The Canada Revenue Agency (CRA) says it will offer arrears interest and penalty relief to corporations and trusts affected by the proposed capital gains tax changes.
On Friday, the CRA said the relief would be provided to corporations and trusts with a filing due date on or before March 3, 2025.
“The interest relief will expire on March 3,” the CRA said. “More information will be forthcoming in the coming weeks.”
The agency said affected tax forms for individuals, trusts and corporations are expected to be available as of Jan. 31.
On Sept. 23, the Liberal government tabled a notice of ways and means motion (NWMM) in the House of Commons to introduce a bill to implement proposed changes to the capital gains inclusion rate, which will be effective retroactively to June 25, as announced in the federal budget. As of Wednesday, the motion had yet to be voted on.
The legislative limbo has created filing uncertainty for corporations and trusts, in particular: “How do you file your tax returns if you have an off-calendar year-end,” said Henry Korenblum, president of Korenblum Wealth Inc. in Toronto. “What do you do, because the tax forms aren’t out.”
Further, he said, “what [capital gains inclusion] rate applies? We’re assuming these changes will pass, but it’s not actually law.”
“In an extreme situation, you have a corporation with a June 30 year-end that sold an asset before or after June 24,” said Jamie Golombek, managing director, tax and estate planning with CIBC Private Wealth in Toronto. “How do they file their return, which is due six months after the year-end, by December 31 if we don’t have the forms available?”
Given that returns and taxes may be due before updated forms are released — now expected to happen Jan. 31 — CPA Canada had recommended that the CRA provide interest and penalty relief, said Ryan Minor, director of tax with CPA Canada in Sudbury, Ont.
While the CRA announcement suggests the agency is considering such relief, “we are still awaiting further guidance on how taxpayers should file returns before the updated forms are available, as well as specific details regarding the scope of the interest and penalty relief,” Minor said in an emailed statement.
The CRA said it is administering the changes to the capital gains inclusion rate based on the proposals in the NWMM. Golombek offered his general filing advice: “To the extent you have the ability to complete your tax return based on [the NWMM], that’s what you should do.”
“If you don’t want to be stuck refiling, work with your software providers — however they’re going to deal with it — and just see whether it’s possible to file correctly, by including the taxable gain either at the 50% or two-thirds rate, depending on when you sold the assets,” Golombek said.
Still, he said, “from a practical level, yes, [filing] is going to be complicated,” depending on tax software capabilities.
Korenblum noted that once the CRA updates its forms, tax software providers must update their software and get the agency to approve those updates, which could require time.
Tax software vendors work closely with the CRA before forms are released, said Dean Sonderegger, senior vice-president and general manager, Canada and Research and Learning of Wolters Kluwer Tax and Accounting North America.
“We are already looking at draft forms to support the capital gain calculations,” Sonderegger said in an emailed statement. “As such, we are confident we will have the software updated, approved and ready to go for tax practitioners in plenty of time for tax season.”
He noted, however, that the required legislation hasn’t been introduced as a bill, much less enacted.
“Changes that occur late in the game due to that [legislative] activity (or lack thereof) would potentially cause more significant issues” for taxpayers, Sonderegger wrote.