Gold’s Legal Minute*GLM*
By Allan Gold, lawyer Montreal and elder law attorney
Vol. 16, #1 – January 31, 2025
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BREAKING NEWS
OTTAWA, Canada, Jan. 30 (CBC ) – “The federal government confirmed on Friday that it’s reversing course on increases to the capital gains tax first announced in the last federal budget.
The government is delaying the effective date of the increase to Jan. 1, 2026. After initial reporting from CBC News on Thursday that federal Liberals were considering a pause on collecting the new taxes, Finance Minister Dominic LeBlanc confirmed as much in a post on X, formerly known as Twitter.” 1
Can you believe it? As for me, I can’t believe the whole thing!
OPENING
This is about the capital gains inclusion rate increase. Remember that?
On Tuesday April 16, 2024, Hon. Chrystia Freeland, Deputy Prime Minister and Minister of Finance, presented Budget 2024. “As of June 25, 2024, there was an augmentation with regard to capital gains. More precisely, the capital gain inclusion rate (CGIR) was increased from 50% to 66.67% for corporations and trusts. So was the CGIR for individuals with capital gains exceeding $250,000. (N.B. For capital gains less than $250,000, individuals can still access the 50% CGIR.)” 2 On April 26, 2024, Ministère des Finances du Québec released Information bulletin 2024-5. The province also raised its rate. The threat of higher taxes propelled action by Canadian taxpayers.
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“The Government of Canada sets the federal income tax rates for individuals. Each province and territory determines their own income tax rates.” — Government of Canada 3
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BUT THERE’S A TWIST
There was a caveat about this 2024 federal CGIR increase. It still had to be passed by Parliament. The general consensus was that such would happen by the end of the year.
QUEBEC IN FOCUS
When the Feds hiked the the capital gain inclusion rate (CGIR), so too Quebec. Quebec’s reason was ostensibly to bring the the federal and provincial tax regimes into consonance. Revenue Quebec described the change as follows:
“Currently, when an individual realizes a capital gain (or loss), 50% of the capital gain is taxable, while 50% of the capital loss is deductible.
Beginning June 25, 2024, the inclusion rate will increase from 50% to 66.7% for the portion of capital gains realized by an individual that exceeds $250,000. As a result, individuals will now have to take into account two inclusion rates if their capital gains exceed the $250,000 threshold….
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The 66.7% inclusion rate will also apply to corporations and trusts, but, generally speaking, the $250,000 threshold will not.” 4
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“An effective personal income tax system depends on taxpayers reporting and paying the right amount of tax at the right time. While a significant majority of Canadians do meet this standard, some do not. Whether intentional or not, this non-compliant behaviour can lead to a tax gap.” — Government of Canada 5
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IT STARTED TO GET CURIOUS
The federal CGIR increase was a definite maybe! But things started to unravel politically. On June 25, 2024, there was a parliamentary by-election. The Liberal party led by Justin Trudeau suffered a major defeat, losing a Toronto seat held for 30 years. On Sept. 4, 2024, Canada’s minority government became wobbly when NDP withdrew from its pact with Trudeau’s Liberals. On Sept. 17, 2024, the Liberal Party lost another by-election – this time a long held seat in Montreal. By Oct. 16, 2024, the caucus revolt escalated. In December, PM’s support from Liberal MPs just about flamed out. On Jan. 6, 2025, PM Justin Trudeau announced his resignation. The same day, Governor General Mary Simon granted PM‘s request to prorogue Parliament until March 24, 2025. The Liberal leadership race began. At this junction, many thought the CGIR increase could pass before the next election. Some believed the next government would pass it. As for taxpayers, they didn’t know which end was up. Then some Liberals shifted. One was Chrystia Freeland. On Jan. 22, 2025, she announced she’d scrap changes to the capital gains tax. It didn’t matter that she’d introduced them as finance minister. Now, that’s what I call a real ‘curve ball.’
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“Canada’s tax system is based on the self-assessment principle. This means that individuals complete an income tax and benefit return each year to report their annual income, claim all deductions or credits that apply to their situation and calculate whether they owe tax or will receive a refund.” — Government of Canada 6
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CITIZENS SAY, “HOLD ON NOW…NO!”
There’s more to Canada than the Ottawa capital bubble. On Main street, citizens follow the law. About the federal CGIR increase, Canadians found themselves in a gray zone. Ambiguity brings litigation. In late January 2025, two cases were brought.
Debbie Vorsteveld (Vorsteveldt) v. A.G. (Canada): This is a federal lawsuit – 24 January 2025. Application pursuant to ss. 18 and 18.1 of the Federal Courts Act under s. 38(a). Plaintiff wants the court to order the CRA not to take more steps to administer the Capital Gains Increase until it gets authorized by Parliament. Plaintiff asks for an expedited hearing. A key reason is the April 30, 2025 deadline for individual taxpayers to file and pay their 2024 taxes.
Pelco Holdings v. A.G. (Canada): This is a federal lawsuit – 24 January 2025. Application pursuant to ss. 18 and 18.1 of the Federal Courts Act). Plaintiff is seeking against the CRA an injunction: * Stopping administration of this Capital Gains Increase; *Directing CRA to administer the law only as it currently is.
As a lawyer Montreal and elder law attorney, I must ask – if these actions succeed in whole or in part, then what? Without a doubt, it’s complicated!
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“To maintain an efficient and effective tax administration system, it is important that personal income tax obligations be well understood by Canadians, and that the CRA be able to identify, monitor and address areas at risk of potential tax loss.” — Government of Canada 6
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CANADIANS WHO SOLD ASSETS
But what of Canadians, motivated by the impending CGIR change, who sold assets before they wished? Due to this ‘now you see it – now you don’t’ thing, some might feel victimized, having suffered damages. Wanting a pound of flesh, they might consider going after the tax man.
Quebec
The Feds may have bobbled the ball, but the province of Quebec did not. Should the feds recoil completely, Quebecers will be left with a capital gain inclusion rate (CGIR) provincially at 66.67%, but 50% federally. That’s a supreme headache. But more, the situation might approximate one where a rule or principle is unfairly applied to different people or groups. Quebec taxpayers might now see themselves as being singled out for this CGIR increase!
Surely, this isn’t the way to do things. Of course, it doesn’t feel right. In all equity, considering the circumstances, certain taxpayers might be entitled to redress.
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“We are a nation of laws, not of men” – John Adams
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CONCLUSION
This capital gains inclusion rate increase still hasn’t become law at the federal level. And now, the breaking news is the Feds are delaying the capital gains tax hike until Jan. 1, 2026. For me, this is a case of bad legislative process and ill-conceived tax administration. And Quebecers are left handicapped by a costlier rate. All this has opened up a can of worms! As a lawyer Montreal and elder law attorney, I say, “Be informed. Taking into account your particular circumstances, act as deemed appropriate!”
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NOTICE – CAUTION –DISCLAIMER. The material provided herein is of a general nature, strictly for informational purposes. The interpretation and analysis is not to be misapplied to a personal situation with a particular set of facts. Under no circumstances, are the herein suggestions and tips, intended to bring a reader to the point of acting or not acting, but instead, the hope is that they are to be a cause for pause and reflection. It is specifically declared that this content is not to be a replacement of, or a substitution for, legal or any other appropriate advice. To the contrary, for more information on these presents, related subjects or any other questions, it is the express recommendation of the author that everyone seek out and consult a qualified professional or competent adviser.
**© 2023– ALLAN GOLD – ALL RIGHTS RESERVED-TOUS LES DROITS SONT RÉSERVÉS Ed. 2023-10-31-001
* ©/TM 2006, 2008, 2018 Allan Gold, Practitioners’ Press Inc. – ALL RIGHTS RESERVED
1. https://www.cbc.ca/news/business/capital-gains-reversal-1.7446522
2 http://allanjgold.com/senior-canadians-quebecers-new-years-legal-alert-2024-advance-%e2%88%9a-2025-taxe-pens%e2%86%91on-rules-%e2%88%9a/
3. https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html
6. https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/tax-canada-a-conceptual-study/tax-assured-tax-gap-federal-personal-income-tax-system.html