Canadian Chamber of Commerce Calls for Clarity on Government’s Capital Gains Tax

Canadian Revenue Agency (CRA) national headquarters in Ottawa on June 28, 2024. The Canadian Press/Sean Kilpatrick

The Canadian Chamber of Commerce is urging Ottawa to provide certainty to Canadians about the capital gains tax and to instruct the tax agency to refrain from implementing any changes until after an election has taken place.

The tax was part of a ways and means motion introduced by the Liberal government. It passed in the House of Commons last June. A ways and means motion proposes that a particular financial measure be considered by the House.

The motion requires Canadian companies to pay taxes on 66.7 percent of their realized capital gains, up from the previous 50 percent. Individuals will be required to pay tax on 50 percent of the first $250,000 of capital gains they earn, and 66.7 percent on any monies above that.

Ottawa’s finance department has said the Canada Revenue Agency (CRA) will move ahead with plans to collect the tax, despite the fact that Parliament has yet to enact legislation and is currently prorogued until March 24.

However, Chamber senior director Jessica Brandon-Jepp is describing the tax as a source of confusion for businesses.

”With the recent prorogation of Parliament, the capital gains increase remains an acute concern to Canadians and businesses, who remain unsure how to structure their affairs and whether this measure will be enforced in the future,” she said in a Jan. 9 statement.

Brandon-Jepp said it was inappropriate and possibly unprecedented for the government to change a tax based on a ways and means motion. She said it was particularly problematic because the Liberal government will likely face a non-confidence vote shortly after parliament resumes.

The Conservatives have already brought three non-confidence motions forward, which failed for lack of support. However, the federal NDP has vowed to bring a non-confidence motion against the government when session resumes. The Bloc has said it will support a non-confidence motion.

“This increased uncertainty compounds the impact of this tax increase in driving away new investment and entrepreneurship from our country at the exact moment we need it most,” Brandon-Jepp wrote.

She said that given the likelihood the tax increase may not be enacted in 2025, the government should direct the CRA not to enforce the measure until after an election.

The Canadian Chamber of Commerce represents more than 400 chambers and boards of trade in Canada, and more than 200,000 businesses from all sectors and every part of the country, the statement said.

‘Directly Impacted’

When the capital gains tax was introduced, then-Finance Minister Chrystia Freeland said it would bring “fairness” to the country’s tax system. She said the current system meant some well-off Canadians were paying less tax than those earning a smaller income.

The changes to the tax were expected to bring in $19.4 billion over the next five years. The Liberals said it would only impact the wealthiest 0.13 percent of Canadians.

Canada’s finance department said parliamentary convention dictates tax proposals are effective as soon as the government tables a ways and means motion notice.

It says the CRA will stop administering the policy if Parliament resumes and the government indicates it will not proceed with the capital gains tax changes.

This is not the first time the Chamber has expressed concern about the changes. A May 2024 letter sent to Freeland said the group was “alarmed” about the tax increase.

”While this proposed measure attempts to provide a solution to Canada’s deficit, it is shortsighted and complex, and it sows division at a time when we need a Team Canada approach to economic growth,” it said.

The letter was signed by several chamber members and business leaders, including Chamber CEO and president Perrin Beatty, Canadian Federation of Businesses president and CEO Dan Kelly, Canadian Manufactures and Exporters president and CEO Dennis A. Darby.

“Our country must end its reliance on tax-and-spend politics, which is undermining innovation and growth to the detriment of both today’s Canadians and future generations,” they wrote in the letter.

It also said Ottawa’s claim that the increase will only affect a small number of Canadians is “misleading”

“In fact, one in five Canadian companies are likely to be directly impacted over the next 10 years and the effects of this tax hike will be borne by all Canadians, directly or indirectly,” the letter said.

The business leaders say that the tax changes will diminish the creation of new companies and jobs, reduce the number of doctors, cut into pension returns, and hurt retiring Canadians who were going to live on the proceeds of sales of small businesses or cottages.

“The effects will ripple from coast to coast,” they said.

The Canadian Press and Matthew Horwood contributed to this report.