Taxpayers’ Federation Launches Lawsuit Against Capital Gains Tax Increase

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

The Canadian Taxpayers Federation (CTF) has launched a legal challenge against the Canada Revenue Agency (CRA) for enforcing the capital gains tax increase without it being approved by Parliament.

“The capital gains tax hike blows a hole through a fundamental principle of Canada’s democracy, while also blowing a hole in Canada’s economy,” said CTF Federal Director Franco Terrazzano at a press conference in Ottawa on Jan. 27.

Terrazzano noted Parliament has not passed the legislation cementing into law the raising of the capital gains inclusion rate. The inclusion rate was raised to two-thirds from one-half on capital gains above $250,000 realized annually by individuals, and on all capital gains realized by corporations and trusts. The CRA has said it will administer the tax at the higher rate, even though the legislation failed to receive approval in the House of Commons after Prime Minister Justin Trudeau prorogued Parliament on Jan. 6.

The CTF said in a release it is representing Debbie Vorsteveld, a resident of Mapleton, Ont., who sold a property last year that included a secondary home. The Vorsteveld family had rented the secondary home to their adult children, but had to sell it when their kids were ready to move on, and were told by the CRA that they must pay higher capital gains taxes under the proposed capital gains increase or face financial penalties.

The CTF said it’s seeking “urgent relief” from the Federal Court “to block the CRA’s enforcement of the proposed tax increase.” In its application, the CTF argues the tax increase violates the rule of law and is unconstitutional.

The Liberal government has said the increase aimed to make the country’s tax system “fairer” and would raise $19.4 billion over five years to pay for investments such as building new homes and increasing affordability. The government also noted it was maintaining existing capital gains exemptions to “ensure most middle-class Canadians and entrepreneurs do not pay more tax,” while adding a new Canadian Entrepreneurs’ initiative to reduce taxes for entrepreneurs.

According to Terrazzano, the capital gains tax hike will drag down Canada’s economy and punish those who have created businesses, invested in properties, or saved for their retirement. He cited a report from the C.D. Howe Institute that found the tax increase would decrease Canada’s GDP by almost $90 billion and real per-capita GDP by 3 percent.

“Canadians should not have to pay for this government’s mistake. Canadians should not have to pay for a tax increase that was never passed by Parliament and likely never will. The Trudeau government should tell the CRA to not enforce the capital gains tax hike,” he said.

In a statement to The Epoch Times, the CRA said they will continue administering the proposed capital gains legislation based on a notice of ways and means motion the government tabled on Sept. 23, 2024. CRA said while the proposed changes are subject to the approval of Parliament, it is standard practice for the CRA to administer changes based on proposals included in the ways and means Motion.

“This approach provides consistency and fairness in the treatment of all taxpayers,” the CRA said, adding that it will cease administering the measure if the government advises it will no longer proceed with it when Parliament resumes in March.

Since Prime Minister Justin Trudeau announced he would be resigning once the Liberal Party had chosen a new leader, several leadership candidates have come out against the capital gains tax increase. Former Deputy Prime Minister and Minister of Finance Chrystia Freeland said on Jan. 23 that she had changed her previous stance due to the election of U.S. President Donald Trump, which she said necessitated Canada changing its economic approach to attract more foreign investment.

The same day, former Government House Leader Karina Gould told reporters the Liberal government had not gotten the capital gains tax increase “right” in 2024, as many Canadians in the tech sector had been negatively impacted by it. She said Ottawa needed to do more to “encourage growth and have more entrepreneurship,” and the tax increase was working against this.

The Conservative Party has also vowed to scrap the capital gains tax increase if they form government, with leader Pierre Poilievre saying the threat of 25 percent tariffs by Trump has made the tax policy “outright insanity.”