Canada defers implementation of modified capital gains tax to January 2026

Adds comments by economist, opposition, paragraphs 8-10

By Promit Mukherjee

OTTAWA, Jan 31 (Reuters) - Canada's government announced on Friday that it would defer the implementation of controversial changes in the capital gains tax to Jan. 1 of next year.

People who fell under the ambit of the proposed changes to the tax regime were concerned about whether they would have to continue paying the modified capital gains tax after the measure failed to pass through parliament.

The measure could not pass the House of Commons last year due to a political logjam, and this year it got stalled again after Prime Minister Justin Trudeau suspended the parliament.

The government had proposed in April to increase the proportion of capital gains subject to tax to two-thirds from half for businesses and for individuals with capital gains above C$250,000 ($174,605.39).

The measure, which was supposed to have taken effect on June 25 of last year, was not officially implemented through an act of Parliament but the government has been collecting the increased tax since the stipulated date, the government said earlier this month.

Trudeau said in the beginning of the year that he would step down as leader of the Liberal Party and prime minister once his party finds a replacement, and suspended parliament until March 24.

The proposed changes were highly contested and opposed by businesses, economists and opposition leaders, who warned that the measures could chase away investors from the country.

Many again urged the government to scrap the idea completely.

The "tax hike ... would've sent our already weak and failing economy into a tailspin," the Conservative opposition said in a statement, adding that it was only a temporary reprieve for doctors, farmers, small businesses, entrepreneurs and home builders as the government wants to bring it back.

The Canadian Chamber of Commerce said the deferral does not negate the harmful impacts of the proposed tax increase on the economy at a time of looming tariffs from the U.S.

The government planned to use the tax revenue to build more affordable housing and plug its gaping deficit. It had expected to raise close to C$19.4 billion ($13.40 billion) over five years starting from 2024-25.

($1 = 1.4477 Canadian dollars)