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.

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.

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.

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.

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?

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.

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 . 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.

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.

— Mark Carney (@MarkJCarney) August 12, 2025 Many people advocate that the CRA should only administer tax laws that are effective laws. Some go further and suggest that tax proposals should never have retroactive effective dates. Those suggestions are conceptually simple and would certainly avoid the chaos we have seen over the years, but there would be other consequences if adopted.

In a 1985 government document, The Canadian Budgetary Process Proposals for Improvement , the government recognized the problems that can exist with administering tax proposals. It also laid out the need for some tax proposals to have retroactive effect. It’s a compelling read. As a side note, the document also laid out the need for fixed budget dates as opposed to floating dates; I’d encourage Carney to read that section to ensure that budgets are not long delayed ever again.

In order to deal with the problems of administering proposed tax legislation, the 1985 document stated the following:

“The government believes that the need for provisional implementation and collection of taxes prior to their enactment can be more effectively met if specific authorizing legislation is put in place. Therefore, a statute along the lines of the provisional collection of taxes legislation in force in the United Kingdom will be proposed to Parliament. A draft bill entitled the Provisional Implementation of Taxation Measures Act is appended to this paper.”

At its core, the proposed legislation would have imposed time limits — “nine months of House of Commons time” — whereby proposed tax legislation could be provisionally administered before it either had to be formally enacted into law or abandoned. As the paper states, other countries, such as the United Kingdom, have such laws.

Unfortunately, after debate and further recommendations made by the House of Commons Standing Committee on Procedure and Organization, the proposals were never forwarded. The C.D. Howe Institute wrote about this history earlier this year in an

excellent paper . In addition, the Joint Committee on Taxation of the Canadian Bar Association and CPA Canada recommended, in a

January submission to the Finance department, that the government take active steps to introduce legislation that would govern the administration of proposed legislation.

Forty years ago, the government recognized the problems of administering proposed tax legislation. The damage and uncertainty can be great when situations arise that don’t neatly fit within the CRA’s policy of administering tax proposals, and that can lead to an erosion of trust in our tax system.

It’s time to try again. Provisional administration is often necessary, but it should be tightly constrained by law to protect both taxpayers and trust in the system.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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