Hawkins and Co.

Maybe Not a Capital Idea After All – Part 3?

Blog / 

Maybe Not a Capital Idea After All – Part 3?


May I vent for a minute?

OK, I felt I had to wait 48 hours between the news dropping, and writing this blog post. But I’m not sure I feel less irritated.

Depending how closely you follow this sort of thing, you may have seen Friday’s announcement that
the government has decided to defer the proposed increases in capital gains. These were proposed in the spring budget last year, and were originally scheduled to kick in on June 25, 2024. I wrote at length on this topic at the time, which if you really want, you can revisit here and here.

They’ve now been punted to January 1, 2026. Meaning – given that we’re going to have at least a change in Prime Minister and most likely a change in government as well – that’s a face-saving way of canceling them.

I do note that the government has kept in place a minor incremental benefit – as part of the package, they’d boosted a tax deduction for business owners who sell their business. Normally inflation-linked, the cap on the deductible amount had been increased from $1.1m to $1.25m. That remains in place. Well, whoop.

Why the irritation?

Frankly, this has been a disaster. Normally, when the government announces a tax measure – and specifically says that they have future-dated it to a particular day, so people can plan around it – you can assume that it’s going to happen. So, my professional friends and I spent a significant amount of time last April, May and June, helping clients carry out business transactions, so they closed before the tax rate jumped.

In many cases, closing deals earlier caused clients to accelerate the date on which they’d have to pay tax, to avoid paying more later. Amongst my clients, the worst case was an acceleration of about $350,000 of tax, which – absent planning for this change – they probably wouldn’t have had to pay until at least 2 years from now. They did this because the proposed change would have increased that tax from $350k to around $500k. Now, that exercise – and the costs of doing the deal, and all the professional costs incurred to plan it – were pointless. Not to mention the uncertainty that affected businesses’ abilities to plan investments.

Even worse… because these measures weren’t yet in law… the companies who provide tax software weren’t able to update it, as they didn’t know exactly how the measures would be written and thus how to code them. Thus, for example, I had a client who sold some investments in July – after the rate change allegedly happened. Their tax filing deadline passed, so we had to file using software that had the old rate. I had to tell them “Well, we’re filing with what we have. But be aware that when this becomes law, we’ll have to amend the return, and you’ll have to pay more tax. And CRA may charge you interest because you didn’t pay the right amount at the time. Or they may not. We don’t know”.

Actually feeling sorry for CRA here…

I have to admit more than a little sympathy for the hard-working people who administer our tax system. They were stuck: the government’s announced it, but it’s not actually legal yet. So… what position do they have to take?

Although the average citizen may not agree with me, I find CRA staff to be fairly professional in their behaviour. However, if you read this sentence from their release, I’m sure you can sense the author’s frustration as well (emphasis added by me):

Now that the government has communicated its intentions regarding the proposed capital gains inclusion rate, 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.”

If you’re one of my avid readers, you’ll note that this administration is now three for three, on the most recent tax reforms. In consecutive years, they have published and then walked back significant tax changes on:

  • Underused Housing Tax
  • New reporting requirements for Trusts (which affected lots more people than you may think)
  • And now, Capital Gains Tax.

Even worse, they’d typically done this after the rule-following citizens have incurred cost and effort to comply. As I’ve said before, this causes confusion, economic damage – and encourages people to not comply with the laws of the land. Bad news all round.

I’m torn here. I happen to like and respect our local (Liberal) MP. But… seriously. This is no way to run the tax system of a G7 country. Get it together, people. Especially given everything else we have going on internationally.

~Jules