Québec Should Not Go It Alone on Capital Gains Inclusion Rate Changes

Summary:
Page Title:Québec Should Not Go It Alone on Capital Gains Inclusion Rate Changes – C.D. Howe Institute
Article Title:Québec Should Not Go It Alone on Capital Gains Inclusion Rate Changes
URL:https://cdhowe.org/publication/quebec-should-not-go-it-alone-on-capital-gains-inclusion-rate-changes/
Published Date:January 28, 2025
Accessed Date:February 16, 2025

To: Capital Gains Watchers
From: John Tobin and Carl Irvine
Date: January 28, 2025
Re: Québec Should Not Go It Alone on Capital Gains Inclusion Rate Changes

Our recent C.D. Howe Institute e-Brief discussed the uncertainty and related problems arising from the delayed enactment of the federal government’s proposal to increase the capital gains inclusion rate from 50 percent to 66 percent (the Proposals) and called for their delay or abandonment.

The continuing uncertainty regarding the Proposals leaves Québec (and Quebecers) in an unenviable position. Federal tax policy directly affects provinces. Most provinces, with the notable exception of Québec, have an agreement with Ottawa that the Canada Revenue Agency will collect and administer provincial income tax. Doing so promotes fiscal harmony in that the tax base and general income rules are the same across the land. It also means that if Ottawa does not proceed with the Proposals or delays their implementation, the agreeing provinces essentially follow the federal result. Provinces that are counting on the revenue may never get it.

Although Québec is not part of the collection scheme, it generally mirrors changes made federally. Because it administers its own tax system, Québec is uniquely in the position that it can make its own determination on whether it would enact legislation consistent with the Proposals.

To date, we understand that the Ministère des Finances du Québec has announced that it would adopt amendments to the Québec tax system after the ascent of any federal legislation or the adoption of any federal regulations giving effect to the retained measures but with the same dates as the federal measures with which they are harmonized. It has not, however, enacted such legislation. At this point, Quebecers are in the same boat as the rest of the country of having to deal with legislation that is not enacted and may never be enacted.

But Quebecers have the additional threat that legislation consistent with the federal Proposals may be enacted by the province even if the federal government does not go ahead with its Proposals.

We strongly urge Québec not to go it alone, and rather to continue to harmonize with the federal outcome. Furthermore, consistent with our recommendation to the federal government, if Québec chooses to proceed with the proposed capital gains changes, we urge that it defer their coming into effect until January 1, 2025 (with further deferral until the effective date for changes relating to Québec withholding provisions).  Neither Québec, nor Canada, should force taxpayers to guess at how to comply with their tax obligations.

John Tobin is a tax partner at Torys LLP and Carl Irvine is a member of the C.D. Howe Institute Tax Policy Council.

To send a comment or leave feedback, email us at blog@cdhowe.org

The views expressed here are those of the authors. The C.D. Howe Institute does not take corporate positions on policy matters.

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