Ahead of the upcoming federal election, tax experts are describing the Conservatives’ proposal to defer capital gains tax when reinvesting in Canada as a game-changer for tax planning.
To boost domestic investment, the Conservative Party of Canada proposed the Canada First Reinvestment Tax Cut, which would allow capital gains tax deferral when an asset sale’s proceeds are reinvested in active Canadian businesses. The measure would apply for a limited period — from July 1, 2025, to Dec. 31, 2026 — with the potential to be extended.
“What this policy would do if it goes forward is allow you … to get an unlimited deferral — in other words, unlimited in dollar amount and unlimited in time — by simply reinvesting in a Canadian asset,” said Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth in Toronto. “I think it actually will change the entire game in terms of tax planning.”
Golombek made his comments during a webinar on Thursday from Canadian Tax Matters, hosted by Kim Moody, founder of Moodys Private Client Law LLP in Calgary, and Jay Goodis, CEO of Tax Templates Inc. in Toronto.
While what qualifies as a Canadian asset would need to be defined, Golombek said he was “excited” about the proposed measure and described it as a “dramatic change in tax policy” that would influence taxpayer behaviour.
Specifically, the proposal would help overcome the “capital gains lock-in effect,” whereby a taxpayer puts off selling an asset that has reached its potential, because the taxpayer doesn’t want to incur capital gains tax (about 26% for a top earner in Ontario, for example).
“Tax really does cause people to delay selling an asset that they otherwise would, which means we have clients [with] portfolios that are entirely skewed because of the recent success of some of the [U.S.] tech stocks,” Golombek said. The proposal would allow them to re-diversify their portfolios by selling those stocks and investing in Canadian stocks and funds, he said.
Based on the proposal, “it seems to me that you would get an indefinite deferral of that capital gain,” Golombek said — including a deferral to death or to a spouse’s death (in the case of a rollover when the first spouse dies).
Moody suggested that the definition of taxable Canadian property under Section 248 of the Income Tax Act, which includes Canadian securities, could be refined for the purposes of the proposal. Moody also noted that the measure aims to parallel the U.S. like-kind exchange rules from Section 1031 of the Internal Revenue Code, although those rules are permanent and more broad.
As things stand, the Income Tax Act allows capital gains deferral under replacement property rules, which may cover dispositions of property used in a business or the disposition of eligible small business corporation (ESBC) shares that are reinvested in shares in another ESBC. But these replacement property rules are of “very limited use,” Moody said.
Golombek noted the Conservatives’ proposal would likely be complicated to administer. But overall, “I’m pretty interested in this from a pure policy perspective,” he said, as a way to reallocate assets into a more productive use.
In an article in The Hub, Jack Mintz, President’s Fellow, School of Public Policy, University of Calgary, projected that the proposal would generate $12.4 billion in capital investment and increase GDP by $90 billion by the end of 2026.
However, the proposal comes with risk when disposing of certain assets outside Canada, such as foreign real estate. If a client sold a Florida condo, for example, and planned to defer the capital gain, they may not be able to take advantage of the foreign tax credit.
“The foreign tax credit rules … are very limiting,” Moody said. Depending on the proposal’s details, “if you’re triggering … any foreign tax … more than likely you’re going to have a [tax] mismatch and thus expiring foreign tax credits.”
Proposed cuts to lowest tax bracket decrease value of tax credits
Both the Liberals and Conservatives proposed cutting the lowest federal tax bracket — to 14% and 12.75%, respectively — from the current 15%.
Golombek described the proposals as “a universal tax cut across the board,” given all taxpayers fall within the lowest tranche of income ($57,375 or less for 2025).
However, cutting the lowest bracket affects almost all tax credits, including the basic personal amount and pension income credit. The credits are “based on a factor, and under the Income Tax Act, that factor is defined as the lowest tax bracket,” Golombek said, so credits would be worth less under these proposals.
An analysis by the C.D. Howe Institute shows that this reduced value is significant. For example, under the 12.75% tax rate, the average pre-credit savings for taxpayers is $905, while the average loss from non-refundable credits is $483.
Golombek suggested that the winning political party may adjust its proposal to preserve the value of tax credits.
Planning tips for proposals related to seniors
The Conservatives proposed increasing the age at which an RRSP must be converted to a RRIF to 73 from 71, and the Liberals proposed reducing mandatory minimum RRIF withdrawals by 25% for one year.
With the Conservative proposal, taxpayers could contribute to their RRSPs for two more years if they have earned income, which includes rental income, Golombek said.
Regarding the RRIF-related proposal, he suggested that if a taxpayer hasn’t made their annual minimum RRIF withdrawal yet and doesn’t need the withdrawal for expenses, they may want to wait before making a withdrawal.
“The practical advice here is stop taking money out of your RRIF until you find out what this proposal is,” Golombek said, which means waiting until after the election, and if the Liberals win, waiting for the budget with the proposal’s full details.
The Conservatives have also proposed increasing the tax-free income threshold for seniors via enhanced tax credits that would create zero tax liability on the first $34,000 of employment or self-employment income.
Seniors currently get the basic personal amount ($16,129 in 2025 for taxpayers with net income of $177,882 or less) plus the age amount credit (a maximum of $9,028 in 2025) — for a total of about $25,000 tax-free for taxpayers age 65 and older who aren’t subject to clawback of the age amount credit.
While the proposal is beneficial, “it’s a very limited benefit,” Golombek said, given it’s for working seniors. “That extra $9,000 of tax-free income for a senior would have to be in the form of employment or self-employment income, and cannot be interest income on your GICs or dividend income on your bank stocks,” for example, he said.
Proposed TFSA top-up of $5,000: Not a diversification disadvantage
The Conservatives proposed allowing taxpayers to contribute an extra $5,000 a year to their TFSAs (up from $7,000), specifically for investment in Canadian companies.
Again, Moody said he expects the definition of taxable Canadian property under Section 248 would be “carved up” to be appropriate for the proposal, so that Canadian securities would be eligible investments for the top-up amount. “That would be my guess,” he said.
As noted in the webinar, the proposal would incentivize investing in Canadian assets without restricting global diversification. Between 1971 and 2005, RRSPs and pension plans had foreign content limits of 10% to 30%, but the restriction was eliminated to prioritize global diversification.
Total TFSA contribution room available in 2025 for someone who has never contributed to a TFSA and has been eligible to do so since its introduction in 2009 is $102,000. Given the proposed extra $5,000 represents less than 5% of that total, “I don’t think that the $5,000, requiring that to be in Canada, would … put [investors] at a disadvantage” from an investment diversification perspective, Golombek said.