Uncertainty grows over capital gains changes and Canada’s fiscal direction ahead of 2024 updates
Kim Moody, founder of Moodys Tax/Moodys Private Client and former chair of the Canadian Tax Foundation, criticised the government’s approach to the overdue fall economic statement in an opinion piece for Financial Post.
Moody highlighted Finance Minister Chrystia Freeland’s delay in delivering the statement, scheduled for Monday, a day before the House of Commons' last sitting of the year.
He called the explanation of filibusters causing the delay a “lame excuse” and described it as further evidence of governmental incompetence.
Moody predicted the deficit would exceed earlier estimates and criticised the government’s fiscal management.
He stated, “I’m not buying the lame stated excuse that filibusters have been the cause,” and added that he expects the update to reveal “how bad the federal deficit is.”
He expressed hope for measures to address weak economic performance, including spending cuts, but dismissed the likelihood of such steps being included.
Instead, Moody anticipated the continuation of “performative theatre” from the government.
Moody addressed the uncertainty surrounding the proposed capital gains inclusion rate increase, which remains unresolved as 2024 approaches.
He outlined three potential government actions: abandoning the proposal, introducing it as a bill when Parliament resumes, or delaying its introduction until the 2025 budget.
He noted that retroactive application to June 25, 2024, is likely under the latter two options.
He questioned how taxpayers should handle realised or deemed capital gains in the interim. According to Moody, the Canada Revenue Agency (CRA) advises taxpayers to report gains as if the proposal is in effect to avoid interest charges if it becomes law.
However, this approach could lead to administrative issues, especially if the proposal fails to pass.
Moody also discussed a potential fifth alternative: delaying the implementation date to January 1, 2025. He noted this could reduce the administrative burden for the CRA and provide clarity to taxpayers.
However, he acknowledged that the delay might frustrate Canadians and tax advisers already burdened by complex filings.
Reflecting on the broader implications, Moody cited Adam Smith’s principle from ‘The Wealth of Nations’: “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.”
He concluded by emphasising the need for fiscal responsibility and certainty in Canada’s tax system, labelling these as “lofty goals” for the current government.
