On January 31, the federal government announced that it will be deferring its capital gains tax increase until January 1, 2026. Previously, the tax increase covered any sales that happened on or after June 25, 2024, which would have required individuals to pay the higher tax this year.
The government does still plan to move forward with the tax. Under draft legislation voted in by the House of Commons on June 11, 2024, individuals will be required to pay 66.67 per cent of a sale in capital gains tax on any assets valued at $250,000 or more. This is an increase from the previous 50 per cent and will apply to any sales made on or after January 1, 2026.
The tax hike, however, has had its share of detractors, especially since it was never ratified into law through an official bill. On January 6, Prime Minister Justin Trudeau announced that he would be stepping down, proroguing Parliament until March 24, leaving the draft legislation in limbo.
Since then, the tax increase has been challenged in the Federal Court of Canada. On January 24, Debbie Vorsteveld, a resident of Mapleton, Ont., filed a court case against the Canada Revenue Agency (CRA), attempting to block an increased capital gains tax on the sale of her property. Last year, Debbie and her husband, Willem, sold a property that included a secondary home. The couple’s adult children had been renting the home. When the children moved out, the couple decided to sell.
Under the previous sale date of June 25, 2024, the Vorstevelds would have been required to pay 66.67 per cent of the sale of their property in capital gains on their taxes this year. However, under the deferred date of January 1, 2026, this may no longer apply. It’s unclear how this will affect the Vorsteveld’s court case.
The Canadian Taxpayers Federation (CTF), a non-profit that has spoken out against the capital gains tax increase in the past, is representing the Vorstevelds in their case. “The government has no legal right to enforce this tax hike because it has not received legislative approval by Parliament,” said Devin Drover, CTF’s general counsel, in a statement. “This tax grab violates the fundamental principle of no taxation without representation. That’s why we are asking the courts to put an immediate stop to this bureaucratic overreach.”
Through this case, the CTF is seeking to have the federal court block the CRA’s enforcement of the proposed tax increase.
If the tax increase isn’t blocked and is instead ratified, the C.D. Howe Institute, a Canadian think tank, estimates that it could shrink Canada’s GDP by nearly $90 billion and result in more than 400,000 fewer jobs.
Conservative Party Leader Pierre Poilievre has announced that he will reverse the capital gains tax increase if elected Prime Minister. And it has been reported that Chrystia Freeland, who’s running to replace Trudeau, would also scrap the tax increase if elected.
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