Rogued Parliament Tax Changes

Earlier this week, Prime Minister Justin Trudeau’s resignation was accompanied by the announcement that Parliament will be prorogued until March 24, 2025. The prorogation of Parliament effectively terminates the current session, delaying the progress of all pending legislative bills, including key tax proposals outlined in the 2024 Federal Budget. These bills must either be reintroduced or reinstated in the new session to proceed.

Given the potential impact on your financial and tax planning, we wanted to provide you with a detailed overview of the most relevant proposals and offer guidance as we enter the 2024 tax filing season.

Capital Gains Inclusion Rates

A key proposal from the 2024 Federal Budget is the increase in the capital gains inclusion rate from 50% to 66.67%, impacting:

• Individuals: For annual capital gains exceeding $250,000.
• Corporations and Trusts: For all capital gains realized during the year.

Despite these changes not receiving formal approval, the Canada Revenue Agency (CRA) announced in November 2024 that they will administer the higher inclusion rate for all capital gains realized on or after June 25, 2024, based on the draft legislative proposals.

This creates a complex decision-making environment for taxpayers:

• Option 1 – File Using the Proposed Higher Rate:
  Filing with the 66.67% inclusion rate ensures compliance with the CRA’s current guidance. Should the government ultimately decide not to proceed with the legislation, you would be eligible to request a refund of any excess tax paid.
• Option 2 – File Using the Current 50% Rate:
  Filing at the current legislated rate (50%) may reduce your initial tax liability. However, if the proposed legislation is enacted retroactively, the CRA may reassess your return, potentially leading to additional tax owing, along with interest and penalties.

Given these factors, a tailored approach is necessary. We strongly recommend working closely with your tax advisor to evaluate which strategy aligns best with your circumstances, balancing compliance with flexibility in light of future legislative outcomes.

Other Delayed Tax Measures

In addition to capital gains, several other tax proposals remain in a state of uncertainty, including:

• Canadian Entrepreneurs’ Incentive (CEI):
  This proposed measure would reduce the inclusion rate on up to $2 million of lifetime eligible capital gains for qualifying small business share dispositions.
• Expansion of the Capital Gains Rollover for Small Business Shares:
  Aimed at deferring gains on qualifying shares, this initiative would provide additional flexibility for business owners during liquidity events.
• Enhancements to the SR&ED Program:
  Proposed changes to the Scientific Research & Experimental Development (SR&ED) tax incentive program were designed to promote R&D investments.
• Accelerated Investment Incentive and Immediate Expensing:
  Proposed extensions to enhanced capital cost allowance (CCA) deductions, aimed at encouraging business investment in depreciable property, also remain in legislative limbo.

These measures, if passed, could provide meaningful benefits to business owners and investors. However, until there is greater clarity on the government’s legislative direction, strategic planning will remain essential to mitigate uncertainty.

Charitable Donation Deadline

On December 30, 2024, the federal government proposed extending the deadline for charitable donations eligible for a 2024 tax credit to February 28, 2025 (from the typical December 31 cut-off). While this measure was intended to mitigate the impact of recent mail disruptions, it remains without formal legislative backing following the prorogation of Parliament.

Given that no draft legislation has been introduced, the CRA has yet to issue guidance on whether it will administer the proposed extension. As such, taxpayers planning significant charitable donations should proceed with caution and remain prepared for further updates.

Conclusion

The prorogation of Parliament introduces further delays in key tax measures, complicating financial and tax planning for the upcoming year. As Parliament reconvenes in March 2025, we expect greater clarity on the government’s legislative priorities and potential retroactive tax changes.

In the meantime, proactive tax planning is critical. Whether you are evaluating capital gains, charitable contributions, or business investment strategies, ensuring your approach remains adaptable is essential to minimizing risks and optimizing outcomes in this uncertain environment