The prorogation of the Canadian parliament on 6 January 2025 has nullified legislative bills that had not already received royal assent, including one that increased the capital gains inclusion rate from one-half to two-thirds from 25 June 2024.
The Bill, affecting annual realised capital gains above CAD250,000 for individuals and all capital gains realised by corporations and most trusts, was introduced as part of Budget 2024. It included a fixed retrospective effective date of 25 June 2024, which was still in the text of the measure when it was introduced into parliament in late 2024.
It had not been enacted when Justin Trudeau resigned as prime minister on 6 January and announced parliament's prorogation until 24 March 2025. The ending of the parliamentary session nullifies legislative bills that have not received royal assent before prorogation. Such bills need to be reintroduced in the next session as though they had not been previously introduced. This includes the Income Tax Act, containing the capital gains tax measures.
These proposals may not be re-introduced after prorogation. However, if they are, and if enacted as currently proposed, they will have the same effective start date. Moreover, the Canada Revenue Agency (CRA) says it will continue to administer the proposals notwithstanding the prorogation, even though it cannot require taxpayers to file in accordance with the increase. Taxpayers may therefore not see an immediate reduction in their tax bill unless the federal government explicitly states its intention not to proceed with these proposals, says law firm Stikeman Elliott. It notes the CRA's long-standing practice of requesting taxpayers to file their taxes in the light of proposed legislation, unless the government signals that it does not intend to enact such proposals into law.
Nevertheless, the CRA acknowledges that it cannot require taxpayers to file tax returns in the light of the now-voided legislation, where that legislation is contrary to taxpayers' interests. If taxpayers do refuse to file their taxes in accordance with the proposed CGT changes, they are required to retroactively comply with the legislation once it receives royal assent. They may be obligated to pay interest and possibly even penalties on any shortfall.
If the proposals are not enacted, taxpayers who have filed according to the proposed amendments to the Act may have to apply for a refund from the CRA, since it is unlikely that it has the capacity to do so unilaterally, says Stikeman Elliott. There is extra complexity for those who entered into transactions to crystallize their capital gains before 25 June 2024, as they may need to consider whether to undo the tax effects.