Uncertainty Surrounds Tax Proposals as Liberals Move Forward with New Budget

Strategic Insights -

The Canadian government has announced it will delay tabling a budget until the fall, leaving many tax proposals from the previous Liberal government in limbo. While the Liberals made several new tax promises in their 2025 election platform, they were largely silent on many outstanding tax proposals, including revised reporting rules for trusts, a new entrepreneurs' incentive, and changes to the alternative minimum tax (AMT). As a result, tax experts are left to speculate on the future of these proposals, with some suggesting they may be abandoned or modified.

Key Takeaways:

  • The Liberals' 2025 election platform did not mention many outstanding tax proposals from the previous government, including revised reporting rules for trusts, a new entrepreneurs' incentive, and changes to the AMT.
  • The government has delayed tabling a budget until the fall, leaving uncertainty around the fate of these proposals.
  • Tax experts believe that the government may proceed with many of the previous proposals, but with possible modifications, either on a permanent or temporary basis.
  • The proposed Canadian entrepreneurs' incentive (CEI) was part of the government's package of capital gains tax regime changes and was meant to be effective as of January 1, 2025.
  • The revised trust reporting rules, which exempt more trusts from an annual obligation to file a return, were meant to be effective for 2024 and subsequent years but were never passed.
  • The government is considering leveraging technology at the Canada Revenue Agency (CRA) to better identify and prosecute instances of tax evasion, fix loopholes, and strengthen enforcement.
  • The Liberals' fiscal and costing plan projected the government would raise an additional $3.75-billion over four years by increasing penalties and fines.

Statistics:

  • The Liberals' proposed Canadian entrepreneurs' incentive would have given certain business owners access to a capital gains inclusion rate set at half of the prevailing inclusion rate on the next $2-million in capital gains.
  • The revised trust reporting rules would have exempted more trusts, including bare trusts, from an annual obligation to file a return.
  • The Liberals' fiscal and costing plan projected an additional $3.75-billion over four years would be raised by increasing penalties and fines.
  • The government has delayed tabling a budget until the fall, which could impact the passage of legacy proposals into law before the fall.
  • The Canada Revenue Agency (CRA) is expected to provide 2023 and 2024 bare trusts with revised reporting requirements, but the new government's proposal may change these rules.

Sources:

  • John Oakey, vice-president of taxation with CPA Canada in Dartmouth, N.S.
  • Fred O'Riordan, national leader of tax policy with EY Canada in Ottawa
  • Brian Ernewein, senior advisor, national tax, at KPMG LLP in Ottawa
  • François-Philippe Champagne, Minister of Finance and National Revenue
  • Benoit Mayrand, Department of Finance spokesperson
  • Globe and Mail article, "Tax uncertainty grows as Liberals move forward with new budget"