Prorogation uncertainty a "wonderful opportunity" to understand tax plans

The decision by Prime Minister Justin Trudeau to prorogue parliament until March 24th and resign following the election of a new Liberal Party leader has put many advisors and their clients into a state of uncertainty. The chief concern has been the CRA’s decision to apply the increase to the capital gains inclusion rate for individuals’ gains above $250,000 and all corporate gains, despite the fact that this is still proposed legislation and was therefore thrown out when parliament was prorogued. Despite the various emotions this elicits, from confusion to a sense of righteous indignation, one industry leader sees a real opportunity for advisors to educate their clients on the nature of legislation and the tax planning services they receive.

Nicole Ewing is Principal for the Wealth Planning Office at TD Wealth. She explains that the degree of uncertainty that many clients are now facing as a result of the prorogation offers an opportunity for advisors to level set. They can use this moment to provide clarity on what is known, what is unknown, and how tax legislation is applied in Canada. They can also fully explain the nature of the services a client receives as well as how the various tax and estate planning services they use might connect with one-another.

“It's been a wonderful opportunity for folks who are less familiar with the legislative process and what's involved in actually bringing tax legislation to life to get a better understanding of some of the nuances of how tax law is passed,” Ewing says. “And it has been challenging for people feeling a little bit confused and uncertain. That can be a challenging environment to navigate. But on the whole it's good for all of us to step back and reflect on what the what the actual law is, and how it pertains to the advice that we're giving clients.”

Ewing highlights the longstanding precedent of the CRA administering tax policy based on proposed legislation. She and her team have known this through the various decision points in 2024, including June 25th — the date after which the increased inclusion rate is applied — and at the end of the year. Her team have had to be very careful in their work with clients around those dates, and she highlights the fact that individuals and some corporations still have runway to plan their tax filings. There are also other sources of hope in the form of RRSP, RESP, and TFSA contribution room.

There is also the possibility that this proposed new legislation is never reintroduced into parliament. If that happens, clients who had to pay taxes on 66 per cent of their gains may be eligible for an eventual refund. Tax advisors, Ewing suggests, could be able to manage their filings in a way that allows an eventual claim to be made should this proposed legislation never become law. There may be need for greater clarity from the CRA on how these gains are filed, however.

Amidst these glimmers of hope can also come a sense of injustice felt by some clients. In the face of that emotion, which can often be stoked on social media, Ewing advises calm and clarity on the part of advisors. They should remind clients of the application of this gain and make it clear if this would apply to them or not. She suggests they can also redirect focus to the decisions that can meaningfully improve their outcomes, like RRSP contributions.

The inclusion rate increase is not the only piece of tax legislation that has been made uncertain by the prorogation of parliament. The charitable gifting deadline extension, for example, was announced without being put before parliament, yet the CRA has indicated they will be administering that extension. As will the increase in the lifetime capital gains exemption and the proposed Canada entrepreneurship incentive. There are so many pieces that are now in a more ambiguous place that it’s left accountants with some challenging work to do.

Ewing notes that in their work coordinating between clients and accountants, advisors can also outline what services their clients are and aren’t receiving. Many clients, she notes, will expect tax planning services from their accountant when they are actually only getting filing services. Advisors may now be able to outline the difference between those services and how clients can get them if they so choose.

“This is where we have the opportunity to highlight our value, to highlight what it is that we do, that we help guide clients through their wealth planning decisions that are not just tax,” Ewing says. “There are estate law considerations, family law considerations, creditor protection considerations, and many, many others. And so we can help them understand where tax fits into their overall planning and help them identify really what's most important for them.”