increase in the capital gains inclusion rate – from ½ to ⅔ – until January 1, 2026. Originally proposed to take effect on June 25, 2024, this deferral provides taxpayers with more time to prepare for the change and provides clarity on filing 2024 tax returns.
This edition of Tax Insights highlights important considerations for the 2024 tax filing season following the Minister of Finance’s recent announcement.
Analysis
Key Takeaways from the Minister’s Announcement:
- The proposed increase in the capital gains inclusion rate to ⅔ remains unchanged but will now be deferred until January 1, 2026.
- The proposed $250,000 exemption available to individual taxpayers, graduated rate estates and qualified disability trusts (not available for corporations) will also be deferred until January 1, 2026.
- The proposed implementation date for the increase in the lifetime capital gains exemption (LCGE) to $1,250,000 remains June 25, 2024. Any tax planning involving this increase should not trigger taxes payable if the legislation is enacted.
- The proposed implementation date for the Canadian Entrepreneurs’ Incentive remains January 1, 2025 which reduces the capital gains inclusion rate to ⅓ on a lifetime maximum of $2,000,000 for eligible capital gains that meet the conditions.
Shortly after the Minister’s announcement on January 31, 2025, the Canada Revenue Agency (CRA) provided the following clarifications:
- The CRA will revert to administering the current capital gains inclusion rate of ½, reversing its January 7, 2025 announcement to assess returns as if the proposed ⅔ rate had been enacted.
- The CRA will continue to administer the proposed LCGE increase to $1,250,000 for dispositions on or after June 25, 2024, as if the legislation is in effect.
- Late-filing penalties and arrears interest relief will be granted until June 2, 2025, for individual filers (normally due April 30, 2025) and May 1, 2025, for affected trust and estate filers (normally due March 31, 2025).
- Updated tax forms reflecting these changes will be issued in the coming weeks.
- Corporate taxpayers are advised to continue using the existing forms and software with the ½ inclusion rate until further notice.
- For corporations that filed based on the ⅔ inclusion rate following prior CRA guidance, the CRA will coordinate corrective reassessments to revert to the ½ inclusion rate.
Final remarks
It is important to note that the proposed increase in the capital gains inclusion rate has not yet been enacted into law and remains in the proposal stage. The deferral of its implementation to January 1, 2026, does not guarantee it will take effect, especially if a change in government occurs following the upcoming federal election.
The government has stated its intention to introduce legislation to implement the capital gains inclusion rate increase, the LCGE expansion, and the Canadian Entrepreneurs’ Incentive. However, the outcome remains uncertain and will depend on the resumption of Parliament and the results of the upcoming election.
Additionally, Revenu Québec has yet to clarify its position after previously stating it would proceed as if the increased rate were in effect.
While this announcement provides some relief ahead of the 2024 tax filing season, uncertainty remains until Royal Assent is granted for the proposed capital gains legislation. Taxpayers should consult their tax advisors to help navigate any uncertainties they have for their unique tax situations to ensure that they make informed decisions.
The above content is for informational purposes only and is general in nature. It is not intended to be advice. No person or entity should act upon the information above without receiving professional advice after all the facts and circumstances specific to their situation are thoroughly reviewed.