Tax Insights: Parliament has been prorogued ─ Status of outstanding tax proposals

In brief

What happened?

On January 6, 2025, Prime Minister Justin Trudeau announced that the Governor General has agreed to his request to prorogue Parliament until March 24, 2025, and that he will resign as Prime Minister once the Liberal party selects a new leader. The prorogation of Parliament effectively stops all parliamentary business (including committee meetings) and all unfinished business, including legislative bills that have not yet received royal assent, dies on the order paper. To be passed, these government bills (other than private members’ bills) must be reintroduced as new bills (or can be reinstated at the stages they reached previously, if the House of Commons makes a decision to this effect) in the next parliamentary session. The earliest start of the next parliamentary session is March 24, 2025.

Why is it relevant?

Although there were no tax legislative bills that died on the order paper when Parliament was prorogued, there are many significant proposed tax measures that have been announced, some of which were released as draft legislative proposals and others in a Notice of Ways and Means Motion (NWMM). Now those proposed tax measures cannot be introduced in a government bill until the next parliamentary session.

Canada must hold a federal election by October 20, 2025. However, an election may be called before that date, since opposition parties have indicated that they have lost confidence with the current minority government. If a new government is elected (or the current government takes a different policy direction), it is unclear whether the outstanding tax proposals will be enacted by Parliament.

This uncertainty will affect all taxpayers, because they will not know whether they should be using or taking into account existing or proposed tax rules when filing their tax returns, making required tax payments, implementing transactions, or making investments that could generate investment tax credits (ITCs). Many of the tax proposals could affect taxation years for which tax returns will need to be filed before the related legislation is available, let alone enacted.

Actions to consider

Taxpayers should stay abreast of current developments and review the implications of filing using existing or proposed tax rules.

In detail

Canada Revenue Agency’s (CRA’s) administrative position on outstanding tax proposals

Parliamentary convention dictates that tax proposals are effective as soon as the government tables an NWMM in the House of Commons. Accordingly, the CRA has indicated that it will administer any tax proposals that have been included in an NWMM (that contains the detailed legislation to become a legislative bill) and has been tabled in Parliament; it will do so whether or not Parliament is in session.

If the outstanding tax proposals are not included in a legislative bill that passes the House of Commons (and receives royal assent) and the current or new government signals its intent to not proceed with the proposed measures, the CRA has indicated that it will cease to administer these proposals and will support taxpayers to ensure any corrective reassessments of implicated returns are processed.

It is less clear what the CRA’s position is for proposed tax measures that have been released only as draft legislative proposals. Although taxpayers are generally allowed to file their tax returns based on existing or proposed tax law, the CRA is not obligated to assess based on proposed tax law. Depending on whether the proposals are enacted in the future, taxpayers may be required to adjust their returns accordingly. It could also be difficult to file (or for the CRA to assess) based on proposed law, because required forms may not be available and the CRA may not have updated their systems to assess accordingly.

Depending on the tax proposal, and whether it eventually becomes enacted, filing under either existing or proposed law could create additional tax liabilities, arrears interest and interest penalties and potentially higher instalment payments in the following taxation year. It is not always clear whether the CRA will provide relief in those situations.  

Outstanding tax proposals

Significant tax proposals that have been announced, but have not yet been enacted, are discussed below. Some of these proposals have been released as draft legislation (or tabled as an NWMM); however, none were in legislative bills that died on the order paper when Parliament was prorogued.  

Capital gains inclusion rate and lifetime capital gains exemption (LCGE) proposals

On September 23, 2024, an NWMM¹ was brought before Parliament to introduce a bill that would implement the 2024 federal budget proposals that (in addition to other related effects) increase:

• the capital gains inclusion rate from ½ to ⅔, for capital gains realized after June 24, 2024
• the LCGE from $1,016,836 to $1,250,000 for dispositions resulting from eligible capital gains occurring after June 24, 2024

No legislative bill was introduced before Parliament was prorogued. However, as discussed above, the CRA intends to:

• administer the changes to the capital gains rules effective June 25, 2024, based on the NWMM
• update the relevant CRA forms for individuals, trusts and corporations and make them available by January 31, 2025
• provide arrears interest and penalty relief, if applicable, for corporations and trusts that are affected by these changes and that have a filing due date before March 4, 2025 (the interest relief will expire on March 3, 2025)

Taxpayers will have to decide whether or not to file their tax returns based on the revised forms. However, uncertainty remains because Conservative leader Pierre Poilievre indicated on January 16, 2025 that he would “reverse the capital gains hike that … [was] announced last Spring” if the Conservative party forms the next government. Mr. Poilievre did not provide details on when it would be reversed (i.e. the proposed effective date of June 24, 2024, or a later date?). It is also possible that the new leader of the Liberal government could abandon these proposals.

Draft legislation to extend 2024 charitable donations deadline

On January 23, 2025, the Department of Finance released draft legislation to extend to February 28, 2025, the deadline for making donations eligible for tax support in the 2024 tax year. Charitable contributions (other than gifts‑in‑kind) made after 2024 and before March 1, 2025, by:

• individuals
• corporations (with taxation years ending after November 14, 2024 and before 2025),

will be deemed to be made in the taxpayer’s 2024 tax year (but can still be claimed in the 2025 tax year or carried forward, as an alternative). Exceptions apply for donations made by payroll deduction or in a will for a deceased taxpayer.

To help provide certainty for upcoming tax filings, the CRA has confirmed that it will administer this 2024 deadline extension based on the draft legislation.  

2024 Federal Fall Economic Statement proposals*

Key tax measures proposed in the federal government’s December 16, 2024 Fall Economic Statement² (for which no draft legislation has been released) include:

• reinstating the enhanced first‑year capital cost allowance [CCA] deduction for certain qualifying property and the immediate write‑off for newly acquired manufacturing and processing (M&P) and specified clean energy equipment and zero‑emission vehicles
• significantly enhancing the Scientific Research and Experimental Development tax incentive program
• expanding eligibility for the Clean Electricity and Clean Hydrogen ITCs and providing design and implementation details for the Electric Vehicle Supply Chain ITC
• revising criteria that increases the availability for individuals to defer taxation on capital gains realized on qualifying dispositions of eligible small business corporation shares
• expanding the number of non-profit organizations that are required to file an annual information return³

^{* Unless otherwise indicated, the CRA has not yet provided any guidance regarding whether they will begin administering any of these proposed changes (to the extent they affect completed taxation years for which returns must be filed).}

August 12, 2024 draft legislative proposals*

Key 2024 federal budget and other tax measures, and technical amendments contained in draft legislative proposals released on August 12, 2024 (and not already discussed above) include:

• introducing the Canadian Entrepreneurs’ Incentive
• making technical amendments to the alternative minimum tax rules
• exempting from income tax the first $10 million of capital gains realized on the sale of a business to an employee ownership trust
• reducing the scope of the enhanced trust reporting rules⁴ (on October 29, 2024, the CRA announced that it will not require bare trusts to file a trust return for the 2024 tax year, unless a direct CRA request is made)
• implementing a new tax debt avoidance rule and modifying an anti-avoidance rule in the synthetic equity arrangement rules
• implementing the Clean Electricity ITC and making various amendments to the other clean economy ITCs⁵
• introducing an accelerated CCA deduction of 10% for new eligible purpose-built rental projects and allowing immediate expensing for CCA class 44, 46 and 50 properties
• providing certain elective exemptions from the excessive interest and financing expenses limitation (EIFEL) regime⁶
• allowing the CRA to grant single advance waivers (from the withholding obligation on payments to non-resident service providers) that cover multiple transactions occurring over a specific time period and giving the CRA additional information gathering powers
• eliminating the tax deferral for Canadian‑controlled private corporations (CCPCs) and substantive CCPCs earning investment income through controlled foreign affiliates
• amending the Global Minimum Tax Act to include provisions for the Undertaxed Profits Rule (UTPR)⁷

^{* Unless otherwise indicated, the CRA has not yet provided any guidance regarding whether they will begin administering any of these proposed changes (to the extent they affect completed taxation years for which returns must be filed).}

The takeaway

There is a lot of uncertainty surrounding what will happen with the current government, when (or if) a new government might be elected, and as a result whether the outstanding tax proposals will be enacted. There has been much speculation in particular about the increase to the capital gains inclusion rate (see above discussion about its uncertainty). However, taxpayers should be aware that the CRA will administer the changes to the capital gains inclusion rate effective June 25, 2024, based on the NWMM, until the current or new government signals its intent to not proceed with the proposed measure.

<sup>1. The legislation in the NWMM was previously released (with some differences) as part of the August 12, 2024 draft legislative proposals, of which the capital gains inclusion rate proposal is discussed in our Tax Insights “Finance releases draft legislation to increase the capital gains inclusion rateOpens in a new window” (August 28, 2024 update).
2. See our Tax Insights “2024 Federal Fall Economic Statement: Tax highlightsOpens in a new window.” 
3. See our Tax Insights “Expanded tax reporting proposed for non-profit organizationOpens in a new window.”
4. See our Tax Insights “Finance proposes to reduce the scope of the enhanced trust reporting rulesOpens in a new window.” 
5. See our Tax Insights “Clean economy investment tax credits (August 2024 update)Opens in a new window.”
6. See our Tax Insights “Bill C-59: Excessive interest and financing expenses limitation (EIFEL) regimeOpens in a new window” (August 28, 2024 update).
7. See our Tax Insights “Finance releases draft legislation to implement the undertaxed profits ruleOpens in a new window."</sup>