Comprehensive Court Challenge to Proposed CRA Enforcement of Capital Gains Hike Launched

Published by David Davies & Alexander Demner & Florence Sauve & Morgan Watchorn

Yesterday, Thorsteinssons LLP (Canada’s largest tax law firm) launched a comprehensive challenge in Federal Court to the Canada Revenue Agency’s proposed enforcement of the capital gains tax hike. Led by David Davies, Alexander Demner, Florence Sauve, and Morgan Watchorn, the application – available here – seeks to prevent the CRA from inappropriately administering the federal Income Tax Act as if the capital gain inclusion rate increase (from one-half to two-thirds) is law. The application was filed on behalf of a B.C. company affiliated with an employee-owned, Western Canadian engineering firm.

By seeking to collect more than what is allowed by the Income Tax Act, the application alleges that the CRA is contravening the rule of law – a fundamental Canadian constitutional principle that all are subject to the same laws, and, as here, cannot be taxed except in accordance with those laws. In particular, despite numerous recent indications that the proposed increase to the capital gains inclusion rate – which was never contained within a Parliamentary bill – will never be enacted, the CRA has begun releasing forms and asking taxpayers to report and pay taxes on the basis of unenacted, draft legislation.

The application also states that the CRA’s decision places taxpayers in an untenable position. They will be faced with either complying with the law, or complying with the CRA. Either course could lead to significant financial repercussions.

Accordingly, the applicant has asked the Federal Court to order the CRA to administer the law as currently written – which taxes capital gains at an inclusion rate of one-half – and prevent the CRA from taking any steps to enforce the two-thirds inclusion rate. As the application notes, failure to do so could cause countless Canadians to pay amounts to the CRA which they may never recover.

For inquiries, please contact David Davies, Alexander Demner, Florence Sauve, or Morgan Watchorn.