January 31, 2025 – The Canadian federal government has announced a deferral in the implementation of the proposed increase to the capital gains inclusion rate. This will defer the increase in inclusion rates from June 25, 2024 to January 1, 2026. This decision comes amidst ongoing legislative uncertainty.
Background
The 2024 federal budget introduced a significant increase in the capital gains inclusion rate, from one-half (50%) to two-thirds (approx. 67%). This proposed change included an exemption to allow individuals an annual $250,000 threshold that would continue to be taxed at the 50% inclusion rate.
Legislative Delays
Despite the initial announcement, the proposed changes faced delays in the legislative process. The prorogation of Parliament and the resignation of Prime Minister Justin Trudeau further complicated the situation. As a result, the proposed legislation did not receive Royal Assent, leaving the changes in a state of uncertainty.
Deferral Announcement
On January 31, 2025, the federal government announced the deferral of the capital gains tax changes to January 1, 2026. This decision was influenced by the need for further legislative review and the upcoming federal election, which could impact the final decision on the tax changes. The original proposed legislation, and the now deferred legislation has not yet been passed as formal law. As such it is still uncertain if the legislation will ever be passed.
Looking Ahead
As the federal government navigates the legislative process and prepares for the upcoming election, the future of the capital gains tax changes remains uncertain. Taxpayers and financial advisors will need to stay informed and adaptable as the situation evolves. Please consult with your advisors to further understanding the implications this may have for you.
Disclaimer: This memorandum is provided solely for informational purposes and does not constitute legal, accounting, or tax advice. The information contained herein should not be relied upon as definitive guidance. Recipients are advised to consult with their legal, accounting, or tax advisors to understand how the information applies to their specific circumstances and to ensure compliance with applicable laws and regulations.