CRA Faces Legal Challenges Over Capital Gains Tax Hike

Back to all articles

The Canada Revenue Agency (CRA) is now facing legal challenges over its decision to implement a higher capital gains tax rate before it has been officially passed into law. 

Two separate court cases have been launched, arguing that the CRA’s enforcement of the increased tax rate is unconstitutional. At the center of these disputes is the capital gains inclusion rate, which determines how much of a person’s investment or property sale profits are subject to taxation.

Background on the Capital Gains Tax Change

In June 2024, the federal government announced a proposal to increase the capital gains inclusion rate from 50% to 67% for businesses, trusts, and individuals with more than C$250,000 in annual capital gains. This means that a larger portion of profits from selling investments, rental properties, or businesses would be subject to tax.

The government stated that the change was necessary to generate more revenue and ensure that wealthier Canadians and corporations contribute a fairer share of taxes. The increased inclusion rate was set to apply to transactions that closed on or after June 25, 2024, even if the agreements were signed before that date.

The Capital Gains Tax Legal Dispute

Although the proposal was announced in June, the actual legislation to approve the tax change has not yet been passed by Parliament. In January 2025, Prime Minister Justin Trudeau prorogued Parliament until March 24, delaying formal approval of the tax measure. 

Despite this delay, the CRA continues to collect capital gains tax at the higher inclusion rate, sparking legal challenges.

The Canadian Taxpayers Federation (CTF) and other advocacy groups argue that the CRA’s decision to enforce the tax increase without parliamentary approval is unconstitutional. 

They claim that this violates the long-standing principle of no taxation without representation, meaning that taxes cannot be imposed without legislation being properly passed.

The lawsuits also highlight concerns over taxpayer uncertainty. Since the tax increase has not been officially passed into law, there is a risk that Parliament could reject or modify the legislation.

 If that happens, taxpayers who have already paid the higher tax rate may have to go through a complicated process to claim refunds. On the other hand, if taxpayers choose to report their capital gains at the old 50% rate and the law later passes, they may owe additional taxes, penalties, and interest.

Impact on Businesses and Farmers

The agricultural sector has been particularly vocal about the issue. National organizations representing farmers and ranchers have called on the federal government to reverse the decision to implement the tax change before Parliament votes on it.

Many in the farming community worry that the increased capital gains inclusion rate will make it more expensive to transfer family farms to the next generation. Since farms often involve large capital assets, higher taxes could make succession planning more difficult and costly for family-run operations.

What Happens Next?

As Parliament remains on break until March, these legal challenges will continue to unfold. The lawsuits could force the government to reconsider how the tax increase is being enforced, or at least clarify what will happen if the law does not pass as planned.

In the meantime, taxpayers who are selling investments, businesses, or properties should consult a tax professional to ensure they understand their options and risks. Given the uncertainty, proper planning is essential to avoid unexpected tax liabilities or refund complications.

Unlock Your Seamless Closing Experience

Your Journey to a Worry-Free Closing Starts Here!

Share this post
Important note: This article is not Legal Advice. No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.

Unlock Your Seamless Closing Experience

Your Journey to a Worry-Free Closing Starts Here!