CPA Canada identified deficiencies in the draft capital gains legislation which were addressed in the September 23, 2024 Notice of Ways and Means Motion

CPA Canada identified issues in the August 12, 2024 draft capital gains inclusion rate legislation, which Finance took into account in the Notice of Ways and Means Motion that was released on September 23, 2024 (“WMM”). Some of these points were:

• The formulae in ss. 13(7)(b), (d) and (e) for computing the step-up in the capital cost of depreciable property where there has been a full or partial change of use or a non-arm’s length transfer produced illogical results. (These formulae were corrected in the WMM.)
• Variable E of the formula in s. 38.01 (allowing an election for the $250,000 threshold to be used for capital gains of an individual from dispositions or deemed dispositions described in any of s. 13(7)(b), (d) or (e)) seemed to allow a taxpayer which had acquired capital property and made a joint election with the transferor under 13(7.7) to deduct up to 50% of the amount covered by the election even though such transferee realized no gain on the transfer. Variable E referred to the amount covered under the election but seemed to apply both to the transferor and transferee. (This is corrected in the WMM by adding a reference in E to the elected amount being an amount relating to a capital gain of the taxpayer under s. 13(7)(b), (d) or (e)).
• Regarding, for example, Aco (with a June 30, 2024 taxation year-end) which was a member of a partnership (with a March 31, 2024 taxation year end) which realized a capital gain on March 1, 2024, given the absence of a rule to deem partners of a partnership with a taxation year ending before June 25, 2024 to have realized any allocated capital gains from the partnership in Period 1, Aco would have a capital gains inclusion rate of 2/3. (The WMM addressed this by adding a further transitional rule: s. 96(1.73).)

Neal Armstrong. Summaries of CPA Canada, “Summary of Issues Identified: Capital Gain Inclusion Rate Draft Legislation,” 3 September 2024 CPA Canada submission under s. 13(7)(e), s. 38.01(b) – E, and s. 96(1.72).