Finance Minister Chrystia Freeland says she will deliver the overdue fall economic statement on Monday, just a day before the House of Commons’ last sitting day of Dec. 17. Why the delay? I’m not buying the lame stated excuse that filibusters have been the cause. Instead, this is a continuing display of this government’s overall incompetence.

Despite this, I look forward to seeing an update on how bad the federal deficit is and what games have been played to sugarcoat our country’s ugly fiscal mess. Put me on record as saying the estimated deficit will be much larger than earlier predicted.

I’m also hopeful that we won’t see any more so-called gifts being handed out. Our country cannot afford them. Instead, we need a basket of pro-growth and productivity measures to counter our weak economic performance and what is coming from the United States. Such measures should include massive and meaningful spending cuts.

Unfortunately, we will not see any of those measures in the statement. Instead, we’ll continue to see more of the performative theatre that this government is obsessed with.

With respect to taxes, I hope we get an update on the status of the capital gains inclusion rate proposal. With only a week before the House of Commons shuts down for the year, it’s fair to say that 2024 will not be the year that this measure gets passed.

There are a number of options available to the government to deal with the capital gains proposal. The first is that it will see the light and abandon it. That won’t happen. It has vigorously defended the proposal as being necessary for the “rich” to pay more and to deal with intergenerational “fairness.” To abandon this nonsensical messaging now would be too much of an about-face for this government.

The second option would be to introduce the proposal in a bill once the House of Commons reconvenes next month. Such a bill would ensure it continues to be retroactively effective to June 25, 2024.

The third option is to delay introducing the bill into the House until the 2025 federal budget is presented, likely sometime in March or April. That would ensure the proposal is retroactively effective to June 25, 2024, and give the government time to perfect the draft legislation (which is still imperfect and very complex).

But if either the second or third option is taken, how should affected taxpayers deal with realized or deemed capital gains in the meantime? Should they report capital gains as if the proposals apply?

The Canada Revenue Agency is encouraging taxpayers to do that because if the proposals become law, it will need to administer and collect taxes on that basis. Interest charges could also apply, although the CRA has announced it will be offering limited relief until March 3, 2025.

But what happens if the proposals never become law? On that basis, taxpayers would need to seek refunds via amended tax returns. Under those alternatives, how can the CRA update its prescribed forms and administer the proposals if the proposal will not become law until likely late spring?

The fourth alternative is for the government to seek an election before the proposal is passed into law. This would make the proposal disappear and a new government would need to reintroduce it into Parliament if desired.

I was chatting about this mess with a friend last week and he proposed there might be a fifth alternative for the government to deal with the capital gains proposal.

It’s a hybrid of the first three options above. In the fall economic statement, the government could announce another so-called gift by changing the implementation date of the capital gains increase to Jan. 1, 2025, from June 25, 2024, as many people have been calling for when the proposal was released last April.

If that fifth option comes into play, I can already hear the outcries from many affected Canadians since it would pile onto recent examples that required them and their advisers to engage in complex and costly filings only to be told that the measures were being delayed (just like in the bare trust and Underused Housing Tax filing debacles). These were the rebuttals I provided to my friend.

But he reminded me that the “mess” the government is in (given the long delay between the proposed effective date and today is now approaching six months) would be greatly reduced if the fifth alternative was put forward.

The CRA would not have to worry about administering the proposed law for 2024, while taxpayers and their advisers would gain immediate clarity. It would also eliminate the need for taxpayers to preemptively amend tax software and file tax returns based on uncertain legislation, saving them significant time and effort. The Liberal-NDP voter base would likely be indifferent since they could still hang onto their “fairness” argument.

What’s my guess? I always hesitate to be a prognosticator, but I predict a version of the second alternative above will eventually come to fruition.

Economist Adam Smith in The Wealth of Nations said, “The tax which each individual is bound to pay ought to be certain, and not arbitrary. The moment it becomes arbitrary, government begins to lose the trust of the people.”

And the 20th-century American businessman Robert Half once said, “People try to live within their income so they can afford to pay taxes to a government that can’t live within its income.”

Both are very wise thoughts for our government to ponder while putting together its fall economic statement. Canadians need our tax system to become certain and for our government to live within its means. Lofty goals, indeed, for our current government.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody. 

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