Canada to continue collecting capital gains tax despite parliament suspension, finance ministry says

OTTAWA, Jan 7 (Reuters) - Prime Minister Justin Trudeau's government will continue to collect a modified capital gains tax, the finance ministry said on Tuesday, after the proposed measure was thrown into limbo when Trudeau suspended parliament.

Trudeau said on Monday 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.

Parliament had been scheduled to open after its winter break in late January, and the delay casts uncertainty on more than a dozen bills including the capital gains tax, analysts said.

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

The measure never passed parliament but the government has been collecting the additional tax since June.

"In the event that Parliament is prorogued, or dissolved, the CRA (Canada Revenue Agency) will generally continue to administer proposed legislation consistent with its established guidelines," the Finance Ministry said in a statement.

"Upon resumption of Parliament, 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," it said.

The finance ministry did not say if it would have to refund previously collected taxes if the bill is eventually killed.

The government planned to use the tax revenue in part to build more affordable housing. It had expected to raise close to C$19.4 billion over five years starting from 2024-25.

Economists have said that if the bill fails to pass, it could hurt the government's deficit targets - which were already overshot to the tune of C$20 billion in December for the year that ended in March. ($1 = 1.4318 Canadian dollars) (Reporting by Promit Mukherjee in Ottawa, Ed White in Calgary and Anna Mehler Paperny, Divya Rajagopal in Toronto; Writing by Promit Mukherjee, editing by Deepa Babington)