The Parliament Buildings are pictured in Ottawa on Jan. 7, 2025.Patrick Doyle/Reuters
The federal government is delaying its multibillion-dollar plan to increase taxes on capital gains until Jan. 1, 2026, a move that clears up uncertainty heading into tax season but could worsen the fiscal bottom line for both Ottawa and the provinces.
The proposed change, first announced in the federal budget in April, 2024, would have increased the portion of capital gains subject to income tax as of June 25 of that year. However, legislation adopting the change had yet to be approved in Parliament before Prime Minister Justin Trudeau prorogued it earlier this year, effectively leaving the major policy in limbo.
Finance Minister Dominic LeBlanc announced the deferral in a news release Friday, saying the government will introduce legislation to implement the change in due course.
Canadian business groups, which had strongly opposed the increase, welcomed Friday’s announcement but urged Ottawa to go further and scrap the plan entirely.
“Whether you’re a startup entrepreneur, a family business, or a community doctor, Canada’s investment and business environment is better without this increased tax,” said Jessica Brandon-Jepp, a senior director with the Canadian Chamber of Commerce, in a statement.
Under current rules, 50 per cent of profits realized on the sale of assets such as stocks or real estate are included in income tax calculations. The Liberals’ proposal would have raised that to 66.67 per cent, though for individuals, the higher inclusion rate would only apply for annual capital gains above $250,000. The measure also included some boutique exemptions for businesses.
Ottawa has said the higher tax rate would only apply to 0.13 per cent of Canadians in any given year, but some experts have disputed that estimate and said more people would be affected.
Mr. LeBlanc said the decision was driven by the need to provide certainty ahead of tax season.
“Given the current context, our government felt that it was the responsible thing to do. I look forward to further conversations with Canadians on how we can ensure Canada’s fiscal policy encourages robust and sustained economic activity in every region of our country,” he said in the statement.
Federal officials had said the Canada Revenue Agency would continue to administer the tax change, with the understanding that there would be future refunds in the event that the tax changes do not eventually become law.
The federal budget said the increase would raise $19.4-billion over five years for Ottawa and a further $11.6-billion for the provinces and territories.
A federal election is scheduled to take place by October but is widely expected to occur in the spring given that the main three opposition parties are vowing to defeat the government after Parliament resumes on March 24.
Mr. Trudeau prorogued Parliament to allow time for the Liberal Party to select a new leader on March 9. The new leader could decide to trigger an election before the House of Commons is scheduled to resume sitting.
John Oakey, vice-president of taxation for CPA Canada, said in an interview that the political uncertainty in Ottawa is creating challenges for the business community. He also noted Canadian businesses are facing a lot of uncertainty over tariff threats from the U.S. and said some responses to U.S. policies will need parliamentary approval.
“So I think when you put all of these buckets together, what we’re getting is tremendous anxiety within the business community based on all this uncertainty that’s happening,” he said.
Mr. Oakey said the delay, while welcome, means businesses will face a similar uncertain landscape later in the year if the situation is not resolved and that Canada should walk away from the capital gains plan.
Conservative Leader Pierre Poilievre, whose party is leading in public-opinion polls, has pledged to scrap it.
In a statement Friday, Conservative finance critic Jasraj Singh Hallan said the Liberals are delaying what he called the “disastrous” tax hike in response to political pressure from the Official Opposition.
“Despite backing down for now, they are promising to bring it back after the next election,” he said. He also said the government “created chaos” by having the CRA collect the tax even though no legislation was approved prior to prorogation.
“This has created months of uncertainty and a tax-filing nightmare for working Canadians across our country,” he said.
Former finance minister Chrystia Freeland, who introduced the tax increase and is now running as a candidate in the Liberal leadership race, recently pledged not to go ahead with it if she wins.
In June, Ms. Freeland told reporters that provinces should use their share of the capital gains increase to boost health care funding.
Emily Williams, a spokesperson for Liberal leadership candidate Mark Carney, said in a statement that Mr. Carney has been clear since the policy was introduced “that it sent the wrong signal at the wrong time to the builders and innovators who make it possible to grow our economy.”
The statement did not say definitively whether Mr. Carney would scrap the policy, but said he will be announcing further economic policies “in the days ahead.”
The federal government’s economic update, released in December, showed Ottawa missed its self-imposed deficit cap, posting a $61.9-billion deficit for the fiscal year that ended March 31, 2024, compared with the promised cap of $40.1-billion.
The update said Ottawa would keep deficits below 1 per cent of GDP in 2026-2027 in future years.
However, Parliamentary Budget Officer Yves Giroux released a report Thursday, before the announced tax change, saying there is only an 18-per-cent chance that Ottawa will achieve that 1-per-cent target.
The government’s reversal on capital gains will make it even more challenging for Ottawa to meet its own targets. Further, Ottawa is signalling it is prepared to approve new supports for workers and businesses in the event that U.S. President Donald Trump approves steep tariffs on Canadian imports. White House officials said Friday that Canada will be hit with 25-per-cent tariffs on Saturday.
With a report from Erica Alini in Toronto