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There have been a lot of issues in recent years regarding the Canada Revenue Agency’s administrative policy that enables them to administer proposed tax law retroactive to the proposed effective date.

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The most egregious example was the proposed capital gains inclusion rate increase in 2024. A bill was never presented to Parliament, only a Notice of Ways and Means motion (NWMM), but given the CRA’s longstanding position on administering proposed tax changes, it had the ammunition to treat it as law.

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The CRA’s position, which is consistent with parliamentary convention, is that it will wait for royal assent of any proposed legislation before issuing refunds or making payments of public funds. In cases other than payments or refunds, the CRA will administer a proposed tax measure upon announcement if the legislative amendments are publicly available in final form and presented to Parliament by way of an NWMM or a bill.

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Draft legislation that is released to the public for consultation — such as the massive batch of technical amendments released by the Finance department last week — does not fit within the CRA’s administrative practice because such proposals have not yet been presented to Parliament despite the retroactive intended application dates.

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Despite the CRA’s position, there is no need for the public to comply with its administrative practice until such time as the proposals are law. There are also many situations that don’t fit neatly within the CRA’s practice. For example, what happens if a proposal is abandoned and never becomes law? Or a controversial proposal before Parliament by a minority government has a high likelihood of not passing?

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Again, the 2024 capital gains proposals were a good example of this. They were a political hot potato, especially with all the rhetoric used to try to defend a flawed policy. They were ultimately dropped earlier this year, but not before the CRA spent significant resources administering the proposals.

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Worse, many taxpayers triggered non-reversible transactions in an attempt to get ahead of the proposed tax increase, but such planning was ultimately not necessary. The Canadian Taxpayers Federation has challenged the CRA’s practice on this and the Federal Court last week cleared the way for it to continue.

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Less controversial, the Mark Carney government proposed a one per cent personal tax decrease for the lowest tax bracket, effective July 1, 2025. The bill presented to Parliament passed second reading in the House of Commons, but ultimately died as a result of the summer recess. In order to make this proposal effective law, it will need to be brought before Parliament again to receive Royal Assent with that retroactive effective date.

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Despite that technicality, Liberal Party MPs — including Carney — have been crowing hard on their social media accounts about how great the tax decrease is and acting as if it’s effective law. It’s not, even though the CRA is administering it as if it is. It’s offensive when such proposals are trumpeted as effective law and used for political purposes, with the CRA indirectly facilitating it because of its administrative practice.