In a release published last week, the Canada Revenue Agency urged taxpayers reporting capital gains to hold off filing their returns for a few weeks.Sean Kilpatrick/The Canadian Press
Canadians are facing another tax season marred by uncertainty after complex rule changes affecting trusts and some homeowners sowed confusion last year.
This time, the main cause of headaches for taxpayers and accountants is the last-minute reversal of the Trudeau government’s proposed capital gains tax hike. But there are also questions about the fate of a slew of tax proposals that failed to become law before Parliament was prorogued in January. And an electronic-filing update by the Canada Revenue Agency has turned into an additional hiccup.
This host of issues has prompted the tax agency to allow both issuers of tax slips – such as employers and financial institutions – and some affected taxpayers to send in their paperwork later than usual without incurring penalties and interest.
CRA gives taxpayers with 2024 capital gains an extra month to file their tax returns
It’s not always clear exactly which taxpayers qualify for the relief. And some tax experts warn that compounding delays could result in a crunch of tax filings toward the end of the tax season that some accounting firms may struggle to handle.
Here’s an overview of some of the issues and extended timelines granted by CRA:
Capital gains
The most significant problems have to do with reporting capital gains – profits on the sale of assets such as real estate or stocks – realized in 2024.
Ottawa announced in the 2024 federal budget it would increase the share of capital gains included in the calculation of income tax from 50 per cent to 66.7 per cent starting on June 25 of last year. But the government failed to turn the proposal into law before Prime Minister Justin Trudeau prorogued Parliament in January.
CRA initially said it would uphold the higher capital gains inclusion rate, consistent with its long-standing practice of administering certain proposed tax changes. But the agency reversed its position after the government said on Jan. 31 that it would postpone the measure.
Ottawa’s 11th-hour policy change has created a cascade of challenges for both CRA and tax-slip issuers.
One problem is that CRA isn’t done updating its systems to fully revert to the capital gains inclusion rate of one-half. The agency is also still in the process of certifying tax-preparation software when it comes to reporting capital gains.
This means users may not be able to print or submit their returns, CRA spokesperson Sylvie Branch recently told The Globe and Mail. The agency expects the issue to be mostly resolved before the end of March, she added.
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In a release published last week, CRA urged taxpayers reporting capital gains to hold off filing their returns for a few weeks.
Another challenge is that some tax-slip issuers are having to redo their capital gains calculations, which is hampering their ability to send those forms to taxpayers by the usual deadlines.
The issue has prompted CRA to stretch out the timelines to provide certain tax slips that can carry information about capital gains.
For example, the agency has extended from the end of February to March 17 the cut-off date to send out certain T5 slips, used to report interest and investment income, as well as T5008 slips, which indicate gains or losses from the disposition of securities such as stocks and bonds.
Also, the T3 slip – Statement of Trust Income Allocations and Designations – which usually has to be mailed out by the end of March, now may be sent as late as May 1. (Taxpayers reporting capital gains on an income tax return for a trust also have until May 1 this year to file.)
Among those who can expect to receive T3 slips are many Canadians with taxable accounts holding investments such as mutual funds and exchange-traded funds, which are often structured as trusts, said Hugh Neilson, director of taxation services at Edmonton-based Kingston Ross Pasnak LLP.
CRA has said individuals reporting capital gains will have until June 2 to file their taxes without incurring late-filing penalties and interest.
However, it isn’t clear whether the relief would apply to someone who doesn’t get their T3 slips until some time in early May, after the standard April 30 deadline for filing personal income taxes, and turns out not to have capital gains to report, said John Oakey, vice-president of taxation at CPA Canada, which represents chartered professional accountants nationally.
“These are the kind of questions that continue to come up when there is minimal guidance,” he said.
Another question: What happens when a couple usually file their taxes together, but one partner is affected by the capital gains delays and eligible for the extended filing timeline while the other isn’t?
In this scenario, filing by the end of April without all the required tax slips would almost certainly result in having to submit an amended return at a later date, Mr. Neilson said.
Other proposed tax changes
Aside from capital gains is a host of other proposed tax changes that didn’t become law because of prorogation. Which ones the CRA is administering depends on a variety of factors, including whether the measures impose new or increased taxes and whether the government has provided draft legislation.
Among the changes that made it into the 2024 returns is Ottawa’s decision, announced in late December, to grant Canadians the option of claiming certain charitable donations made before March, 2025, against their 2024 income.
Also, the government is upholding a change that means renters no longer have to worry about setting aside money for their foreign landlords’ unpaid taxes. Ottawa proposed the amendment after the case of a Montreal tenant who was ordered to pay years' worth of taxes on behalf of his non-resident landlord made headlines last year.
Other tax-slip delays
Finally, a recent CRA update has also contributed to some taxpayers getting their tax slips later than usual.
In January, the agency introduced a new, stricter way of vetting of slips, including the ubiquitous T4s that record employment income. The point was to catch any errors on the slips early on and before taxpayers would file based on incorrect information, CRA spokesperson Etienne Biram said via e-mail.
But the changes resulted in some tax-slip providers running into trouble when uploading data, which prompted the tax agency to waive late-filing penalties until March 7 for all slips that are normally due at the end of February, Mr. Biram said.
Some accountants worry the compounded impact of staggered extended cut-offs to submit tax slips and tax returns will result in more Canadians filing closer to the end of April. There is also the risk of unusually high numbers – those eligible for the June 2 extension – filing in May, Mr. Neilson said.
“Accountants weren’t planning on doing personal tax returns in May, so they’re not staffed up for it,” he said.
