Is the capital gains hike legally binding? What it would take to change the rules

The proposed tax change was subsequently separated from the budget implementation bill, with the Liberals introducing a ways and means motion to increase the capital gains inclusion rate as originally set out in the budget. The motion was approved in the House of Commons on June 11, and updated draft legislation is expected to be released in July.

So, what comes next? Are the new capital gains rules legally binding effective June 25, or on the day the legislation is passed, potentially in the fall?

Does the ways and means motion make it official?

Typically, if a ways and means motion proposes an increase in taxation, the increase will be effective on the day the notice of the motion is made.

Minister of Finance Chrystia Freeland announced the proposed capital gains inclusion rate change when she presented the budget on April 16, and introduced the ways and means motion on June 10. The government gave everyone some notice introducing it, so people could put their affairs in order to prepare for the new inclusion rate. Assuming the legislation is passed, the new inclusion rate will be effective retroactive to June 25.

There could be changes to the capital gains tax between now and the passing of the law. But typically, a new ways and means motion would be tabled for that purpose. Also, the change would need to be consistent with the general policy statements introduced in the budget. In my opinion, tweaks to the language of the legislation within the scope of the motion are more likely.

Could further capital gains changes be introduced?

I see two likely outcomes:

1. The capital gains inclusion rate changes to two-thirds as of June 25.
2. The legislation doesn’t pass, and the capital gains inclusion rate stays the same as it is now.

I don’t anticipate a third option, where a different rate is introduced, but never say never!

It is worth noting that a new federal government could change the rate. Case in point: In 2000, Jean Chrétien’s government reduced the inclusion rate from 75% to 50%, where it has remained until now. That is the longest period of stability we’ve had since inclusion rates were introduced in 1972.