The capital gains inclusion rate has been proposed to increase from 50% to 2/3, effective June 25, 2024, for corporations and most trusts as well as for the portion of capital gains realized in the year that exceeds $250,000 for individuals, graduated rate estates and qualified disability trusts. While the proposals to increase the capital gains inclusion rate are not yet law, these were included in a Notice of Ways and Means Motion (NWMM) that was tabled in the House of Commons on September 23, 2024. Consistent with established Parliamentary guidelines, CRA has stated that they will administer these proposals based on the NWMM. While CRA can administer the proposals, they do not have the authority to enforce them. Their position has not changed as a result of Parliament being prorogued until March 24, 2025.

What filing options do taxpayers have?

While CRA is administering based on the proposals, the tax system is a self-assessment system. As such, taxpayers can choose whether to file based on the proposals (2/3 inclusion rate) or the existing enacted legislation (50% inclusion rate). However, each option comes with risks and considerations.

– Filing on proposals (2/3 inclusion rate; in accordance with CRA forms and administrative practice)
– If the proposals are not ultimately enacted, taxpayers will likely have to amend their return at a later date to reflect the 50% inclusion rate. This approach will also generally result in taxpayers making payments that are subsequently refunded, losing access to that capital for a period of time.
– If the proposals pass, no further action would be required.
– Filing on existing enacted legislation (50% inclusion rate; not in accordance with CRA forms and administrative practice)
-If the proposals are not ultimately enacted, no further action would be required.

If the proposals pass, taxpayers will likely have to amend their return at a later date to reflect the 2/3 inclusion rate. This will result in taxpayers being liable for the tax bill, including being potentially subject to the non-deductible interest on the late tax payment. For corporations or trusts that are impacted by these changes and have a filing deadline on or before March 3, 2025, CRA indicated that relief from arrears interest and penalties will be provided. The interest relief will expire on March 3rd.

ACTION: If you, a corporation or a trust has realized capital gains since June 25, 2024, consideration should be provided as to your filing position.