Well, were you entertained with all of the political drama last week?  It started with the resignation of Finance Minister Chrystia Freeland immediately before the release of the Fall Economic Statement.  Then there was the related drama about whether or not the Fall Economic Statement would indeed be released.  After some more drama, it was.  And the grisly details of our country’s fiscal position were laid bare for all to absorb. It’s ugly despite the much crowing in the government documents.  And the tax measures were uninspiring as well.

Then we had all of the drama as to whether or not our PM would resign as leader of the Liberal Party. That drama continues today and likely will for awhile until he and the PMO leadership realizes that a “walk in the snow” is likely in the best interest of his party.

Then we had the drama of whether or not the NDP leader, who holds the balance of power, would support a motion of non-confidence to trigger an election.  After Parliament recessed, the NDP leader released a statement saying that he would bring forward such a motion when Parliament next convenes.  The obvious question not addressed in his statement is “when” in the next Parliamentary session would he bring such a motion forward?

If he fulfills such a promise, could we see an election sooner rather than later? I’ll believe it when I see it especially with a lot of chatter being that the PM could, in combination with his resignation, ask the Governor General to prorogue Parliament.  If that is granted, it would be anyone’s guess when Parliament would next convene.

Notwithstanding, I’m hopeful that we’ll see an election by early spring.  Canada needs positive change and solid leadership sooner rather than later.

While I’ve written on this before, the most common question I’ve received over the last week has been what will happen to the capital gains inclusion rate proposals if the government falls?  I’m on record as saying that I believe the proposals will eventually pass into law.  However, as each day passes, the possibility of the government falling appears more likely.  If it does, the capital gains proposals will die.

In tax law, it is very common for many technical tax changes to “die” when an election is called.  However, it is also very common for such tax technical changes to be re-introduced by the new government – even if the new government is being led by a different political party.  Why?  Because such amendments are often technical “clean-ups” to the Income Tax Act and generally do not have broad based application.  In other words, most such amendments are not controversial.  The capital gains proposals, however, do not fall into that category.  They are broad based and certainly controversial.

The Canada Revenue Agency has a long-standing practice to administer tax laws based upon proposed measures.  The tax community, including me, has long supported such a position given the non-controversial nature of most tax amendments.  Accordingly, the CRA has been administering the capital gains proposals as if they will become law.  However, the capital gains proposals are not simple “technical amendments”.  They have broad and sweeping consequences to many Canadian taxpayers.

Recent media reports state that the CRA will continue to administer the capital gains proposals even if an election is called before the proposals become law.  The CRA is on record stating: If Parliament is dissolved for an election before the higher inclusion rate has become law, the CRA will continue to administer the proposed legislation…The exception would be if the government dissolved as a result of a vote on a motion of non-confidence directly related to the proposed measure. In such a case, the CRA would cease to administer the proposed measure…Once Parliament resumes, if no bill is passed in the House of Commons, and if the government signals its intent not to proceed with the measure, the CRA would stop administering it.”

With respect, I don’t think that approach is in the best interest of Canadians. Yes, there is a chance that the proposals indeed get passed into law but it’s appearing to be a small chance.  The only path to getting the proposals into law would be if the business of Parliament can convene and get them passed.  With the NDP’s statement, a possible prorogue of Parliament and the simple time it would take to even get a bill passed, it is highly unlikely such proposals see the light of day.

Combine the above with Conservative Leader, Pierre Polievre, on record stating the Conservatives do not support the proposals and this puts the proposals on life support with very little brain activity.

Given such, I don’t agree with the CRA’s blanket policy that it will continue to administer the capital gains proposals even if an election is called.  In my view, while anything can obviously happen with an election, it is highly unlikely the Liberal Party and / or NDP forms the government after an election.  That likelihood should be taken into consideration by the CRA.  While I appreciate the conservative nature and historical relevance of the CRA’s stance, it would seem to me that a reality check is in order. Perhaps a better approach would be for the CRA to simply caution taxpayers, after an election is called, that amendments to their prior filings may be necessary (in the unlikely event the capital gains proposals become law).

So, what should Canadians and their advisors do?  Well, my two cents is that Canadians and their advisors would be wise to closely follow the politics and its related bouncy ball to see where it lands. There is a good chance we’ll be back to a broad based 50% capital gains inclusion rate and a lower capital gains deduction.

In a democracy, policy is the offspring of politics.  Therefore, watch its debate and discourse closely. As former U.S. Supreme Court justice Louis D. Brandeis once said, “The most important political office is that of the private citizen”. 

Canadians, observe the politics of the next coming months very carefully.  Your tax life depends on it.