New Liberal leader and Prime Minister-designate Mark Carney has effectively put a nail in the coffin of the controversial capital gains tax rate changes, following nearly a year of backlash from business and tech leaders.
Last night, the Liberal Party of Canada (LPC) elected Carney as its new leader with over 85 percent of the vote. In his acceptance speech, the former Bank of Canada governor pledged to scrap the party’s capital gains tax rate changes announced in last year’s budget. He also said he would immediately eliminate the consumer carbon tax.
The leaders of Canada’s governing and official opposition political parties have now both pledged to scrap the capital gains tax changes.
“I am a pragmatist above all,” Carney said. “So, when I see that something’s not working, I will change it … We will stop the hike in the capital gains tax because we think builders should be incentivized for taking risks and rewarded when they succeed.”
Carney handily beat former Finance Minister Chrystia Freeland, who won only eight percent of the Liberal leadership vote. Former House Leader Karina Gould trailed at 3.2 percent, followed by former member of parliament and Montréal-area businessman Frank Baylis, at three percent.
Last month, Freeland indicated she would reverse course on the capital gains tax rate changes if elected, despite having brought forth the proposal as finance minister. Gould also said she would revise the program and didn’t believe it had been implemented in the right way.
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The leaders of Canada’s governing and official opposition political parties have now both pledged to scrap the capital gains tax changes—effectively ensuring it will never see the light of day. Conservative Leader Pierre Poilievre, a vocal critic of the proposal, said in January he would reverse it if elected.
When the policy was announced as part of Budget 2024, it struck a nerve with many Canadian tech leaders, who argued it would discourage entrepreneurship and stifle innovation. Over 1,400 members of the tech ecosystem signed an open letter from the Council of Canadian Innovators (CCI) calling on the feds to scrap the proposal.
CCI President Benjamin Bergen welcomed Carney’s pledge to scrap the tax changes, but cautioned that it should serve as a “teachable moment” for the federal government.
“We can’t have government shooting our innovators in the foot,” Bergen said. “I hope what they take away from all of this is that we figure out how to collaborate much more collectively between industry leaders and government leaders so that we’re putting in place the right policies to help these companies scale and grow.”
The federal government proposed raising the inclusion rate on capital gains from 50 percent to 66 percent last April. It also outlined plans to increase the lifetime capital gains exemption from just over $1 million to $1.25 million and launch a new Canadian Entrepreneurs’ Incentive, which would have reduced the inclusion rate to 33.3 percent on up to $2 million in capital gains.
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The changes were originally set to take effect in June 2024, but were curiously absent from the Liberals’ motion to introduce the budget to the House of Commons.
The government never made the policy into law. In January, the federal government delayed the implementation of the capital gains inclusion rate increase to the beginning of 2026.
With Parliament prorogued, the Canada Revenue Agency (CRA) had been moving forward under the assumption that the changes would come into effect and already collecting revenue from the increased tax rate. Tax law firm Thorsteinssons LLP and the Canadian Taxpayers Federation filed separate legal challenges against the CRA’s decision to enforce the policy despite the lack of legislation.
Carney is now set to take over from Justin Trudeau as Prime Minister this week, following Trudeau’s pledge to step down once a new Liberal was selected. The Globe and Mail reported that the new leader is expected to call a spring election.
Feature image courtesy Mark Carney via LinkedIn.