Background
When Parliament was prorogued on January 6, 2025, the CRA indicated that they would continue to administer the proposed changes to the capital gains inclusion rate effective June 25, 2024 based on the proposals included in the Notice of Ways and Means Motion tabled September 23, 2024, consistent with its established guidelines.
This resulted in many people questioning whether this was appropriate—especially when some Liberal leadership candidates indicated that they would not proceed with these measures. Then, on January 31, the Department of Finance announced that it was the government’s intention to defer the implementation of the rate increase to January 1, 2026.
The CRA responded by saying that, in light of this announcement, they would revert to administering the currently enacted capital gains inclusion rate of 1/2.
However, the CRA had already almost completed the changes to their forms and guides to incorporate the proposed change, as well as having been in the process of changing their assessing systems. Tax software developers had also been hard at work to try to incorporate the changes—which was a challenge as the forms were late arriving and were revised numerous times. Now, even more changes would need to be made.
The CRA indicated that they would be working as quickly as they could to adjust their systems and forms. They also announced that they would grant relief in respect of late-filing penalties and arrears interest until June 2, 2025 for “impacted T1 individual filers”.
Current status
Electronic filing of T1 returns opened on February 24, but in a “Tax Tip” released on February 18 the CRA indicated the following:
The CRA is working diligently to update its systems to reflect the currently enacted capital gains inclusion rate of one-half. However, this update may not be completed when online filing becomes available on February 24, 2025. If you are impacted by this situation, you may avoid processing delays by waiting until the updates are completed in the coming weeks before filing your income tax and benefit return. The CRA will grant relief in respect of late-filing penalties and interest until June 2, 2025, for Individual filers and until May 1, 2025, for Trust filers, to provide additional time for taxpayers reporting capital gains to meet their tax filing obligations.
In fact, the CRA has indicated to software developers that they may not have the systems updated for the capital gains changes until the end of March.
Who is eligible for relief?
In the meantime, tax preparers are looking for guidance on what exactly the CRA meant by "impacted T1 Individual filers" in their January 31 announcement. In some communications, they have referred to taxpayers with "dispositions", which is a concern as some taxpayers may have allocations of capital gains from a trust (or partnership), but no actual dispositions. However, the aforementioned Tax Tip specifically made reference to "additional time for taxpayers reporting capital gains".
But even if the CRA bases the relief on whether the taxpayer is reporting capital gains, that may still create a challenge. For taxpayers with investments in mutual fund trusts, they often have no idea whether they will be allocated any capital gains until they receive their T3 slip. Therefore, certain taxpayers (and their tax return preparers) may not know if they are eligible for relief or not until they get their slips.
Potential delay in the delivery of T-slips
Unfortunately, the delivery of T3 slips may be delayed this year as well. Trusts are also impacted by the CRA having to re-do its forms and systems, and therefore the CRA has announced that it will “grant relief in respect of late-filing penalties and arrears interest until May 1, 2025, for impacted T3 Trust filers to provide additional time for taxpayers reporting capital dispositions to meet their tax filing obligations. This relief applies to both the filing of T3 information returns (slips) and the T3 income tax return.”
That means that T3 slips can be issued as late as May 1 without the trust being subject to late-filing penalties.
On top of all of this, the CRA has changed their systems for filing information returns (e.g., T-slips) this year, which has created additional problems. As a result, it has decided to grant relief in respect of late-filing penalties for information returns filed on or before March 7, 2025, for those information returns normally due on February 28, 2025. The CRA also indicated that as a result of the change to the effective date of the proposed capital gains inclusion rate increase, the information to be reported on certain tax slips—primarily the T3, T4PS, and T5008 (book value)—needs to be recalculated to ensure taxpayers receive accurate information. The penalty relief in relation to the submission of these information returns, except for T3 slips, to the CRA will be extended to March 17, 2025.
As of February 10, taxpayers and their authorized representatives are able to download their T-slips and other information from the CRA using their Auto-Fill-My-Return service. In prior years, many T-slips would already be available for download—but that does not appear to be the case this year. As of February 21, there were significantly fewer T-slips available to download than in prior years.
A busy May
Tax preparers that have vacation scheduled for May this year may want to re-think their plans. Tax software updates for the electronic filing of T1 returns with capital gains may not be available until April, depending on when the CRA completes their system changes. In theory, tax preparers could have the returns prepared and ready to transmit as soon as their software is updated. However, with the potential delayed arrival of T-slips, that may not be an option, and preparers may have no choice but to take advantage of the CRA’s late-filing penalty relief and still be preparing and filing returns well into May.
