Online tax filing officially begins Monday, and taxpayers may have questions about the timing of some tax slips or be uncertain about penalty relief arising from the proposed increase to the capital gains inclusion rate (CGIR) and its subsequent deferral.
Jamie Golombek, managing director, tax and estate planning with CIBC Private Wealth in Toronto, suggested taxpayers review their 2023 returns and make a list of all the slips they’re expecting, “because some of them could be delayed this year.”
On Wednesday, the Canada Revenue Agency (CRA) said the previously announced relief of late-filing penalties and interest for trusts (which includes most mutual funds and ETFs) applies to T3 slips as well as T3 returns.
On Jan. 31 when the Department of Finance deferred the increased CGIR to 2026, the CRA announced arrears interest and penalty relief until June 2, 2025, for “impacted” T1 individual filers and until May 1, 2025, for “impacted” T3 trust filers (those reporting capital dispositions) to provide additional time to meet their tax-filing obligations.
In a normal year, investment funds must issue T3s by March 31. The slip was updated in December for the proposed increased CGIR.
Given the Jan. 31 deferral, the information on the T3 slip (and on slips such as T4PS and T5008) needs to be re-calculated. (The CRA extended the deadline to issue T4PS and T5008 slips to March 17.)
Also, tax practitioners, including CPA Canada, have been seeking clarity about which taxpayers will be considered “impacted” and thus qualify for penalty and interest relief.
For example, “Is a spouse an impacted T1 filer?” asked Ryan Minor, director of tax with CPA Canada in Sudbury, Ont.* Clarity is needed given “balances are determined jointly,” he said, citing pension splitting. Further, “the pension splitting form itself [T1032] is a prescribed form with a deadline. Is that extended too?”
Minor also noted that information slips such as the T1135 (foreign income verification) can be filed independently of a T1. “Does that interest and penalty relief extend to that form as well? I don’t know for sure,” he said.
CPA Canada has submitted these questions and others to the CRA. “Stay tuned for further guidance,” Minor said.
The CRA’s release on Wednesday also noted that T1 and T3 Schedule 3 will maintain the reporting of capital dispositions before and after June 25 of last year — in line with the capital gains proposal — “to ensure consistency with the tax slips that have already been published, those currently being issued to taxpayers and those filed with the CRA.”
Regardless of that filing complication, the important message to clients, Golombek said, is that “the capital gains inclusion rate is 50% for all of 2024 and, frankly, all of 2025.”
Also this week, the CRA extended the deadline by one week to issue tax slips normally due by Feb. 28, providing extra time because of changes to the electronic filing system for these information returns.
The deadline for slips such as the T4, T4A and T5 is now March 7 — an extension “largely because of IT issues,” Minor said.
Investment firms will probably aim to issue slips such as T5s by the normal deadline of Feb. 28, Golombek suggested: “Otherwise, the customer service 1-800 numbers get bombarded with calls.”
Corporations no longer get penalty relief
Corporations with certain filing due dates and that were affected by the capital gains tax changes and waited to file T2 returns could be subject to late-filing penalties and interest.
Before Jan. 31, when the CRA planned to administer the proposed increased CGIR, it had announced arrears interest and penalty relief for corporations and trusts with filing due dates on or before March 3, 2025. That relief no longer applies to corporations.
As Minor posted on LinkedIn, the CRA said there’s no longer a basis for providing relief because the forms for T2 returns related to the proposed increase to the CGIR aren’t being revised. (Revised forms had been slated for Jan. 31.)
Wait to file to avoid processing delays
On Tuesday, the CRA said its systems may not be updated by Feb. 24, when online filing begins, to reflect the current CGIR of one-half. Affected taxpayers “may avoid processing delays by waiting until the updates are completed in the coming weeks” before filing, a release said.
“I’m not overly worried about the CRA’s delay in fixing their system to accommodate the capital gains,” Golombek said, noting the filing extension for taxpayers with capital gains. “Most people in this situation that have non-registered accounts that have to report capital gains in 2024 probably won’t be in a position to file until at least the middle of March, when they’ve got all of their T slips.”
Golombek also noted that taxpayers typically file early because they’re expecting a refund. “If you really need your money back, you’ve made a mistake in tax planning, because you’ve loaned the money interest-free to the government,” he said.
*Update: The CRA has since told Minor that the announced relief doesn’t extend to spouses and that these situations can be considered on a case-by-case basis if relief is warranted. Interest relief will still be provided if the income tax return is late-filed, the CRA told Minor. Return to the original sentence.
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