Parliament is scheduled to sit for only four weeks before rising for the summer on June 20.Sean Kilpatrick/The Canadian Press
The progress of tax proposals advanced by the previous Liberal government remains uncertain, with Prime Minister Mark Carney’s government saying it will not table a 2025 federal budget until the fall.
Proposals from previous Liberal budgets, such as revised reporting rules for trusts (including bare trusts), a new entrepreneurs’ incentive, and further changes to the revised alternative minimum tax (AMT) were released as draft legislation last summer but never enacted, even though some of the changes were meant to be effective already. Following last month’s election, the proposals would have to be introduced again in the new Parliament.
Tax experts say it’s likely the Carney government will proceed with many proposals advanced under the previous government eventually.
However, while the Liberals made a variety of new tax promises in their 2025 election campaign platform, including an income tax cut, they were largely silent about many of the outstanding tax proposals.
Without a spring budget to provide greater certainty, advisors and investors will have to rely on other government announcements, such as the throne speech when Parliament resumes next week, for possible clues as to the Liberals’ tax policy direction, says John Oakey, vice-president of taxation with CPA Canada in Dartmouth, N.S.
And with Parliament scheduled to sit for only four weeks before rising for the summer on June 20, it would be a challenge for the government to pass legacy proposals into law before the fall.
The government’s decision to delay tabling a budget only adds to the uncertainty, says Fred O’Riordan, national leader of tax policy with EY Canada in Ottawa.
“There are a lot of [tax] measures in the pipeline [and] there is a lot of anxiety around those,” he says.
The Liberals might choose to prioritize moving forward with certain election promises, such as the GST cut for first-time home buyers, in the spring session, says Brian Ernewein, senior advisor, national tax, at KPMG LLP in Ottawa.
“If you’re thinking about buying a house, you might actually be holding off on the hope, the expectation, that [the GST break] is put in place,” he says.
Last week, Minister of Finance and National Revenue François-Philippe Champagne signalled the new government wouldn’t present a budget in the spring session. Instead, it would focus on passing a one percentage point cut to the lowest federal income tax bracket, to be effective July 1, fulfilling a key 2025 election campaign tax promise.
Mr. Carney said Sunday that the government would present a budget in the fall.
The finance minister also indicated that the government had already outlined its priorities in its 2025 election platform and that those priorities wouldn’t change. Among those, Mr. Carney’s Liberals promised to drop the previous Liberal government’s proposed hike to the capital gains inclusion rate while keeping the proposed increase to the lifetime capital gains exemption (LCGE).
However, the Liberal election platform didn’t mention many outstanding proposals from the previous government specifically.
The Canadian entrepreneurs’ incentive
The platform didn’t mention the Canadian entrepreneurs’ incentive (CEI), a proposal that would give certain business owners access to a capital gains inclusion rate set at half of the prevailing inclusion rate on the next $2-million in capital gains – above the LCGE amount – when fully implemented over a five-year period.
The proposal was part of the government’s package of capital gains tax regime changes, and meant to be effective as of Jan. 1, 2025.
In response to a question from The Globe and Mail, Department of Finance spokesperson Benoit Mayrand said that details regarding the CEI “would be communicated in due course.”
Mr. Oakey says the government might abandon the CEI outright or proceed with it, with possible modifications, either on a permanent or temporary basis.
For Canadians who may have sold a business this year relying on the proposed tax break, “it would be detrimental to pull it off the table,” Mr. Oakey says.
Revised trust reporting unresolved
The Liberal platform also didn’t address revised trust reporting rules that exempt more trusts, including bare trusts, from an annual obligation to file a return. Those changes were meant to be effective for 2024 and subsequent years, but were never passed.
Last year, the Canada Revenue Agency (CRA) provided 2023 bare trusts, and then later 2024 bare trusts, an exemption from having to file returns. Without legislation passing or yet another exemption, 2025 bare trusts would have to file a return under the existing reporting rules by March 31, 2026.
Mr. Ernewein says he believes the new government will proceed with the proposed trust reporting relief, possibly with additional carve-outs based on comments received during last year’s consultation process.
Expanded audit powers
The Liberal election platform also didn’t specifically address whether the government would proceed with draft legislation released last year to expand the CRA‘s audit powers, including providing the CRA with the power to compel taxpayer testimony under oath.
However, the election platform did say the party would “leverage technology at the [CRA] to better identify and prosecute instances of tax evasion, fix loopholes, and strengthen enforcement.” In the Liberals’ fiscal and costing plan accompanying the platform, they projected the government would raise an additional $3.75-billion over four years by increasing penalties and fines.
Mr. Mayrand didn’t provide a direct response to a question from The Globe as to how the government expected to realize the additional revenue from penalties and fines, saying only that details regarding future CRA initiatives would be communicated in due course.
Other draft legislative measures not specifically addressed in the Liberals’ 2025 election platform include changes to the revised AMT, including allowing investors in flow-through shares to deduct all their expenses from their AMT base; expanded access to the disability supports deduction, which are meant to be effective for 2024 and subsequent years; and extending the period during which an executor can carry back losses from a graduated rate estate to an individual’s final tax return, which was to be effective for deaths on or after Aug. 12, 2024.