Ottawa delays capital gains tax hike until next year

More than six months after it was supposed to take effect, the federal government is now delaying its planned tax hike on capital gains until next year, Finance Minister Dominic LeBlanc announced Friday.

 

The change means the tax hike on investment profits over $250,000 — and the billions in additional revenue the government forecast to rake in with the increase — won’t start until Jan. 1, 2026, LeBlanc said in a statement.

 

Originally, the increase was supposed to kick in on June 25, 2024, but the Liberal minority government did not pass legislation to enact the change before Prime Minister Justin Trudeau prorogued Parliament when he announced his intention to resign earlier this month.

 

In his statement, LeBlanc said the government will introduce legislation to increase the capital gains tax, as well as accompanying changes to broaden tax breaks for businesses, “in due course.”

Parliament is not scheduled to resume until March 24, and all three official opposition parties have said they want to topple the government and trigger an election.

 

The Canada Revenue Agency, meanwhile, said in a statement Friday that it would refund corporations that have already paid a higher capital gains tax and will defer late-filing penalties as it adjusts its system to reflect the delayed changes.

 

On Friday, the Canadian Federation of Independent Business was among the groups that welcomed the delay in the changes that were being administered before legislation enacted the tax increase.

 

Conservative MP Jasraj Singh Hallan, the party’s finance critic, said in a statement Friday that the delay is only a “temporary reprieve” after months of uncertainty over the capital gains tax changes. He vowed the Conservatives would abandon the tax increase if they win the next federal election.

 

Announced in last year’s budget, the increase was supposed to expand the amount of investment profits subject to income tax from 50 per cent to 66.7 per cent. For individuals, the increase only affected profits on the sale of investments that exceeded $250,000. Businesses and investments from portfolios housed inside corporations — something used by some professionals, like doctors — would get the higher tax rate on all of their capital gains.

 

At the time, then-finance minister Chrystia Freeland pledged the increase would only impact the richest Canadians and a “small minority” of about 12 per cent of the country’s registered corporations. At the same time, Freeland’s budget predicted the changes would bring $19 billion into federal coffers over five years, and billions more for provincial governments.

 

The government also promised to address concerns from startups who bank on profits from the sales of new businesses. They would increase the existing “lifetime capital gains exemption” from $1 million to $1.25 million, meaning no capital gains tax would apply to that portion of a person’s profits. The government also promised a new measure called the “Canadian Entrepreneurs’ Incentive.” This would drop the rate of capital gains inclusion for the sale of an eligible business to one-third for the first $2 million in profits earned.

But the changes sparked the ire of business groups who argued the higher tax on investment profits would hamper economic growth. The Canadian Medical Association also denounced the changes, warning they would make it harder to recruit physicians across the country.

 

Now running for the Liberal leadership to replace Trudeau as prime minister, Freeland has said she would abandon the capital gains tax increase in light of U.S. President Donald Trump’s efforts to wrench business investments away from other countries.

 

Jessica Brandon-Jepp of the Canadian Chamber of Commerce said the capital gains tax increase would have “harmful impacts” on the economy as Canada faces the threat of tariffs from Trump.

 

“Whether you’re a start-up entrepreneur, a family business or a community doctor, Canada’s investment and business environment is better without this increased tax,” she said in a statement.

 

 

 

 

This article was first reported by The Star