The Department of Finance recently announced that the increase to the capital gains inclusion rate has been deferred to January 1, 2026. This announcement provides welcome relief for many taxpayers who faced uncertainty about whether to file tax returns using the new inclusion rate. It also alleviated significant administrative challenges for the Canada Revenue Agency (CRA), which was preparing to publish new tax forms.
The CRA was in a difficult position: administer the proposed law or follow existing law and require thousands of taxpayers to amend their tax returns should the increase materialize.
The uncertainty over the capital gains rate increase underscores a longstanding problem - there is no established timeline for enacting legislation. While the CRA has historically managed proposed changes reasonably well, the process is not without challenges. Legislation can get delayed because of intervening events (e.g., elections). Important tax changes might be introduced late in the year with retroactive effect. The federal government might require votes from opposition parties in a minority Parliament. The government might also reverse tax changes as a result of pressure from stakeholders. All these situations have surfaced historically, causing uncertainty for taxpayers and even incentivizing opportunistic behavior.
A search through Globe and Mail archives identified a few instances:
In 1967, the Minister of Finance proposed a 5% surtax on individuals with basic tax of $100 or more, effective January 1, 1968. Tax withholding tables were updated for employers which included the new surtax. However, the implementing legislation was defeated February 19, 1968.
The 1972 federal budget proposed increasing the customs duty on British knitted fabrics from 18% to 25% starting May 9, 1972. However, the government abandoned the proposal on September 1, 1972, since the budget had not yet been passed. The extra taxes collected were held in trust pending further direction from the government.
In March 1973, the tax administrator held up refunds for 34,000 individuals because the 1972 and 1973 budgets had not been passed. The passage of the 1972 budget was delayed by an election held on October 30, 1972.
In June 1979, businesses were left wondering if the newly elected Conservative government would restrict the small business deduction as proposed by the Liberals in November 1978 and effective for taxation years beginning after 1978.
The 1989 federal budget proposed increasing sales and excise levies on manufactured tobacco by $4 per carton. Tobacco companies immediately raised prices to account for the tax increase. However, they chose to invest the money on a short-term basis rather than remit it until the tax increase was passed by Parliament. This practice negatively impacted government revenue, as confirmed by finance officials.
Originally posted on LinkedIn on February 3, 2025
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Ryan Minor
Chartered Professional Accountants of Canada
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