^News12 Months of Capital Gains Tax Uncertainty

Act 1: April 2024, the change

April 2024, Freeland announces a capital gains tax hike in the federal budget. It’s framed as targeting the wealthy, but in effect, it’s a retroactive tax on unrealized gains which will impact many Canadians. People make long term investment decisions factoring in taxation policy – to suddenly change the tax rate introduces additional uncertainty and risk for investment in Canada.

The Liberals claimed the increase would only impact the top 0.1% of tax filers – or around 40,000 individuals, and 12.7% (307,000) of corporations, each year – typical tax the rich political rhetoric. But this obscures the truth – many people including doctors, investors, and other small business owners, may only realize large capital gains once in their life – upon the sale of a business or investment they’ve worked on or saved towards for decades. C.D. Howe estimates 1.26 million Canadians would be impacted on a lifetime basis, half of whom earn less than $117,000 per year. 

The C.D. Howe report below in more detail:

Confusion follows. Many rush to sell or crystallize gains before the change to lock in the 50% inclusion rate. The government later admits it expected this “pull-forward” of tax revenue – meaning they purposefully gave 2 months between the time of announcement and the effective date, knowing that many would try to take advantage of the lower rates before the deadline whereby bringing the government more tax revenue to reduce the budget deficit.

Alongside the hike, other measures were introduced:

• A $250,000 annual exemption (starting Jan 1, 2026)
• The lifetime capital gains exemption increases to $1.25M (from $1.016M) effective June 25, 2024, covering small business shares and farming/fishing assets.
• A Canadian Entrepreneurs’ Incentive starts in 2025, reducing the inclusion rate to one-third on up to $2M in gains by 2029, with annual increases.

By late 2024 CRA is treating the hike as policy—updating forms and guidance—even though it’s not yet law. Most people are preparing to use the new inclusionary rate, but still there’s confusion from the delay of implementation.

Act 2: Jan 2025, the backtrack

The Liberals spiral in the polls, Trudeau resigns. Carney and Freeland, the top leadership contenders, pledge to reverse the tax increase. At the same time, the conservatives under Poilievre also confirm they would cancel the increase.

On Jan 31, the government defers the hike to Jan 1, 2026. CRA confirms pre-2026 gains will use the old 50% rate and extends the filing deadline to June 1, 2025 for people effected by the capital gains tax.

https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2025/update-cra-administration-proposed-capital-gains-taxation-changes.html

Act 3: March 2025, the cancellation

Carney wins the leadership in a landslide and on March 21, 2025, formally cancels the capital gains tax increase, demonstrating a renewed focus on economic growth in the face of global uncertainty.

https://www.pm.gc.ca/en/news/news-releases/2025/03/21/prime-minister-mark-carney-cancels-proposed-capital-gains-tax-increase

“Canada is a country of builders. Cancelling the hike in capital gains tax will catalyze investment across our communities and incentivize builders, innovators, and entrepreneurs to grow their businesses in Canada, creating more higher paying jobs. It’s time to build one Canadian economy – the strongest economy in the G7.”

The Rt. Hon. Mark Carney, Prime Minister of Canada

And the CRA follows with the following guidance:

On March 21, 2025, the Government of Canada announced that it:

– does not intend to proceed with a proposed increase to the capital gains inclusion rate; and
– will maintain the proposed increase in the Lifetime Capital Gains Exemption limit to $1,250,000 on the sale of small business shares and farming and fishing property, and introduce legislation affecting this change in Parliament in due course.

The Canada Revenue Agency (CRA) has already reverted to administering the currently enacted capital gains inclusion rate of one-half. Changes to CRA’s systems and the corresponding certification of tax software have been finalized for the reporting of capital dispositions therefore impacted returns can now be submitted and processed.

The CRA will grant relief in respect of late-filing penalties and arrears interest until June 2, 2025, for impacted T1 Individual filers and until May 1, 2025, for impacted T3 Trust filers to provide additional time for taxpayers reporting capital dispositions to meet their tax filing obligations. For the T3 Trust filers, relief extends to the Schedule 15 (T3SCH15 Beneficial Ownership Information of a Trust) as well.

Post-Script

April 28, 2025 – a strong Liberal minority is elected (169 seats). Unless they strike a deal with Conservatives, they’d need NDP or Bloc support, and the NDP has previously supported increasing the capital gains tax. But with 85% of voters backing parties that opposed the hike, another reversal would seem contrary to the wishes of the electorate.

While politicians should get credit for course-correcting, this saga greatly cost Canadians time, money, and uncertainty—when we should be focused on increasing productivity, strengthening our economy, and attracting investment.