Executive summary
Canadian businesses and individual taxpayers should consider a proactive approach to tax planning amid heightened uncertainty following Justin Trudeau’s resignation as Liberal Party leader and prime minister on Monday. The subsequent proroguing of Parliament could pose concerns as the tax policy implications of Trudeau’s departure remain undetermined.
On Monday, Justin Trudeau announced his resignation as Liberal Party leader and his intention to step down as Canada’s prime minister once a new party leader is selected.
In the interim, Parliament will be prorogued until March 24; once it reconvenes, an early election call and potential change in governing party may follow.
Canadian businesses and taxpayers should remain cautious as these developments usher in a new wave of economic and tax policy uncertainty.
How prorogation affects drafted tax laws
Prorogation is the formal ending of a parliamentary session that effectively suspends all parliamentary activities, including debates, committee work and progression of draft legislation. Any bill that was not passed before prorogation is effectively halted and must be reintroduced and debated anew when Parliament reconvenes.
Capital gains inclusion rate increase
The 2024 Canada federal budget proposed an increase to the capital gains inclusion rate (CGIR) from 50 per cent to 66.67 per cent, effective June 25, 2024. The legislation to enact this change was tabled in September, but did not become law before Parliament was prorogued, and therefore lapsed. However, the Canada Revenue Agency (CRA) will administer the change according to the tabled legislation, per standard practice.
If Parliament reconvenes and the proposed changes are reintroduced and passed, the new inclusion rate will become law. Otherwise, there is a possibility that the changes may be delayed or even abandoned. In this case, taxpayers who reported under the new inclusion rate in accordance with CRA guidance may need to amend impacted returns to receive refunds.
Other proposed legislative changes in the balance
The federal government proposed numerous tax changes during Trudeau’s tenure as PM, including the clean energy and electric vehicle investment tax credits, an overhaul of the scientific research and experimental development (SR&ED) program as well as new tariff and trade measures. Those proposals were affirmed in the fall economic statement, but their future is now uncertain.
If the Liberal Party maintains its current government once Parliament reconvenes, the proposed changes will likely proceed. Other parties may choose to continue, disregard or amend changes to fit their fiscal policy should they assume power following a federal election.
Where legislatively authorized, the CRA may offer administrative relief to deal with delayed amendments. This occurred in October when the CRA waived the requirement for bare trusts to file a 2024 tax return in lieu of the August 2024 stalled draft legislation.
Canadians should proceed with caution and continue to treat previously proposed tax legislation as applicable until the political landscape settles or the CRA pre-emptively waives requirements.
Looking ahead
There is still a large degree of uncertainty around the future of recently drafted Canadian tax policies. With a new Liberal Party leader facing tremendous political uncertainty as prime minister once Parliament resumes, Canadian companies should remain cautious of committing to material financial planning changes and continue to monitor political and tax policy developments.
This article was written by Benjamin Wilson, Cassandra Knapman, Farryn Cohn and originally appeared on 2025-01-08. Reprinted with permission from RSM Canada LLP.
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The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
