Canada Revenue Agency is ignoring democracy and its actions will cost the economy billions.
It’s pressuring Canadians to pay taxes based on a law that doesn’t exist and likely never will.
That’s why CRA must reverse course. Taxation must be grounded in laws fully approved through the democratic process and not assumptions by unelected bureaucrats.
This controversy stems from the Liberal government’s attempt to raise the capital gains inclusion rate, hiking the current rate that has been in place for over 25 years.
This proposal was passed as a ways and means motion in Parliament last year. But a ways and means motion is just a procedural step that allows the government to propose tax changes. It doesn’t have the force of law.
For any tax measure to be binding, it must be introduced as legislation, debated and passed by Parliament. This ensures accountability and scrutiny by elected representatives. However, the Liberal government did not bring forward corresponding legislation authorizing the hike last year.
Despite this, CRA is acting like the tax hike is inevitable. Canadians are being pressured to file taxes as if the increase were already law. This creates massive financial uncertainty, especially at a time when inflation and rising interest rates are already straining households.
And now, with Parliament prorogued and Prime Minister Justin Trudeau stepping down, the proposal is effectively dead.
Ottawa is now at a standstill until the House of Commons opens anew on March 24. While the Ways and Means motion technically remains in effect, it remains non-binding until or unless the government, under a new Liberal leader, revives the tax hike by introducing and passing new legislation. But that’s highly unlikely.
The Conservatives, NDP and Bloc Québécois have all promised to bring down the Liberal government and force an election before a vote on the legislation can happen.
And polls suggest the Conservatives, who oppose the tax hike, are likely to form the next government.
So why is CRA acting like the tax hike is a done deal? This sets a dangerous, undemocratic precedent that is going to cost the Canadian economy $6.9 billion this year.
CRA is defending its actions by citing a practice of applying proposed tax measures as if they were law. While this might make sense for proposals nearing final approval, it’s completely inappropriate here.
The capital gains tax hike is far from becoming law. Treating it as inevitable is unjustifiable.
The financial fallout is already being felt. Canadians fearing higher taxes had sold investments early, often at reduced returns.
And those who follow CRA’s guidance and pay the higher tax now could be owed refunds if the legislation doesn’t pass.
But they may wait years to get their money back which they could otherwise invest or use to grow their businesses.
Plus, this is bigger than one tax change.
If CRA can enforce a tax based on a proposal that’s unlikely to pass, what’s stopping it from doing so in other cases?
Taxation is supposed to be clear, transparent, and based on laws — not speculation or bureaucratic overreach. This kind of enforcement erodes public trust in the system and imposes unnecessary hardship on Canadians.
CRA must respect the democratic process. It should immediately halt enforcement of the proposed tax hike or, at the very least, delay action until Parliament has had its say. Canadians deserve fairness and clarity and not to be caught in the crossfire of political uncertainty driven by unelected bureaucrats.
Devin Drover is the general counsel and Atlantic director of the Canadian Taxpayers Federation