If you have been a long-time reader, you’re probably somewhat surprised to get a January newsletter from us. Most years we take January off, as we have found that nobody likes to think about their money this time of year.
Recent events have gotten me thinking about a topic I rarely discuss: politics. While I normally tell stories of people, today I’m going to tell the story of bureaucracy. I promise I will try to make it as interesting and exciting as possible!
As you are no doubt aware, Justin Trudeau has announced he is stepping down. At the same time, he announced that the Governor General has agreed to prorogue parliament. While an astute political move, as it buys the Liberal Party time to hold a leadership race, it does have a significant immediate impact on a number of legislative actions that directly impact your finances.
Prorogation is a political action that essentially “resets” parliament. All existing legislation that has not yet been granted Royal Assent (ie signed by the Governor General into law), are “entirely terminated” under parliamentary procedures. Yes, that’s right – everything not passed into law was killed instantly – even if it was about to be signed into law.
There are two major items that impact your planning that are now dead:
- The proposed changes to the taxation of Capital Gains, which was to have come into effect in June of 2024.
- The government’s announcement on December 30th that Charitable donations made prior to Feb 28th of 2025 may be carried back to 2024 for tax purposes.
In recent times, legislation which was deep into the process of being passed prior to prorogation has been “resurrected” by parliament – usually by unanimous consent of the new parliament session, or re introduced into the new session by the government (where it must go through all steps once again.
It seems unlikely, given that the opposition parties have all stated that they will vote no-confidence in the government, that the next session of parliament will last more than a few days. Given that budgetary items are by default a confidence vote, I’m having a hard time seeing how either of the above measures can or will come into effect. Of the two, I think the Charitable donation exemption is more likely, simply because it makes sense, as a way to accommodate issues raised by the Canada Post strike. I can certainly see the parties agreeing to fast-track this prior to any other vote.
Of course, the other automatic confidence item will be the throne speech, which is usually the first order of business of a new parliamentary session. The likelihood of anything making it past that point in parliament is currently close to non-existent!
Given that the parliament will not sit until March 24th, and Taxes are due in April, I don’t see anything happening in time for individual tax filing.
So what is going to happen?
I have no clue. This is pretty uncharted territory. CRA’s long standing policy is to begin administering changes once the measure is tabled in parliament, prior to it passing. This week, CRA announced that for the capital gains measures, they will proceed under the assumption of the measure being passed by parliament, unless told otherwise or the bill is voted down or not reintroduced, or if the government signals it is no longer going to proceed. Presumably, they would also cease administering the changes if the Government falls and an election is called.
Personally, while I understand CRA’s position, I am deeply uncomfortable with Canadians being taxed on legislation that seems virtually certain to fail. It feels “icky” that tax is being calculated without the law having been changed. These kinds of changes need time to implement, and in a majority government situation, the passing of a measure is virtually certain. In a minority, however, as we currently are, that is not the case. And, if the proposed Capital Gains changes don’t get retroactively put in place by a new government post-election, then it will be a mess to try and unwind tax that has already been paid.
What will be interesting to see is if the announcement on charitable donations is administered the same way. This measure was announced Dec 30th, as “an intent”, that was to be implemented in the new year once Parliament resumes. Given that Parliament will not be resuming, or at least not until March 24th….its just a press release. Given no legislation was, or now can be introduced, I don’t see how CRA can treat this the same.
There’s going to be some disappointed donors who delayed donations to January.
Something expensive this way comes…again!
We’ve had a number of clients do some planning and redemptions to get ahead of the new capital gains changes. They have run up accounting and financial planning costs, and in some cases, triggered gains earlier than they planned to stay at the lower (older) rate. Now, its possible, all that was for nothing.
Infuriatingly, this mimics what happened two years ago, when the government announced chances to the reporting of certain trusts. In the 2023 Budget, the government announced that many trusts that did not have to do tax report would be required to do so. However, the description of which trusts were impacted was very fuzzy, and overly broad. As a result, many trustees scrambled to file returns, only to find out a day or two before the deadline that they were not then required to do so. It was an incredible, awful, and expensive mess. It feels to me like history is repeating itself.
I hope that whatever government we end up with in the next few months takes a long hard look at the last three years, and works with CRA and the Department of Finance to rethink administrative policy, and the process of making changes to the Income Tax act. At this year’s CAGP Advanced Gift Planning summit, the head of CRA’s charities division informed us that CRA gets notice of proposed changes the same time the rest of us do – when its announced as part of the budget, or by the Minister of Finance. They are not aware, or allowed to provide feedback in advance. That was a real eye-opener for those of us in the room. I have a lot of sympathy for CRA – this has been aggravating for everyone, but they are on the receiving end of the ire of taxpayers as well as not being allowed to give input on the government’s proposed changes in advance. Clearly, better communication between departments is required. I hope this will be a lesson for everyone going forward.
I know I usually tell stories about people in my articles – but today, as promised the story is one of bureaucracy. Fortunately, this is the kind of story that we can treat as a “Choose-your-own-adventure” book. Whatever happens to the current parliament, please think about taking the time to let your current (or new!) MP know that parliament needs to rethink how it operates to help us all navigate the new year with less stress and confusion. If enough of us do this, hopefully change will come, and make the future much less stressful, expensive and aggravating for all of us, including the poor folks at CRA, whom I am sure are dreading the year to come.
Ryan