The Canadian Revenue Agency (CRA) should immediately make clear to tax filers whether they need to pay 2024 taxes at rates contained in a bill that has now died without being passed in Parliament, a tax accountant has told BIV.
The Liberal government last year proposed to change the law to require individuals who generated more than $250,000 in capital gains in a tax year to pay tax on 66 per cent of each dollar above that threshold. Previously, the federal capital gains tax applied to only 50 per cent of those dollars. The capital gains tax rate on the first $250,000 in capital gains was not set to change.
That Liberals planned for that controversial change to take effect for all gains realized starting last year on June 25. Business advocates opposed the change, saying that it discouraged investments in Canada.
For companies, the capital gains tax change was that the inclusion rate for capital gains would be 66 per cent starting with the first dollar. Before June 25, companies were only required to pay tax on 50 per cent of each dollar in capital gains.
The legislation that would have changed Canadian capital gains tax law has now died without being passed in Parliament because Prime Minister Justin Trudeau this morning prorogued Parliament, and he said he would resign as Liberal leader and prime minister after his party selects a new leader.
The CRA had been expected to collect capital gains taxes at the higher rate even though the bill had not yet passed through Parliament or been granted Royal assent. It is unclear whether the prorogation of Parliament will change that expectation, Manning Elliott's Vancouver managing partner Alden Aumann told BIV.
The tax change had been tabled as a ways and means motion, which provides the CRA the authority to collect the taxes even if the bill has not passed.
Clarity from the CRA needs to come soon because companies need to file corporate taxes within six months of their fiscal year ending. Companies that had fiscal years that ended last July, therefore, need to file their taxes for that year by the end of January, Aumann said.
"If you wanted to ignore the corporate part, you might even look at what we call the administrative reporting, like T5s and T3s - those are due in February and March," he said.
Big picture, this could mean that CRA will expect individuals to file taxes as though the capital gains tax legislation passed and then to have money refunded if there are overpayments as a result of the bill dying on the order paper.
"It takes some years sometimes get a refiling reassessed," Aumann said.
"You're never going to get that done within a year for most of these. People, in the meantime, are tying up their capital with the CRA if they have to pay the tax and wait for it get refunded. And guess what: CRA may pay you some interest, but it would be at a very, very low rate. So the opportunity cost of the cash that this would tie up under their scenario is significant for some people. That affects the common taxpayer, not just big corporations."
BIV today emailed and left a voicemail with the CRA but has not yet received an answer to what the tax-collecting agency expects from tax payers.
The government's botched attempt to change Canadian tax law likely changed many individuals' and businesses' actions on liquidating assets.
BIV reported in July that there were many situations where wealthy individuals were selling parts of their portfolios or real estate ahead of the June 25 deadline in order to have capital gains taxed at the previous rate.
In some cases, those real estate sales may have been done for lower prices because of the sellers' desire to sell quickly.
The Robson Centreplace building at 818 Thurlow Street, valued at $105.3 million, was one site that sold in the lead-up to the June 25 deadline.
"It's going to be very upsetting for those investors who sold reluctantly," Goodman Commercial Inc. principal Mark Goodman told BIV this afternoon.
He said he had spoken with his accountant and that the accountant agreed with Aumann that it is not clear whether the CRA would require tax payers to pay taxes based on the law that is now dead, and then get refunds.
"Many may feel that they sold real estate under market value in order to have a quick, expeditious sale and to be net positive given the tax savings at the end of the day," he said.
"If that's not the case, I think they're going to be very upset with the government."
