Quebec stays the course on capital gains tax, despite uncertainty in Ottawa

Quebec Finance Minister Eric Girard presents a financial update in Quebec City on Thursday, Nov. 21, 2024. (Jacques Boissinot / The Canadian Press)

For Quebec Finance Minister Eric Girard, it's a done deal. The inclusion rate for capital gains in excess of $250,000 was increased in Quebec on June 25, even though the future of the tax measure seems uncertain at the federal level.

“The measure is in effect and will remain in effect until such time as a new government (at the federal level) expresses the wish that it no longer be in effect,” said Girard at noon on Thursday, during a speech at the unveiling of the Bilan de la fiscalité au Québec (Report on Taxation in Quebec), produced by the Chaire de recherche en fiscalité et en finances publiques (Research Chair in Taxation and Public Finance) at Sherbrooke University.

In its spring budget, the Trudeau government announced an increase in the capital gains inclusion rate from 50 to 66 per cent, starting at the $250,000 threshold on June 25, 2024. Following the announcement, all the provinces, including Quebec, aligned themselves with the federal government's decision.

However, parliament is prorogued until March 24 and has not yet voted to make the change official.

The Canada Revenue Agency (CRA) has indicated that it will nevertheless apply the government's intentions. The Canadian Finance Department believes that parliamentary convention dictates that tax proposals, such as capital gains tax measures, come into force as soon as the government tables a Notice of Ways and Means Motion.

For his part, Girard said he shared this interpretation of parliamentary traditions.

This interpretation does not meet with consensus among the legal and tax experts who have spoken to the business press in recent days.

In its economic update last autumn, the finance minister estimated that increasing the inclusion rate would increase tax revenues by $1 billion for the 2024-2025 fiscal year.

A step backwards for 2024?

Without referring directly to the possible election of a Conservative government in Ottawa, Girard acknowledged that it is possible that a new administration could decide to return to the old inclusion rate.

“If that were the case, he doubted that the decision would affect gains made in 2024 and 2025. If there were a change in the future, I anticipate that the change would be prospective and not retrospective,” he said.

Turning back the clock would be unfair, as some taxpayers made decisions before the June 25 deadline to take account of the changes announced, according to the minister: “There was an incentive to make transactions before the end of June in order to remain under the old inclusion rate.”

A retroactive change would also bring certain complications, continued Girard, who pointed out that the increase in the inclusion rate was also accompanied by relaxations for Canadian entrepreneurs, particularly with regard to the deduction for purchase options.

“There were relaxations,” said Girard. “And now everyone is just talking about increasing the inclusion rate, so it's extremely complex.”

This report by The Canadian Press was first published in French on Jan. 9, 2025.