In the 2024 federal budget, the government proposed raising the capital gains inclusion rate from 50% to 66.67% (two-thirds) for corporations, trusts and individuals whose annual capital gains exceed $250,000. The proposal was tied to an effective date of June 25, 2024, and that deadline has prompted many Canadians to review their tax planning and investment strategies.
After the budget release, the capital gains change was separated from the main budget implementation legislation. The government introduced a ways and means motion to implement the inclusion rate increase as set out in the budget. That motion was approved in the House of Commons on June 11, and updated draft legislation was expected to follow in July. As a result, taxpayers and advisers are asking: when do the new rules actually take effect, and what should people do between now and the moment the law is passed?
Does the ways and means motion make it official?
Under normal parliamentary practice in Canada, when a ways and means motion increases taxation, the effective date often corresponds to the day the motion is publicly announced. Finance Minister Chrystia Freeland announced the proposed capital gains inclusion rate change when she tabled the budget on April 16 and formally introduced the ways and means motion on June 10. Because the government gave notice of the change in advance, taxpayers had time to consider the impact and adjust their affairs.
If the legislation implementing the motion is ultimately passed, it is expected to apply retroactively to June 25, 2024. That retroactive application follows standard practice where the date in the budget or notice is respected. Between the date of the motion and the day the bill receives Royal Assent, wording and technical details in the draft legislation could be adjusted, but such changes are typically within the scope of the announced policy and intended to clarify implementation rather than alter core policy.
Could further capital gains changes be introduced?
There are two likely scenarios:
- The capital gains inclusion rate increases to two-thirds effective June 25, 2024, when the motion was announced and the legislation is enacted consistent with that date.
- The legislation fails to pass, in which case the inclusion rate remains at the existing 50%.
A third possibility — a different rate being substituted — is less likely but cannot be ruled out entirely. Political change could also produce a different outcome in the future: a new federal government could reverse or modify the rate. Historically, the inclusion rate has changed several times; notably, the Jean Chrétien government reduced it from 75% to 50% in 2000, where it remained for an unusually long period thereafter.
When considering why governments adjust capital gains tax rules, two objectives typically guide policy: raising revenue to fund public services and encouraging or discouraging certain behaviour through tax incentives. The 2000 reduction was partly intended to spur investment in technology and innovation. Policy shifts like these influence investor behaviour over decades, and in Canada’s case they may have helped shape where capital flows, including strong activity in the real estate sector.
What happens if the law doesn’t pass?
If the legislation to raise the inclusion rate does not pass, some taxpayers who acted in advance — selling a cottage, business or other investments expecting higher tax rates — might consider legal challenges seeking relief. While a lawsuit is possible, it is unlikely to succeed.
A successful legal claim against the government for warning of a tax change would set an odd precedent. Governments provide notice of policy changes so taxpayers can prepare and respond. If advance notice were treated as a liability, governments might stop giving clear warnings and instead enact tax changes without advance notice, which would reduce transparency and leave taxpayers unable to plan.
From a practical standpoint, courts generally defer to legislative authority on tax policy and the timing of tax measures. The incentive framework embedded in public finance rewards clear notice to encourage orderly compliance. Taxpayers who change their affairs in response to announced measures do so at their own risk when legislation has not yet received final approval; that risk is part of planning in a democratic process where proposals can change or fail.
Newsletter
Get free MoneySense financial tips, news & advice in your inbox.
Read more about capital gains tax:
- How to prepare for future changes in tax policy—including capital gains tax
- How much is capital gains tax in Canada?—and other reader questions answered
- How it works: Capital gains tax on the sale of a property
- Capital gains tax in Canada, explained
Bottom line: the announcement and the ways and means motion signal the government’s intention to increase the capital gains inclusion rate to two-thirds effective June 25, 2024, if the implementing legislation is passed. Taxpayers should monitor developments, consult trusted tax advisers, and avoid making hasty decisions based solely on announcements before legislation receives Royal Assent.