By: Florence Marino B.A., LL.B., TEP | Vice President, Tax & Estate Planning
With no spring Federal budget and Parliament on recess, there has not been much legislative activity so far this summer. On August 15, 2025 the Department of Finance released a package of legislation for comment by September 12, 2025 that would implement some previously announced tax measures and technical amendments.
Not in the package
Here are the main items of interest to us that were not contained in this package and which were originally released in draft legislation on August 12, 2024:
- The extension of the timeframe for redemption and capital loss carry-back planning to the first three taxation years of a graduated rate estate (Technical amendment expands the time frame for post-mortem capital loss carry-back planning – Tompkins Insurance);
- Ensuring the stop-loss rule in subsection 112(3.2) aligns with the first three taxation year timeline proposed for capital loss carry-back planning;
- A technical amendment that would enable post-mortem pipeline planning involving non-resident beneficiaries of a graduated rate estate providing an exemption from the trust look through rules contained in paragraph 212.1(6)(b) which would otherwise bring on dividend treatment as opposed to capital gains treatment; and
- Legislation implementing the Canadian Entrepreneurs’ Incentive (CEI).
Also of interest is the saga relating to the increase of the lifetime capital gains exemption (LCGE) to $1,250,000, intended to apply as of June 25, 2024 and begin indexation in 2026. The last word on it was in an announcement on March 21, 2025 by Prime Minister Carney in the run up to the election stating that the LCGE proposal would be maintained although the increase to the capital gains inclusion rate would be cancelled. The CRA has been administering to this intention: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-25400-capital-gains-deduction.html#deduction-limit The intended change to the LCGE was not included in the May 27, 2025 Notice of Ways and Means Motion that contained the 1% tax cut to the lowest Federal tax bracket, nor was it in the current package.
The press release did acknowledge: “Guidance on other previously announced measures will follow at a later date.”
In the package and of some interest relevant to life insurance and succession planning
EOT super-exemption details
Some tweaks to the Employee Ownership Trust (EOT) regime (for an overview, see: Employee Ownership Trusts – An unchartered option for sale of business in Canada – Tompkins Insurance) and better integration of the $10 million super-exemption with the existing LCGE for qualifying business transfers to an EOT were contained in the package. Of note, the package includes a softening and shortening of the long tail strings attached (For a discussion of these strings see: Legislative loose ends – Tompkins Insurance). This draft legislation limits the consequences of a disqualifying event (i.e., essentially an undoing of the super-exemption with liability on the vendor and EOT in the first two years post-business transfer and the EOT thereafter) to a maximum of 10 years post-business transfer. It also introduces a financial hardship exception where an active business ceases due to the disposition of all assets to satisfy debts.
However, the timeframe for qualifying business transfers to get the super-exemption still has a limited window until December 31, 2026 – so no change there. Time will tell (and that time is short for the super-exemption) whether the incentives provided and the softening of the consequences of a disqualifying event will spur greater use of this succession planning option.
Assuming there is uptake, from an insurance planning perspective, key person protection may be needed to ensure the buy-out can be completed and the debt to the vendor repaid. It may also be used to fund a buy-out of a deceased employee’s capital interest in the EOT trust.
Capital gains deferral on small business share rollovers
Existing rules contained in section 44.1 provide a deferral of the capital gain on the sale of eligible small business corporation shares (ESBC) if the proceeds are used to purchase replacement ESBC shares within 120 days of the end of the year of the qualifying disposition. The deferral is provided essentially by way of deducting the capital gain in the year it is realized and providing a corresponding reduction in the ACB of the replacement shares. Common shares of a CCPC where all or substantially all of the fair market value of the assets (to a maximum carrying value of $50 million) are used in an active business carried on primarily in Canada would currently qualify.
Originally announced in the 2024 Fall Economic Statement applicable to qualifying dispositions on or after January 1, 2025, the current package contains an expanded timeframe to purchase replacement shares to encompass the year of disposition and the entire calendar year after the year of disposition; an increase to $100 million of the carrying value of assets; and allows preferred shares to qualify as ESBC shares. These rules are limited in scope and have not been well used to this point. It is unclear if these improvements will increase their use.
Greater use of this rule would mean the ultimate tax liability on death would remain and could continue to grow. Enter life insurance.
It will be a busy fall
This package contained several tranches of legislation with many areas touched upon. The global minimum tax, modifications to the substantive CCPC rules, EIFEL exemptions and clarifications, trust reporting clarifications and additional exceptions, some softening but still strengthening of CRA audit powers and a new penalty for non-compliance, to name a few. And this is just a part of the back log.
The House of Commons resumes sitting on September 15. The new government will have to articulate its priorities and start executing them. That remains to be seen.
FOOTNOTE:
This publication is protected by copyright. Tompkins Insurance is not engaged in rendering tax or legal advice. TOMPKINSights contains a general discussion of certain tax and legal developments and should not be construed as tax or legal advice.
Should you wish to discuss this or any other TOMPKINSights article, please contact
florence@tompkinsinsurance.com
