Stuck in limbo: What doctors need to know about the proposed capital gains tax changes

The prorogation of Parliament before the passing of new tax legislation is causing confusion among Canadians, as the Canada Revenue Agency (CRA) says it will continue to administer these changes unless given direction otherwise by the federal government.The proposed changes would have increased the capital gains inclusion rate for corporations from 50% to 67%. For individuals, the higher inclusion rate would have applied to capital gains income above $250,000—although medical corporations do not have the same $250,000 exemption threshold.However, John Oakey, vice-president of tax at CPA Canada, says doctors and other taxpayers affected by these measures do have a choice whether to file with the old rules or the (potentially) upcoming rules.“Canada Revenue Agency does not have the authority to force taxpayers to comply based on proposed legislation because it is not currently law,” Oakey told the Medical Post on Thursday.“Now, the issue that taxpayers will face, along with their advisors, is that the legislation is retroactive because the effective date of this legislation is June 25, 2024. So, if the legislation eventually does get passed, then it would be effective retroactively back to June.”Taxpayers can choose to file with the old rules, but this means that in the event that Parliament manages to pass this legislation later and ensure it receives royal assent, anyone who files based on the old rules may face arrears interest.And while it may seem more prudent to file under the new proposed legislation, going this route could result in additional paperwork if the current or next federal government asks the CRA to stop administering these measures.In that case, Oakey says taxpayers have a right to a refund for any overpayment on capital gains tax, but it’s unclear how the CRA would administer this refund.“The question becomes, will the CRA automatically administer that and then refile your return and provide you a refund? Or is the taxpayer going to have to, on their own accord, amend their return and request a refund? That's probably the one question that's still outstanding,” Oakey said, adding that it’s ultimately the taxpayer’s responsibility to make sure they get their refund.Could the tax changes still pass?Even if the current government falls and an election is triggered, the changes pass through Parliament, so it is still unclear what that means for the tax legislation. The Conservative Party has expressed opposition to these tax changes and voted against the motion last summer in the House of Commons to begin the legislative process of implementing these changes. However, party leader Pierre Poilievre told BNN Bloomberg, at the time, it was too early to tell if it would repeal these measures if he came into power.Oakey also points out it’s been a “convention” for incoming governments to honour tax changes announced by the previous government in order to prevent marketplace confusion—but that certainly isn't a hard and fast rule.“For any successor government following that rule, it's completely voluntary. There's no rule that says that this legislation has to go forward. But the reason why there is this . . . unwritten rule is to try to provide some stability in the tax system,” he explained.Meanwhile, the Canadian Medical Association (CMA) issued a statement Wednesday calling on the federal government to direct the CRA to stop collecting capital gains taxes from medical corporations at the higher inclusion rate.“While it may be standard, acceptable practice for the CRA to administer new tax proposals before they are approved by government, Parliament’s prorogation and a federal election in the near future suggest it is increasingly unlikely that this legislation will ever pass,” CMA president Dr. Joss Reimer said in a statement.

Stuck in limbo: What doctors need to know about the proposed capital gains tax changes

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