The federal government is deferring the controversial capital gains tax rate changes announced in last year’s budget from June 25, 2024 to Jan. 1, 2026.
Announced by Finance Minister Dominic LeBlanc this morning, the new effective date likely places responsibility for legislating the tax changes on the next formed government. NDP leader Jagmeet Singh has committed to kicking off an early election in March, following the end of the current Parliamentary prorogation. The federal government is required to dissolve and start a no-longer-than 51-day election cycle on Oct. 20, 2025.
“Providing real certainty to Canadians would be to admit once and for all that this was a mistake and move on.”
Ben Bergen
CCI
In a statement, LeBlanc said the deferral will provide certainty to individual Canadians and business owners heading into tax season.
“Given the current context, our government felt that it was the responsible thing to do,” LeBlanc said. “I look forward to further conversations with Canadians on how we can ensure Canada’s fiscal policy encourages robust and sustained economic activity in every region of our country.”
The statement from the Department of Finance continued to defend the unresolved tax changes, reiterating that the policy would increase the lifetime capital gains exemption to $1.25 million, while the new Canadian entrepreneurs’ incentive would reduce the inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains.
In each case, the Department of Finance said Canadians with eligible capital gains below $2.25 million, and entrepreneurs, would “pay less tax and be better off.”
In a statement to BetaKit, Council of Canadian Innovators (CCI) president Ben Bergen agreed the decision would provide certainty to Canadians, but said the government is still leaving entrepreneurs and investors in limbo by refusing to admit they were wrong.
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“CCI has been explaining that this tax hike is bad policy, and harms Canada’s innovation economy since the day the budget was announced, and thousands of innovators signed our open letter calling on the government to reverse course,” Bergen said. “Providing real certainty to Canadians would be to admit once and for all that this was a mistake and move on.”
Kim Furlong, CEO of the Canadian Venture Capital and Private Equity Association (CVCA), echoed Bergen, saying the deferral is welcome but doesn’t address the underlying issue of prolonged uncertainty.
“Over the short term, this will help ease some cashflow and administrative pressure on Canada’s growth engines,” Furlong said in a LinkedIn post. “Extending the timeline only prolongs hesitation at a time when Canada should be strengthening our investment climate.”
Many Canadian tech leaders shared frustration with the “wasted time” on the issue, including Borrowell CEO Andrew Graham, CleanTech North managing director Bryan Watson, and Maverix Private Equity founder John Ruffolo.
“Countless hours have already been spent (not to mention accounting software being updated for it I am sure!) dealing with this travesty of execution,” Watson said. “On top of that wasted time, I know of many financings that were slowed or shuttered because of the uncertainty around this topic.”
The Government of Canada proposed raising the inclusion rate on capital gains—which include profits from the sale of assets like stock or property—from one-half to two-thirds last April. The changes were originally set to take effect in June 2024, but were notably absent from the Liberals’ motion to introduce the budget to the House of Commons.
The proposed changes drew significant criticism from Canadian tech leaders, exacerbated by the ongoing failure to actually make the policy into law. With Parliament prorogued, the Canada Revenue Agency (CRA) had been moving forward under the assumption that the changes would come into effect. Earlier this week, tax law firm Thorsteinssons LLP and the Canadian Taxpayers Federation filed separate legal challenges challenging the CRA’s decision to continue enforcing the policy despite the lack of legislation.
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Dan Kelly, president of the Canadian Federation of Independent Business, who also actively campaigned against the capital gains tax rate changes, said in a statement that his organization will lobby to enact legislation that would allow the tax authority no more than six months to pass legislation, and make Parliamentary prorogation automatically return tax rates to previous levels if legislation is not passed, similar to the United Kingdom.
“This experience highlights the need for Canada to introduce rules guiding provisional authority for the Canada Revenue Agency to collect taxes,” he said.
The policy punt follows key federal leaders signalling this month that they would review or abandon the policy. This includes Liberal leadership hopefuls such as former Finance Minister Chrystia Freeland, who initially championed the policy, former Bank of Canada governor Mark Carney, and former House Leader Karina Gould. The Liberal Party’s pivot followed Conservative Party leader Pierre Poilievre definitively announcing he would reverse the changes earlier this month.
In a statement from Conservative shadow ministers Jasraj Singh Hallan (finance), and Adam Chambers (revenue), the Opposition decried the “chaos” it says was created by the CRA collecting the tax without passing legislation and while Parliament was prorogued.
“This has created months of uncertainty and a tax-filing nightmare for working Canadians across our country,” the statement reads. “Conservatives have consistently warned that this tax hike would be catastrophic for the Liberals’ already weak and failing economy.”
Feature image courtesy The Correctional Service of Canada via X.