A Kafkaesque tax quagmire: why we need to defer or abandon the failed capital gains changes

Tax partner John Tobin has co-authored a piece with the C.D. Howe Institute that suggested the proposed increase to the capital gain inclusion rate has created a “nightmarish scenario for taxpayers.”

This piece has been picked up by several news outlets, including the Globe and Mail. A small excerpt from the piece is below.

• The federal government’s proposed increase to the capital gains inclusion rate has created a nightmarish scenario for taxpayers.
• The Canada Revenue Agency has been administering the changes since June 25, 2024, as though the proposal is law, even though the government failed to enact the proposal into legislation before Parliament was prorogued.
• With the likelihood of a spring election, taxpayers face a choice: pay at the higher rate now and struggle to recoup overpayments if the measure dies, or follow existing law and risk interest and penalties should it eventually pass.
• The proposed rules affect not only individuals with large gains but also trusts, corporations, and non-residents, creating complex reporting requirements under an uncertain legal framework. Software updates, tax slips, and filing instructions are already being tailored to legislation that does not yet exist. This administrative limbo erodes public confidence in the tax system, as taxpayers and tax preparers struggle with a rule that might never be legally enacted.
• The government should abandon the proposed increase. If it will not, it should delay the effective date to at least January 1, 2025, to spare taxpayers the gamble of filing 2024 returns under a measure that may never pass.
• This deferral would reduce needless compliance costs. If the government insists on retroactive application, the CRA should provide relief by waiving interest and penalties for taxpayers who file under current rules. Canadians deserve a predictable tax system, not one that forces them to hedge bets on unpassed legislation.

You can read the full piece on the C.D. Howe website.