The 5 worst new Canadian tax policies of 2024 and a wish for 2025

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There are so many contenders for the five worst tax policies for 2024 that I spent hours and hours poring through the candidates.

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It was a tough exercise, but after a lot of blood, sweat and tears, here they are in reverse order, plus my top tax wish for the new year.

Alternative Minimum Tax amendments

The AMT has been around since 1986 and what a waste it is. It’s a refundable tax whose stated policy purpose is to make the “rich” pay their fair share when they take advantage of otherwise legal tax-avoidance provisions. Think about that for even two seconds. The affected deductions and credits people are using are legal. And if the extra AMT applies, it’s refundable in the subsequent seven years.

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The 2024 amendments expand the broadness of the AMT’s application, but the refundable mechanism is maintained. This has long been a very unnecessary and silly tax and the amendments continue to prove that. It needs to go.

Bare trust debacle

After six years of the government being warned by various tax practitioners and organizations about the deficiencies of its proposed trust reporting rules and, in particular, the past 2.5 years when bare trusts were added, the first reporting season was a total debacle.

Frankly, such reporting rules were a complete embarrassment of how not to introduce taxation policy. After announcing in August 2024 that bare trusts will be exempt from reporting for 2024, but reappear in 2025 with a variety of intended carve-outs, such amendments have not been passed into law and may have to be reintroduced if they don’t get passed before an election.

Flipping tax

OK, yes, this was technically introduced by the federal government in 2023, not 2024. It applies to residential homes that are “flipped” within 365 days of acquisition unless certain “life events” apply. If applicable, the profits are fully taxed since they are not eligible for capital gains treatment or for the principal residence exemption.

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It is a wholly ridiculous, unnecessary and duplicative rule that adds complexity since the existing Income Tax Act already taxes flippers in this way. The Canada Revenue Agency simply needs to enforce the rule.

The reason the flipping tax is a 2024 winner (er, loser) is because British Columbia decided to replicate this poor policy provincially, but, of course, it had to expand the application to any dispositions within 730 days (being prorated down to zero application between 366 and 730 days).

It is unbelievable that poor policy is easily copied with little or no thought. Statistics Canada recently released data that said flippers are certainly not a material contributor to this country’s housing challenges despite the loud voices of others. This is not a surprise to me.

Short-term rental owner deductions

As part of the bogeyman approach that the government is choosing to try to deal with Canada’s self-inflicted housing challenges, a new rule was introduced to prohibit all deductions for owner-operators of short-term rental properties that operate in a jurisdiction that prohibits such rentals.

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This is an outrageous new rule that was cheered on by many NIMBYs, who, frankly, might not appreciate that it puts tax-compliant criminal drug dealers on a better tax footing than those targeted by this new rule. Simply put, this is an extremely dangerous precedent and poor taxation policy.

Capital gains inclusion rate proposal

There has been a lot of ink spilled on this poorly thought-out proposal to increase the capital gains inclusion rate that was so obviously a last-minute throw-in for the 2024 federal budget. It was released in a blaze of rhetoric that the “rich” needed to pay more, that it was necessary for intergenerational “fairness” (since “older Canadians” have already earned their money) and that the “capital gains advantage” was causing nurses to pay more tax than those evil investment bankers, etc., etc.

Flawed in its concept to exempt individuals and certain trusts from its application on the first $250,000 of annual capital gains (which throws the foundational concept of tax integration out the window), the draft legislation was released a mere two weeks prior to its planned implementation date of June 25, 2024. The second round of draft legislation was released in early August 2024 and it’s super complex.

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The draft legislation was never released into a bill and the proposals are now on life support given the political chaos that Canada is currently experiencing. If they end up in the garbage bin, I won’t be shedding too many tears since that’s where these proposals belong, especially since it was supported by the nonsensical tax-the-rich crowd.

Well, that’s quite a list, but an honourable mention also goes to the recent GST/HST holiday on a variety of random items, which is a ridiculous attempt at vote-buying.

If I had a magic wand, I’d make these five policies — and more — quickly disappear. None of them make Canada’s taxation system better; they only make our system more complex, more politicized and unapproachable.

As for my top tax wish, it’s tax reform for Canada. The Conservative Party and its leader, Pierre Poilievre, have promised to convene a Tax Reform Task Force within 60 days of getting elected to implement lower taxes on work and production, simplify tax rules and cut corporate welfare. Ambitious for sure, but very necessary.

Paraphrasing Adam Smith, the 18th-century Scottish economist, from his seminal work The Wealth of Nations, “A wise and prudent government would tax its people lightly, because the wealth of a nation lies in the wealth of its citizens.”

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In a similar sentiment, former United States president Ronald Reagan once said, “The collection of taxes should never discourage the creation of wealth.”

Happy New Year, Canada. Let’s get back to a more common-sense approach to taxation in 2025.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody. 

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