The Canadian Taxpayers Federation (CTF) is filing a legal challenge to stop the Canada Revenue Agency (CRA) from enforcing the capital gains tax hike.
Proposed changes to the capital gains tax were announced by the federal government in its budget last April and introduced as a ways and means motion in the House of Commons in June. The bill did not pass due to pushback from the Conservatives.
“The government has no legal right to enforce this tax hike because it has not received legislative approval by Parliament,” said CTF in-house lawyer Devin Drover in an announcement.
“This tax grab violates the fundamental principle of no taxation without representation. That’s why we are asking the courts to put an immediate stop to this bureaucratic overreach.”
The tax hike would impact a small portion (0.13 per cent) of the wealthy population. According to the government, the inclusion rate would be increased from one-half to two-thirds for any Canadian individual or corporation that makes over $250,000 per year in capital gains.
“An increased Lifetime Capital Gains Exemption would ensure most middle-class entrepreneurs won’t pay more tax because of these changes, and the new Canadian Entrepreneurs’ Incentive would encourage entrepreneurs to invest in capital-intensive and high-growth sectors,” reads a news release from Canada’s department of finance.
The CTF is representing Mapleton, Ontario, resident Debbie Vorsteveld. Last year, she and her husband, Willem, sold a property that included a secondary home. They had rented the secondary home to their adult children but had to sell it when their kids were ready to move on.
According to the taxpayers advocacy group, the CRA says the Vorstevelds must pay higher capital gains taxes under the proposed capital gains tax hike or face financial penalties.
The CTF is urging Canada’s federal court to block the CRA from enforcing the proposed tax increase. It argues the tax increase violates the rule of law and is unconstitutional.
With Parliament prorogued until March 24, the fate of the capital gains tax hike is uncertain.
The House defines the prorogation of Parliament as “the termination of a session.” During this period, bills that haven’t passed into law “die,” but the government can choose to revive them once Parliament is back in session.
However, that doesn’t guarantee a smooth passing of the capital gains tax bill. Efforts could be squandered if the Liberal government doesn’t survive a non-confidence vote, which will likely happen soon after prorogation ends.
On top of that, Deputy Prime Minister Chrystia Freeland, who is arguably the frontrunner in the Liberal leadership race, has reportedly said she would scrap the increase if elected.
Despite the proposed changes being subject to parliamentary approval, an official from Canada’s Department of Finance told us that the CRA can still administer the hike, which came into effect on June 25, 2024, because it was tabled as a ways and means motion.
“Parliamentary convention dictates that taxation proposals are effective as soon as the government tables a Notice of Ways and Means Motion; this approach provides consistency and fairness in the treatment of all taxpayers,” explained the official.
The CRA generally continues to administer proposed legislation consistent with its established guidelines even when Parliament is prorogued or dissolved, added the spokesperson.
“The undemocratic capital gains tax hike will blow a huge hole in Canada’s economy and punishes people saving for their retirement, entrepreneurs, doctors, and Canadian workers,” said Franco Terrazzano, CTF federal director, in a statement. “It’s Parliament’s responsibility to approve tax increases before they’re imposed, not unelected government bureaucrats.
“The CRA must immediately halt its plans to enforce this unapproved tax hike, which threatens to undemocratically take billions from Canadians and cripple our economy.”
According to the Department of Finance, the CRA will issue the forms by January 31, 2025, so taxpayers can file in accordance with the new capital gains rules.
We have reached out to the CRA for comment on the legal challenge.
