Mark Carney's victory in the Liberal leadership race puts the final nail in the coffin of Ottawa's controversial plans to hike the inclusion rate on capital gains. The snow-covered Confederation building is shown in Ottawa, Monday, March 10, 2025. THE CANADIAN PRESS/Sean Kilpatrick

OTTAWA - Mark Carney's victory in the Liberal leadership race put the final nail in the coffin for Ottawa's controversial plan to hike the inclusion rate on capital gains.

But experts say the damage from the now-abandoned policy shift has been done, as taxpayers continue to face confusion and as tech leaders warn that Canada's reputation as a good place to do business has been damaged.

“It sounds to me like the capital gain tax (change) is dead and I think people will be very happy about that," said Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth.

When the federal Liberals tabled their budget last spring, they presented the plan to change capital gains as a way to get wealthy Canadians and corporations to pay more.

Capital gains are incurred when an individual or business sells an asset, like a stock or piece of property. The Liberal plan would have seen the inclusion rate — the portion of the proceeds subject to tax — increased to two-thirds from the current level of 50 per cent.

Individual Canadians would have continued to pay the lower rate on any capital gains realized in a year below a threshold of $250,000.

In his victory speech on Sunday, Carney confirmed he will stop the capital gains changes proposed by the current Liberal government last April, making good on a campaign pledge.

The Liberals originally said the capital gains change would come into effect on June 25, 2024, but legislation was never passed to enact the change. Finance Minister Dominic LeBlanc announced earlier this year that the date would be pushed back to 2026.

But Golombek said the policy is still causing "confusion" for taxpayers, even though the higher inclusion rate isn't in play.

He said he has heard of people who sold off assets like stocks or expensive cottages to realize a gain before June 25 last year in order to get ahead of the proposed changes.

The Canada Revenue Agency also issued forms with separate sections for capital gains realized before and after June 25 of last year — even though the inclusion rate will be the same for both periods.

"The fact that you have to report the two different periods separately is certainly very confusing and useless," Golombek said.

The CRA has noted its systems will not be ready to accept tax returns from individuals that report capital gains or losses until late March because of the changes and will grant interest and penalties relief until June 2 to allow more time to file.

Council of Canadian Innovators CEO Benjamin Bergen said that the rollback of the capital gains change is a good move but "bittersweet" because Canada's reputation in the tech sector has already suffered.

Bergen said the capital gains change suggested to investors and entrepreneurs that Canada was becoming a "much harder climate" to succeed in — an argument Carney echoed in his victory speech.

"We will stop the hike in the capital gains tax because we think builders should be incentivized for taking risks and rewarded when they succeed," he said on Sunday.

To restore the reputational hit, Bergen said Canada ought to focus its policies on supporting domestic companies, particularly in the face of a burgeoning trade war with the United States.

“Uncertainty always creates concern and challenges for people trying to build firms. I think that damage has been done, and the pathway forward is to create certainty,” he said.

The Liberals had predicted the capital gains tax changes would bring $19.4 billion in extra revenue over five years to fund spending plans in the 2024 budget. Parliamentary Budget Officer Yves Giroux later estimated that figure at closer to $17.4 billion.

Sahir Khan, executive vice-president of the Institute of Fiscal Studies and Democracy at the University of Ottawa, said that the "clumsiness" of the capital gains change came from the likelihood that it was a stopgap measure to keep the deficit from ballooning as spending grew.

"I still think it was used to plug a fiscal hole, not because there was some grand strategy on tax policy," he said.

Khan said it's not clear how big a hole the reversal on capital gains policy leaves in Ottawa's budget because the change in Liberal leadership, the coming election and the trade war with the U.S. will introduce a series of new government spending priorities in the months ahead.

— With files from Michelle Zadikian and Ritika Dubey

This report by The Canadian Press was first published March 11, 2025.

News from © The Canadian Press, 2025