Liberals delay capital gains tax hike until next year

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OTTAWA — The federal government is delaying a flagship policy from last year’s budget by pushing back the capital gains tax hike until Jan. 1, 2026.

The move likely means the hike will be reversed before it was ever implemented in Parliament. The Opposition Conservatives had pledged to scrap the tax hike, along with Liberal leadership contender Chrystia Freeland. Liberal contenders Mark Carney and Karina Gould both said they would review the policy.

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Finance Minister Dominic LeBlanc announced the delay Friday to provide “certainty to Canadians, whether they be individuals or business owners, as we quickly approach tax season.”

“Given the current context, our government felt that it was the responsible thing to do,” LeBlanc said in a written statement.

A government source told the National Post that the “current context” is more related to economic uncertainty caused by U.S. President Donald Trump’s tariff threats. The president renewed his intention to impose 25 per cent tariffs on Canadian imports on Thursday. The move could very well take effect on Saturday.

The government has denied any suggestion that the measure will be delayed because Parliament has not passed it and because the Liberals will face a confidence vote after prorogation, which ends March 24. However, our source also said the measure is “not 100 per cent ready.”

The tax increase, from half to two-thirds of the capital gains realized over $250,000 annually by individuals and on all capital gains realized by corporations, was implemented on June 25, 2024, although Parliament has yet to pass the change.

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The capital gains inclusion rate represents the portion of capital gains that are taxable.

Canadians who sell business or rental properties, for example, are affected by this measure.

The government has consistently maintained that it is about “tax fairness.” In addition, the government said it would add $19 billion in new revenue over five years. Ottawa said it would add about $7 billion for the year 2024-2025.

However, the policy has faced some backlash since it was announced in the last budget by then finance minister Chrystia Freeland, with entrepreneurs, business leaders and even doctors criticizing the move.

Meanwhile, the Canada Revenue Agency was collecting the higher rate of tax paid on capital gains.

“Taxes shouldn’t be levied without getting legislative approval, and the Minister of Finance is right to hit pause on the capital gains tax hike,” said Renaud Brossard, vice president of Communications at the Montreal Economic Institute. 

The Canada Revenue Agency said in a statement that it has reverted to administering the currently enacted capital gains inclusion rate of one-half. 

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“We are working as quickly as we can to adjust our systems and forms so that taxpayers who need to report capital dispositions can do so as early as possible,” said the CRA. 

The Canadian Medical Association said it was “pleased” by the feds’ move, but the impact on the medical profession remains “of deep concern”.

“With the government recognizing the adverse consequences of these measures, we call for a permanent repeal providing the long-term clarity that is required to stabilize our health workforce,” said CMA president Dr Joss Reimer. 

The government’s reversal on the issue comes two weeks after Conservative MPs wrote to the minister asking him to stop collecting the tax until after the next election.

“As Minister of Finance, you have a responsibility to stop this job-killing tax hike before it does even more damage to our economy,” wrote MPs Jasraj Singh Hallan and Adam Chambers.

“If you refuse to do this, then at the very least, you must direct the Canada Revenue Agency to stop collecting this tax until after an election,” they added.

Friday, both MPs noted that “despite backing down for now”, the Liberals are promising “to bring it back after the next election”.

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“This is a temporary reprieve for doctors, farmers, small businesses, entrepreneurs and home builders… This has created months of uncertainty and a tax-filing nightmare for working Canadians across our country,” they said in a statement. 

Since then, Freeland, who is running for the Liberal leadership, has announced she will cancel the hike because of the instability created by the American president.

National Post
atrepanier@postmedia.com

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