Prime Minister Justin Trudeau recently announced his decision to step down as leader of the Liberal Party of Canada and Prime Minister. Additionally, he has prorogued Parliament, suspending all parliamentary activities until March 24. This development raises questions about the potential impact on fiscal policies, particularly regarding the inclusion rate for capital gains.

Capital Gains Inclusion Rate: Current Status and Implications

The capital gains inclusion rate represents the percentage of a capital gain that is taxable as income. Since 2001, this rate has been set at 50%, meaning half of a capital gain must be reported as taxable income.

In early 2024, a proposed bill sought to increase the inclusion rate to 66.67% for gains exceeding $250,000. In September, Deputy Prime Minister and Minister of Finance Chrystia Freeland tabled a Notice of Ways and Means Motion to introduce legislation supporting this change. However, the prorogation of Parliament prevented further debate on the matter.

Canada Revenue Agency (CRA) Position

Despite the lack of formal parliamentary approval, the CRA began applying the proposed changes as of June 25, 2024, based on the September Ways and Means Motion. This approach aligns with parliamentary conventions allowing tax measures to take effect upon their initial introduction by the government.

Impact on Property Owners Who Sold in 2024

The increased inclusion rate of 66.67% applies to capital gains realized after June 25, 2024, on amounts exceeding $250,000. Updated tax forms for individuals, trusts, and corporations will be available on the CRA website starting January 31, 2025.

What to Expect After March 24

Once Parliament resumes, several scenarios could unfold:

1. Passage of the Bill:
   The proposed changes would be formalized, and penalties could apply to taxpayers who did not adhere to the new inclusion rate.
2. Withdrawal of the Proposal:
   If the government decides to abandon the changes, the CRA would revert to the previous rate, issuing refunds for any excess amounts collected.
3. Government Defeat:
   A vote of non-confidence could lead to the fall of the government, resulting in the cancellation of the increased inclusion rate and the reimbursement of overpayments.

A Significant Issue for Quebec Property Owners

This measure has far-reaching implications for real estate investors, particularly Quebec’s “plex” owners, who are already feeling the strain of increased taxation.

I remain committed to monitoring this issue closely and advocating for policies that support real estate investors.