Federal Court Rejects Challenge to CRA's Pre-Enactment Tax Administration

Date: 20260715 Docket: T-269-25 Citation: 2026 FC 955 Saskatoon, Saskatchewan, July 15, 2026 PRESENT: The [NAME]: [NAME] Applicant and ATTORNEY GENERAL OF CANADA Respondent

REASONS AND

JUDGMENT I. Overview [ 1 ] This is an application under sections 18 and 18.1 of the Federal Courts Act , RSC 1985, c F-7 [ Federal Courts Act ] for judicial review of a decision made or policy undertaken by the Canada Revenue Agency [CRA] to commence administration of a proposed increase to the inclusion rate for capital gains prior to its lawful enactment through amendment to section 38 of the Income Tax Act , RSC 1985, c 1 (5th Supp) [ITA]. [ 2 ] The Applicant describes the decision under review as the CRA’s decision made in early 2025 to administer a proposed increase to the individual inclusion rate for capital gains under the in excess of $250,000 from one-half to two-thirds [the New Inclusion Rate]. This proposed tax, as we now know, was never enacted. [ 3 ] The Applicant frames this judicial review as a challenge to a long-standing administrative practice, which I will refer to as Provisional Tax Implementation [PTI]. PTI is an administrative convention under which the CRA issues forms permitting [NAME] to file their taxes in a manner that will be compliant with upcoming legislative proposals following the tabling of a notice of [NAME] motion, but prior to their actual enactment. [ 4 ] PTI has no express statutory basis. The ITA does not authorize it. The Respondent argues that it is indirectly supported through the mandate of the CRA and the powers, duties, and functions of the Minister of National Revenue, as set out in the Canada Revenue Agency Act , SC 1999, c 17, ss 5–6. The logic of PTI is nevertheless apparent: it prevents the chaos likely to arise from tax legislation taking retroactive effect, as it avoids a rush of amendments and refiling of returns, as well as transaction-timing arbitrage around announced effective dates. [ 5 ] The Applicant has primarily claimed that this application was filed because she was personally uncertain of her legal obligations, fearing penalties or interest if her taxes were not filed under the New Inclusion Rate but expecting additional costs and burdens to recover overpayment if the New Inclusion Rate was not enacted after her taxes were filed in compliance with it. [ 6 ] However, even though the Applicant has never expressly sought standing as a public interest litigant, she presents this judicial review as an opportunity for the Court to weigh in on the constitutionality of PTI. She argues that the CRA does not have the required authority to implement and collect taxes which have not been passed by [NAME]. As a result, she says, the practice of PTI amounts to the imposition of taxes from a source other than the House of Commons, contrary to section 53 of the Constitution Act, 1867 (UK), 30 & 31 Vict, c 3, reprinted in RSC 1985, Appendix II, No 5. The Applicant suggests that ruling on this question would bring clarity both to [NAME] and to the CRA. [ 7 ] For the reasons which follow, I conclude that there is no cognizable administrative law claim raised by the Applicant. Even if there was, the matter would be moot, and this Court should not exercise its discretion to examine the purported unconstitutionality of PTI.

II. Facts A. Parliamentary and administrative background [ 8 ] On April 16, 2024, the Minister of Finance moved to table the federal government’s annual budget documents in the House of Commons. The Minister announced that the 2024 budget would raise the inclusion rate for capital gains from one-half to two-thirds on annual realized capital gains above $250,000 for [NAME], and on all capital gains realized by [NAME] and [NAME], effective June 25, 2024 (“The Budget” , House of Commons Debates , 44-1, No 300 (16 April 2024) at 1625 (Hon Chrystia Freeland); see also “Chapter 8: Tax Fairness for Every Generation” in House of Commons, Budget 2024: Fairness for every generation (16 April 2024) online: ). [ 9 ] On June 10, 2024, the Minister tabled a notice of [NAME] motion including legislation to amend the ITA ( “[NAME]: Notice of Motion” , House of Commons Debates , 44-1, No 328 (10 June 2024) at 1130 (Hon Chrystia Freeland)). The motion was carried the following day ( “[NAME]: Government Business No 25” , House of Commons Debates , 44-1, No 329 (11 June 2024) at 1640). [ 10 ] On September 23, 2024, the Minister tabled a second notice of [NAME] motion with revised draft legislation ( “[NAME]: Notice of Motion” , House of Commons Debates , 44-1, No 341 (23 September 2024) at 1510). [ 11 ] On November 15, 2024, the CRA announced its intention to begin administering the New Inclusion Rate effective as of June 25, 2025. This was the same date provided in the Budget 2024 documents. [ 12 ] On January 6, 2025, the Governor General of Canada prorogued [NAME] until March 25, on the advice of Prime Minister Trudeau. All unfinished parliamentary proceedings, including the second [NAME] motion, were thereby terminated ( [NAME] to March 24, 2025 , SI/2025-9, (2025) C Gaz II, 159 Extra No 1). [ 13 ] The following day, the CRA published the following statement on its website [the January 7, 2025 Statement]: On September 23, 2024, the Deputy Prime Minister and Minister of Finance tabled a Notice of [NAME] ([NAME]) to introduce a bill entitled An Act to amend the Income Tax Act and the Income Tax Regulations. This [NAME] modified the motion tabled on June 10, 2024. For more information about the capital gains tax changes, please visit this [NAME]. Although these proposed changes are subject to parliamentary approval, consistent with standard practice, the CRA is administering the changes to the capital gains inclusion rate effective June 25, 2024, based on the proposals included in the [NAME] tabled September 23, 2024. For all [NAME], the new inclusion rate will apply to capital gains realized on or after June 25, 2024. Impacted forms for [NAME], and [NAME] are expected to be on Canada.ca as of January 31, 2025. Arrears interest and penalty relief, if applicable, will be provided for those [NAME] and [NAME] impacted by these changes that have a filing due date on or before March 3, 2025. The interest relief will expire on March 3, 2025. More information will be made available in the coming weeks. [emphasis added] [ 14 ] In a subsequent update about the New Inclusion Rate posted on January 10, 2025, the CRA repeated some aspects of the January 7, 2025 Statement and added the following [the January 10, 2025 Statement]: Parliamentary convention dictates that taxation proposals are effective as soon as the government tables a Notice of [NAME]; this approach provides consistency and fairness in the treatment of all [NAME]. The CRA will issue the forms to allow [NAME] to file in accordance with the new capital gains rules by January 31, 2025 . Arrears interest and penalty relief, if applicable, will be provided for those [NAME] and [NAME] impacted by these changes that have a filing due date on or before March 3, 2025 . When [NAME] is prorogued, or dissolved, the CRA will generally continue to administer proposed legislation consistent with its established guidelines. Upon resumption of [NAME], if no bill is passed in the House of Commons, and the government signals its intent to not proceed with the proposed measures, the CRA would cease to administer them. If the scenario described were to materialize, the CRA will be ready to support [NAME] in ensuring any corrective reassessments of implicated returns are processed. [bold emphasis in original, underlined emphasis added] [ 15 ] The CRA published new prescribed forms reflecting the New Inclusion Rate, including a T3 Statement of Trust Income Allocations and Designations and a T4 Statement of Remuneration Paid. However, there was no evidence showing that a revised T1 Income Tax and Benefit form was issued by the CRA or filed by the Applicant. [ 16 ] On January 31, 2025, the CRA issued a new statement reversing the position expressed in the January 7, 2025 Statement. The Agency stated that the Department of Finance had shifted the effective date of the New Inclusion Rate to January 1, 2026 . As a result, it stated that for the upcoming tax season would be administered according to the inclusion rate enacted in the ITA. [ 17 ] On March 21, 2025, the new administration of the federal government announced that it would not be proceeding with the New Inclusion Rate . The CRA issued a further statement acknowledging this policy decision and confirming again that it was administering the enacted capital gains inclusion rate. B. Applicant’s circumstances and procedural history [ 18 ] On July 31, 2024, the Applicant and her husband sold a property in Woolwich, Ontario, which they had purchased in October 2009. Both the Applicant and her husband realized a taxable capital gain greater than $250,000 and consequently after the January 7 th , 2025 statement expected to owe personal taxes under the New Inclusion Rate. [ 19 ] The application for leave and for judicial review was filed on January 24, 2025. As mentioned at paragraph 2, above, the CRA’s decision to administer the New Inclusion Rate prior to its enactment was identified as the decision under review. In the Notice of Application, this decision is said to have been made on or around January 7, 2025. [ 20 ] The Applicant’s deadline to file her personal taxes for the 2024 taxation year was April 30, 2025. As mentioned above, no revised T1 form was issued by the CRA or filed by the Applicant. The Applicant ultimately filed her T1 under the enacted inclusion rate rather than the proposed New Inclusion Rate. [ 21 ] Although the effective date of the New Inclusion Rate was postponed on January 31, 2024, and the policy was subsequently set aside entirely, the Applicant maintains that the events of early 2025 caused uncertainty or confusion that amounted to a prejudicial effect justifying her request for judicial review. At the hearing, counsel conceded that this uncertainty would have been resolved by April 30, 2025, at the latest when she filed her tax return, but was unable to comment on when precisely such resolution would have taken place. [ 22 ] Prior to the hearing, the Respondent brought a motion to dismiss the application on the various grounds, including the Applicant’s failure to challenge a reviewable decision, the prematurity of the application, for lack of jurisdiction, and for mootness. On August 12, 2025, Associate Judge Moore deferred determination of the mootness issue to the hearing on the merits ( [NAME] v Canada (Attorney General) , 2025 CanLII 79624 (FC)).

III. Issues [ 23 ] A broad set of issues were raised and argued by the parties, including the various barriers to proceeding with the judicial review which were raised on the previous motion in the proceedings, as well as conflicting positions on the applicable standard of review, the merits of the application, and the appropriate remedy, if any. [ 24 ] In my view, it is not necessary to examine the entire breadth of what was disputed between the parties, as the determinative issue is whether there is a decision or policy which is amenable to judicial review. [ 25 ] If there is a reviewable decision or policy, the Court must consider whether the matter is moot and, if so, whether the Court should exercise its discretion to nevertheless hear the application.

IV. Analysis A. No reviewable decision [ 26 ] This application must be dismissed, as there is no discrete matter identified by the Applicant for judicial review. In written submissions, the Applicant first describes the January 7, 2025 Statement as an announcement of a decision but later suggests that the decision represents a CRA policy. The Applicant further describes the decision under review as a course of administrative conduct, encompassing the following actions: the publication of prescribed forms calculating amounts owed under the New Inclusion Rate; the acceptance of payment amounts calculated as owing under the New Inclusion Rate; and after the balance due date, the exercise of the Minister’s powers to collect amounts assessed as due under the New Inclusion Rate. [ 27 ] In oral argument, the Applicant explained that her position is that the January 7, 2025, Statement communicates the outcome of an administrative decision taken by the CRA on or before the date it was announced. The Applicant says that she has no access to CRA internal meeting documents or minutes and, in effect, asks this Court to infer the existence of a decision or policy that is the proper subject of the requested judicial review. [ 28 ] As the Respondent argued, all this amounts to a moving target, variously characterizing the decision under review as an administrative decision, a mandatory policy, and a continuing course of administrative conduct. [ 29 ] The key problem for the Applicant is that applications for judicial review under subsection 18.1(1) of the Federal Courts Act may not be brought where the subject matter of the review does not affect legal rights, impose legal obligations, or cause prejudicial effects to directly affected persons ( [NAME] v Toronto Port Authority , 2011 FCA 347 at para 29). [ 30 ] The Applicant argues that the rights and obligations of all [NAME] are affected by PTI, and that it causes prejudicial uncertainty. And, because the Applicant takes the view that the decision represents a policy, she says it is unnecessary for her to demonstrate that her own rights or obligations were affected by the CRA’s decision. [ 31 ] I cannot accept these arguments. It is true that certain corporate [NAME] may have had filing deadlines preceding the announcement on January 31, 2025, that the effective date of the New Inclusion Rate would be deferred until January 1, 2026. However, the rights and obligations of those hypothetical [NAME] are not proper considerations in the present application. The Applicant herself was never obligated to file or pay taxes under the New Inclusion Rate. [ 32 ] As for the argument that the CRA made a policy decision which is reviewable, I agree with the Respondent that this argument fails since compliance with PTI is voluntary. Even if the effective date had not been deferred, the Applicant would have had the choice to file her taxes under the New Inclusion Rate or the enacted rate. Had the CRA unambiguously mandated filing under the New Inclusion Rate exclusively, or taken enforcement actions against the Applicant, there could have been a stronger prima facie case that her rights were affected or that obligations were imposed on her ( [COMPANY] v Canada (Attorney General) , 2024 FC 810 at para 33). No such thing occurred here. [ 33 ] Having the choice to file according to either the New Inclusion Rate or the enacted rate does not amount to prejudicial uncertainty. In fact, any doubts about whether the New Inclusion Rate would apply to the transaction at issue in this judicial review would have dissolved completely by January 31, 2025 — only one week after the application for leave was filed. [ 34 ] For these reasons, I conclude that the Applicant has failed to bring a cognizable administrative law claim which is properly reviewable in this Court. B. Mootness [ 35 ] In the alternative to the above, I conclude that this application must be dismissed as moot. In written submissions, the Applicant disputed whether the application is technically moot to begin with, since she argues that the true underlying issue of PTI remains operative despite the reversal of the specific unlegislated tax issue instantiated by the saga of the New Inclusion Rate and its reversal. [ 36 ] However, I find that the concrete dispute in this application is tethered to the dispute about liability for tax arising from the realization of a capital gain which resulted from the Applicant’s sale of property in July 2024. PTI cannot be considered academically on an application for judicial review, and to the extent that there was a live issue surrounding the Applicant’s tax liability arising from that transaction, it was necessarily resolved by the deferral of the New Inclusion Rate’s effective date to January 1, 2026, which was announced on January 31, 2025. As a result, the matter has been moot since then. [ 37 ] In oral submissions, the Applicant focused squarely on the claim that, notwithstanding the matter’s technical mootness, that the Court should nevertheless exercise its discretion to hear the case pursuant to the factors set out in [NAME] v Canada (Attorney General) , 1989 CanLII 123, [1989] 1 SCR 342 [ [NAME] ]. [ 38 ] The factors to be considered in determining whether to entertain a moot application are: (1) the presence of an adversarial context between the parties; (2) the existence of sufficiently important issues to justify the expense of judicial resources needed to decide the case; and (3) an appreciation for the proper role of the judiciary ( [NAME] at 358–363). [ 39 ] The first factor is an adversarial context. The Applicant submits that a necessary adversarial context exists where “both sides, represented by counsel, take opposing positions” and “continue to defend opposed positions on the issues” which are “highly contested and zealously argued throughout” (citing [NAME] v Canada (Attorney General) , 2024 FC 42 at para 134 [ [NAME] ]). [ 40 ] The Applicant argued that, as seen in [NAME] , this is not a low barrier. Here, the issues remain contested and zealously argued. To illustrate this point, the Applicant notes that the parties vigorously disagreed about the scheduling of the question of mootness itself, and whether it should be analyzed at a preliminary stage rather than on the merits. The Applicant says that the persistent disagreement among the parties seen throughout the proceedings, including the earlier motion decided by AJ Moore, shows that there is a clear adversarial context. [ 41 ] There is no question that the application remains contested. As a result, I do not hesitate to conclude that the first of the three [NAME] factors is met. However, this is not determinative, as the presence of one or two factors “may be overborne by the absence of the third, and vice versa” ( [NAME] at 363). [ 42 ] The second consideration is judicial economy. The Applicant insists that the fairness and legality of PTI has been an enduring question which has been criticized by academics and even Parliamentarians for decades. Despite this, the Applicant notes that the legality of PTI has never been assessed in the Federal Court. The Applicant analogizes her case to the review of the use of emergency powers, since the live issue will “almost always be over and moot by the time a challenge can be heard on its merits” (citing [NAME] at para 148). [ 43 ] The Respondent says that it is incorrect to compare the PTI to emergency powers which are inherently evasive of review, since there is no evidence that any future issues arising from PTI will not be reviewable. Further, given the fact that [NAME] are essentially being given the option to file their taxes in compliance with prospective legislation to avoid subsequent and urgent refiling, it is well-established that there is neither any legal obligation to pay proposed taxes, nor any legal authority for the CRA to collect proposed taxes. [ 44 ] The Respondent submits that the communications by the CRA were clear about the fact that until the legislation is passed the taxes are not owed. For example, the January 10, 2025 Statement expressly states that prescribed forms would issue “to allow [NAME] to file in accordance with the new capital gains rules.” This is not mandatory language. As a result, the Respondent argues that judicial economy weighs heavily against proceeding with this application, as it lacks the evidentiary record for meaningful adjudication of a legal question. [ 45 ] I agree with the Respondent. The facts of the Applicant’s case do not lend themselves to a thorough examination of the legality of PTI. Nor is it clear why other issues arising from PTI could not plausibly make their way to this Court in the future. Within the same factual context, there could plausibly have been corporate [NAME] who filed and paid taxes under the New Inclusion Rate who might have presented a more compelling case. The Applicant filed her 2024 return under the enacted inclusion rate, and she would have known that was her obligation by January 31, 2025. [ 46 ] Therefore, I find that there are not sufficiently serious issues to be determined on this application despite its mootness. The legality of PTI is not an urgent issue that can only be addressed for the first or only time because of the Applicant’s challenge here. However, I recognize that the minority conditions in [NAME] and its prorogation in January 2025 revealed the structural flaws arising from the core assumptions underlying PTI as a conventional practice. As it turns out, the premise that budget documents will eventually be enacted will not always provide the basis of a sound argument for continuing with PTI. But this ties directly into the third [NAME] factor, which involves due consideration of the role of the judiciary. [ 47 ] [NAME] in January 2025 were undoubtedly left in a difficult position. Canada’s tax system relies on self-reporting and self-assessment. A taxpayer’s ability to understand their potential liability for tax and plan their affairs accordingly is central to a well-functioning system. To that extent, the Applicant’s efforts to seek legal clarity are understandable. But the necessary clarity arrived by the end of that month. [ 48 ] What is the most effective and fair alternative to PTI? The Applicant did not have an answer to this. At the hearing, the Court was advised that the CRA would simply have to figure out what to do next on its own if the Court agreed that the practice is unconstitutional. [ 49 ] While I appreciate the Applicant’s criticisms that PTI is a system predicated on unwritten rules, it is at the same time relied upon by the CRA to provide a consistent and predictable tax environment for [NAME]. [ 50 ] It is not this Court’s role to determine how the CRA should prepare to administer tax proposals prior to their enactment. For this reason, the final [NAME] factor also weighs against exercising discretion to hear this application despite its mootness. [ 51 ] Weighing the three factors above, I conclude that this Court should decline to consider the application on its merits despite its mootness.

V. Conclusion [ 52 ] Having found that the matter at issue is not amenable to judicial review, I conclude that the application must be dismissed. If I am wrong on this point, the matter is nevertheless moot and reaching a decision on the merits of the application neither accords with the proper role of the judiciary nor with the economical use of judicial resources. Consequently, the application must be dismissed. [ 53 ] The parties have agreed on the award of costs to be $4,000.00 to the successful party. Given the Respondent was the successful party on this application, the Applicant will be ordered to pay costs in this amount.

JUDGMENT in T-269-25 THIS COURT’S

JUDGMENT is that : The application is dismissed. Costs in the amount of $4,000 will be payable forthwith by the Applicant to the Respondent. blank "[NAME]" blank Judge FEDERAL COURT SOLICITORS OF RECORD DOCKET: T-269-25 STYLE OF CAUSE: [NAME] v ATTORNEY GENERAL OF CANADA PLACE OF HEARING: Toronto, Ontario DATE OF HEARING: June 2, 2026

REASONS AND

JUDGMENT: [NAME] J. DATED: JULY 15, 2026 APPEARANCES : [NAME] For The Applicant [NAME] For The Respondent SOLICITORS OF RECORD : [NAME], Ontario For The Applicant Attorney General of Canada Toronto, Ontario For The Respondent