Election Tax Planning Implications

The 2025 Canadian federal election has ushered in significant political changes with the Liberal Party, under Prime Minister Mark Carney, securing a minority government. This shift has profound implications for tax and estate planning strategies. (Canada's Liberals benefit from Trump backlash to claim poll victory)

🗳️ Election Overview

In a remarkable political comeback, the Liberal Party, led by Mark Carney, won the 2025 federal election, securing 168 out of 343 seats, just shy of a majority. This victory was influenced by a backlash against U.S. President Donald Trump's trade policies and annexation suggestions, which alarmed Canadian voters. Conservative leader Pierre Poilievre lost his seat, marking a significant downfall for the party. (Canada's Liberals benefit from Trump backlash to claim poll victory, Carney wins Canadian election, while Conservative leader loses his seat in Parliament)

💼 Tax Planning Implications

1. Cancellation of Capital Gains Tax Increase

The proposed increase in the capital gains inclusion rate from 50% to two-thirds for gains exceeding $250,000 annually was a significant concern for investors and business owners. Prime Minister Carney has officially canceled this proposal, maintaining the current inclusion rate at 50%. (Canada’s Poilievre Promises to Reverse Capital Gains Change, Canada PM Carney cancels proposed capital gains tax increase)

2. Lifetime Capital Gains Exemption (LCGE)

The LCGE remains at the increased limit of $1.25 million for the sale of small business shares, farming, and fishing properties. This provides continued opportunities for tax-efficient wealth transfer and succession planning. (Update on the Canada Revenue Agency's administration of the proposed capital gains taxation changes - Canada.ca)

🏡 Estate Planning Considerations

1. Trust Taxation

The proposed capital gains inclusion rate increase would have significantly impacted trusts used in estate planning, as all trusts (except for graduated rate estates and qualified disability trusts) are taxed at the highest marginal rate on the first dollar of income. With the cancellation of the proposed increase, the current tax treatment of trusts remains unchanged. (Cap gains hike will hit estate-planning trusts hard | Advisor.ca)

2. Planning Opportunities

The stability in capital gains taxation allows for continued use of trusts in estate planning without the immediate concern of increased tax burdens. Clients can consider strategies such as allocating gains to beneficiaries or transferring property out of trusts on a tax-deferred basis, where appropriate.

🔍 Strategic Recommendations

1. Review Asset Holdings: Assess current investment portfolios and real estate holdings to identify opportunities for tax-efficient rebalancing.
2. Utilize LCGE: Plan for the sale of qualifying assets to take advantage of the $1.25 million exemption, facilitating intergenerational wealth transfer.
3. Trust Planning: Evaluate existing trusts to ensure they align with current tax laws and consider potential restructuring to optimize tax outcomes.
4. Stay Informed: Monitor legislative developments, as minority governments can lead to policy shifts that may affect tax and estate planning strategies.

The election results have provided a degree of certainty in tax policy, particularly concerning capital gains taxation. This stability offers a favorable environment for clients to engage in strategic tax and estate planning. It is advisable to consult with financial and legal advisors to tailor strategies that align with individual circumstances and the current legislative landscape.