The federal government is delaying its multibillion-dollar plan to hike taxes on capital gains, a move that clears up uncertainty heading into tax season but could worsen the fiscal bottom line for both Ottawa and the provinces.
The major policy was first announced in the federal budget in April, 2024, which set an implementation date of June 25 of that year.
However, Parliament had yet to approve legislation adopting the change before Prime Minister Justin Trudeau prorogued Parliament earlier this year, effectively leaving the policy in limbo.
Finance Minister Dominic LeBlanc made the announcement Friday in a news release, saying the government is deferring— to January 1, 2026 — the date on which the capital gains inclusion rate increase would take effect. The release said the government will introduce legislation to implement the change in due course.
In a statement, 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.
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 sooner given that the main three opposition parties are vowing to defeat the government after Parliament resumes in late March.
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 March 24, when the House of Commons is scheduled to resume sitting.
Conservative Leader Pierre Poilievre, whose party is leading in public-opinion polls, has pledged to scrap the capital gains tax increase.
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 the tax increase 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.
A capital gain is the profit an individual or business earns when they sell an asset, such as stocks or property.
The proposed tax change would have increased the portion of capital gains subject to income tax. 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 will only apply to 0.13 per cent of Canadians in any given year, but some experts have disputed that estimate and said more people will be affected.
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, 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.
With a report from Erica Alini in Toronto
