Recent and prospective political developments in Canada, including the prorogation of Parliament and a possible dissolution of Parliament in the winter or spring of 2025, have important consequences for Government of Canada decision-making authorities and for its capacity, under acts, regulations and conventions, to take actions and to engage in transactions with third parties.
An understanding of this evolving context is important to assess, for example, the capacity of the government to respond to trade actions such as tariffs that may be introduced over the next weeks or months by the new US Administration of President Donald J. Trump.
The evolving context also affects whether and when tax measures proposed by the federal government but not yet legislated, such as changes in the taxation of capital gains, may be administered (provisionally) and then ultimately brought (or not) into force.
This note reviews briefly how the evolving federal political context affects the authorities of the Government of Canada as regards the enactment of laws (including taxation), the making of regulation, the funding of public expenditures and the conduct of transactions with third parties.
The Public Policy group of Bennett Jones stands ready to assist and to advise clients who may have ongoing transaction or items of legislative, regulatory or program business with the federal government, through the current period and through the transition to a new government in 2025.
On January 6, Prime Minister Justin Trudeau announced that he would resign as leader of the Liberal Party of Canada and as Prime Minister after the party selects a new leader. He further announced that the Governor General had granted his request to prorogue Parliament until March 24.
On January 9, the Liberal Party announced that the nation-wide race to choose the next leader of the party will conclude on March 9, 2025, and that the new leader would be announced on the same day.
Between now and March 9, 2024, Prime Minister Trudeau and the federal Cabinet continue to exercise their duties and responsibilities as the executive branch of government. They still have full executive authority under existing acts, regulations and conventions.
On or shortly after March 9, a new leader of the Liberal Party will be sworn in as Prime Minister together with the Cabinet that he or she may then form. The new Prime Minister and Cabinet would then assume full executive authority.
The effect of prorogation is that Parliament is not in session and that Members of the House of Commons and Senators are unable to debate and to vote on any motion or bill.
Prorogation brought to an end all proceedings before Parliament. All bills that had not yet received Royal Assent “died on the Order Paper”, which means that they are terminated; to proceed again, they would have to be reintroduced in a next session of Parliament.
In sum, there is currently a working government, but not a working Parliament.
While the government under prorogation retains all of its normal authorities, in practice, both before and after March 9, its political legitimacy may be considered tenuous. Politically, this can require restraint in decisions or actions that would bind a future Prime Minister and government.
By proclamation of the Governor General, Members of the House of Commons and Senators are summoned to meet on March 24 for a new session of Parliament. A new session begins with the reading of the Speech from the Throne. Business can then proceed in both the House of Commons and the Senate.
In this case, all three major opposition parties—the Conservative Party of Canada, the New Democratic Party and the Bloc Québécois, together holding a majority of the votes in the House of Commons—have vowed to bring down the government in a confidence vote at an early opportunity.
Under the financial cycle of the government and the Standing Orders of the House of Commons, votes must take place by March 26 on a motion to concur in supplementary estimates (for the fiscal year 2024-25) and on a motion to concur in interim supply for the next fiscal year (2025-26). These votes are matters of confidence and they may trigger an early defeat of the government.
Non-confidence in the government could be expressed through other votes, including a vote on a motion respecting the Address in Reply to the Speech from the Throne, or a vote on a motion (tabled by a Member of the opposition) stating that the House has lost confidence in the government.
If the government is defeated in the House on a question of confidence, then as per the “confidence convention”, it is expected to resign and to seek the dissolution of Parliament in order for a general election to be held.
Based on the stated intentions of opposition parties, it is unlikely that in a session beginning on March 24, Parliament could conduct much if any substantive business before the government is defeated on a vote of confidence.
Given this state of affairs, a new Prime Minister sworn into office on March 9 might choose to request before March 24 that the Governor General dissolve Parliament and call a general election. The Governor General would be expected to grant this request.
When Parliament is dissolved, the government remains in place until a new government is sworn in. However, while the routine operation of government may continue, the “caretaker convention” provides that the use of discretion by the government must be highly constrained.
Specifically, the convention provides that “To the extent possible, (…), government activity following the dissolution of Parliament – in matters of policy, expenditure and appointments—should be restricted to matters that are:
The principles of the caretaker convention also bind officials in departments and agencies. They may carry out routine functions, but they must refrain from any decisions or actions that may, or may appear to, influence or interfere with the electoral process. For example, during this period, departments should not launch new regulatory initiatives, proactively engage stakeholders on policy or regulatory development, or negotiate and advance non-routine transactions.2
Effectively, under dissolution, there is a hiatus on non-routine, non-urgent, discretionary decision- making and actions by the government, constraining the conduct of both elected and non-elected officials.
A federal election or campaign period must be at least 37 days and no more than 51 days. The election day must fall on a Monday.3
This means that if an election were called on or after March 9 and before March 24, it would have to take place no earlier than April 21 and no later than May 12. The election could take place later if called after a non-confidence vote in the House of Commons, or if the Prime Minister after March 24 advises the Governor General to dissolve Parliament and to call a general election.
Notwithstanding the domestic political context, urgent actions may be required over the next weeks or months to respond to US trade actions, such as tariffs on all (or any category) of imports of goods from Canada.
During the period of prorogation, the government has significant delegated powers from Parliament.
In particular, the Customs Tariff provides that “…for the purpose of enforcing Canada’s rights under a trade agreement in relation to a country or of responding to acts, policies or practices of the government of a country that adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada”, the Governor in Council (the Governor General acting on the advice of the Cabinet and in this case specifically on the advice of the Minister of Finance and the Minister of Foreign Affairs) may, by order, do any one or more of the following:
This authority was used in 2018 to impose surtaxes on imports of steel, aluminum and other goods from the United States in response to tariffs imposed by the US government, under the first Trump administration, on Canadian steel and aluminum imports into the United States.
Authorities are also available to the government under other acts. For example, under the Energy Supplies Emergency Act, the Governor in Council may order the regulation of the export of any controlled (i.e., petroleum) product indefinitely or for any specified period.
Thus, even in a period of prorogation, the Government of Canada has authorities (delegated from Parliament) at its disposal to proceed with responses to trade actions by the United States and any other trading partner.
As a matter of policy, orders such as referenced above made by the Governor in Council are subject to a Cabinet Directive on Regulation that includes, among other requirements, pre-publication in the Canada Gazette, Part I for a period of consultation of 30 days or more. However, the Directive specifies that exemptions from certain requirements can be granted by the Treasury Board or Cabinet in cases of serious and immediate risk to the health and safety of Canadians, their security, the environment, or the economy. In accordance with the Statutory Instruments Act, all approved regulations are published in the Canada Gazette, Part II, after they are made and registered.
The situation would be considerably more complicated if US trade actions affecting the interests of Canada (or other matters of national emergency) were to materialize during the period when Parliament is dissolved.
Arguably, under the caretaker convention, responses by the government could be considered as matters that are urgent and in the public interest, and/or justified if agreed by opposition parties. However, even if technically admissible, such high profile policy initiatives during the electoral period would be highly unusual and subject to controversy as a matter of process let alone substance.
The authority to levy taxes and to spend public monies is granted by Parliament.
No amendment to any tax law may be made without the approval of Parliament and Royal Assent.
This said, as a matter of convention, the Canada Revenue Agency (CRA) may begin to administer a new tax measure after the tabling in Parliament by the Minister of Finance (generally concurrent with or following a budget or economic statement) of a Notice of Ways and Means Motion (NWMM) that sets out the intention of the government to bring forward the legislation to implement the change. The ensuing legislation may then stipulate that once enacted, it will provide that the change is effective (e.g., retroactive) as of the date specified in the NWMM.
For example, a matter of considerable interest is the change announced in Budget 2024 to increase the inclusion rate on capital gains realized annually above $250,000 by individuals and on all capital gains realized by corporations and trusts from one-half to two-thirds, effective June 25, 2024.
A first NWMM to bring forward legislation to implement this change was tabled on June 10, 2024, and it was adopted by the House on June 11.4 A revised NWMM was tabled on September 23, 2024.5 Legislation has not yet been tabled and thus Parliament has not voted the tax change.
Nevertheless, the CRA has indicated that it will administer the Income Tax Act as if the proposed measure had been legislated, effective June 25, 2024, as per the NWMM of September 23.6
Should the measure ultimately not be legislated, the steps taken by the CRA will need to be reversed or modified to conform with the existing legislation or with any alternative change introduced by the new government. In the interim, there is considerable taxpayer uncertainty.
Many other tax measures announced by the current government in prior budgets or economic statements with an intention to have retroactive effect have yet to be legislated.7 In all likelihood, the fate of these measures will be decided after the next general election by a new government and Parliament.
The fiscal framework of the government and its spending authorities for 2025-26 are also uncertain.
The spending of monies by government requires authority from Parliament that is granted through appropriation acts, or supply bills which authorize charges against the Consolidated Revenue Fund up to the amounts approved in Estimates presented by the President of the Treasury Board. In a typical cycle, Parliament approves interim supply (before the beginning of the fiscal year), main estimates (normally in June), and supplementary estimates (sought at specific times during the year to include unanticipated spending requirements and items announced in the budget).
In this case, it is possible that Parliament will be dissolved before the granting of any spending authority for 2025-26 (and no authority for amounts set out in Supplementary Estimates C that cover the final items of spending for 2024-25 for which authority has not yet been secured).
For such exceptional circumstances, there are provisions for the government to ask the Governor General to issue special warrants permitting the government to spend monies not otherwise authorized by Parliament, provided that expenditures are urgently required for the public good.8
Special warrants enable the continued operation of the government—for example, the payment of transfers to individuals and to the provinces and territories, the payment of salaries to government employees, the servicing of the public debt, the payment of bills for the goods and services that the government acquires in the normal course of business, and the payment of obligations to third parties under contribution agreements or contracts (e.g., under ongoing programs and services).
Special warrants would normally not be available to fund any new discretionary spending, for example any new discretionary initiative or undertaking announced after the dissolution of Parliament.
The amounts of the special warrants will be included in the next appropriation act for the fiscal year but will not be voted upon.
Special warrants may be used only from the date of dissolution of Parliament until 60 days following the date of the general election.
As discussed above, under prorogation the government may continue to exercise all regulatory authorities delegated to it under acts of Parliament, and it may thus continue to consult on and to implement regulation and to issue orders such as under the Customs Tariff.
Under dissolution, however, the use of regulatory authority by the government is tightly constrained by the caretaker convention.
Similarly, in and of itself, prorogation does not interfere with the capacity of government to conduct transactions with third parties under existing law, regulation, programs and spending authorities, and in doing so, to use normal delegated authorities.
Once Parliament is dissolved, the caretaker convention provides that while routine business may continue, ministers, departments and officials must exercise considerably less discretion in conducting new transactions with third parties.
If Parliament is dissolved, it is only after a new Parliament is elected, a new government is sworn in, and Parliament is summoned to meet that the business of government may return to normal.
In the current context, the timeline is highly uncertain.
After an election, it would take one week to 10 days for a Cabinet to be formed and to be sworn in. For example, if an election were to be held on May 12, a new government would take office in the second half of May. The new government would then have executive authority under existing acts, regulation and conventions to conduct business and to begin to advance its agenda.
Early in their mandate, a new Prime Minister and government are confronted with a large number of organizational, policy and political responsibilities as well as domestic and international pressures. In the current context, this would include early engagement with the Trump administration and preparations for a G7 Summit to be hosted by Canada in Kananaskis, June 15-17.
Parliament is summoned by a proclamation issued by the Governor General on the advice of the Prime Minister. The opening of a new Parliament begins with the swearing in of the members of the House of Commons, the election of a Speaker of the House, and the Speech from the Throne.
An early step in any new session of Parliament is a motion moved by the President of the Treasury Board to begin the business of supply that enables the government to secure expenditure authority.
Once these and other matters of procedure are completed, the normal business of Parliament can begin and the government may introduce new legislation (in the case of tax proposals, this must be preceded by the tabling of a NWMM).
Under the existing Standing Orders of the House of Commons, Parliament would rise on June 20 for summer recess.
Depending on the date of an election, and the date when Parliament is reconvened, this may leave few days for substantive business, for example the presentation of a budget and the ensuing debate, before summer recess.
However, the House can vary the calendar by unanimous consent or by the adoption of a motion following notice and debate.
Overall, given the political situation, it is difficult at this time to predict the timing and sequence of Parliamentary activity in the Spring and in the following months.
There is no obligation or even expectation that a new government, after a general election, will follow through on policy intentions, such as tax proposals, announced by a prior government but not yet legislated or in force, or transactions with third parties negotiated but not closed.
However, a new government may generally be expected to honour commitments entered into by the prior government with third parties, for example payments under multi-year procurement contracts or contribution agreements.
Similarly, the corresponding expenditures will normally be authorized by Parliament under appropriation bills (e.g., main or supplementary estimates).
However, it is within the discretion of a new government and a new Parliament to revisit prior undertakings. For example, there have been high-profile instances of large procurement contracts being cancelled by an incoming government, in some cases with payment of contractual penalties.
Canada has entered a period of high uncertainty under a political situation that is evolving and that affects as per law, convention, and practice, the authorities of the Government of Canada and its capacity to act.
Interactions of third parties with the Government of Canada over the next months will benefit from a solid understanding of this context.
Bennett Jones stands ready to advise and to assist its clients in this regard.
1 Privy Council Office, Guidelines on the conduct of Ministers, Ministers of State, exempt staff and public servants during an election August 2021, https://www.canada.ca/en/privy-council/services/publications/guidelines-conduct-ministers-state-exempt-staff-public-servants-election.html
2 Ibid.
3 See Elections Canada, https://www.elections.ca/content.aspx?section=ele&dir=cycle&document=index&lang=e
4 See: Notice of Ways and Means Motion to introduce An Act to amend the Income Tax Act and the Income Tax Regulations, June 2024, https://fin.canada.ca/drleg-apl/2024/nwmm-amvm-0624-eng.html
5 See: Notice of Ways and Means Motion to introduce a bill entitled An Act to amend the Income Tax Act and the Income Tax Regulations and Explanatory Notes, September 2024, https://fin.canada.ca/drleg-apl/2024/nwmm-amvm-0924-eng.html
7 See : Chartered Professional Accountants Canada, Prorogation puts tax legislation in limbo, https://www.cpacanada.ca/news/analysis/prorogation
8 Supra, footnote 1.