In 2024, the government announced changes to the capital gains inclusion rate, originally set to take effect on June 25, 2024. However, due to political uncertainty following the prorogation of Parliament, implementation was delayed to January 1, 2026. The CRA had initially planned to administer the increased 2/3 inclusion rate, but with the postponement, it has reverted to the existing 1/2 inclusion rate.
Impact on Individuals with Capital Gains
Following the initial announcement, the CRA updated tax forms, including Schedule 3, to accommodate the proposed changes. The original plan involved a 1/2 inclusion rate for capital gains realized before June 25, 2024, and a 2/3 inclusion rate for those triggered on or after that date. With the delay in implementation, these forms must now be revised again to reflect the continued 1/2 inclusion rate.
The CRA released an updated version of Schedule 3 (Capital Gains or Losses) on February 10, 2025, but most commercial tax preparation software is still undergoing updates and awaiting CRA approval for public release. Many providers may not have their software ready to e-file until mid-March, and CRA systems will not be fully prepared to process tax returns with capital gains until late March.
As a result, some taxpayers may face delays in filing their returns. To accommodate this, the CRA has announced relief from late-filing penalties and arrears interest until June 2, 2025, for “impacted T1 individual filers.” This measure is intended to provide additional time for those reporting capital gains to meet their tax obligations.
As we highlight below, this relief may not go far enough.
Delays in T3 Slips
Investors in mutual funds, ETFs, and REITs may also experience delays in receiving their T3 slips. These investments often distribute income as capital gains, and under the originally proposed rules, issuers were required to separate gains realized before and after June 25, 2024. Since many issuers had already begun preparing their tax slips accordingly, the policy reversal means they must now recalculate and reissue T3s, causing further delays.
To address this, the CRA is granting relief from late-filing penalties and arrears interest until May 1, 2025, for impacted T3 trust filers. This means financial institutions and investment firms may not issue T3 slips until May 1, 2025, but taxpayers will still have until June 1, 2025, to file their returns without penalty.
Delays in T5008 Slips
The T5008 slip, which reports capital gains from investments, is also affected. The deadline for issuers has been extended from February 28, 2025, to March 17, 2025, giving investments brokerages additional time to prepare accurate reports. This means taxpayers may receive their T5008 slips later than usually.
Ongoing Issues and Unanswered Questions
Despite these administrative relief measures, several uncertainties remain:
- Definition of “Impacted T1 Individual Filers”: As noted by CPA Canada, The CRA has not clarified whether a spouse of an impacted filer, who has no capital gains, qualifies for the deadline extension.
- Effect on Related Forms: It remains unclear whether extensions apply to prescribed forms such as the T1135 (Foreign Income Verification Statement). The penalty for failing to file a return is $25 per day for up to 100 days (minimum $100 and maximum $2,500).
- Potential Tax Return Amendments: Many taxpayers may believe they have all their tax slips in April, file their returns, and later receive a T3 slip with a large capital gain in May. In such cases, they will need to amend their returns and pay any additional tax by June 1, 2025, to avoid interest charges.
- No Extension of Payment Deadlines: These relief measures do not extend the actual tax due date. If a taxpayer files after June 1, 2025, interest could still be calculated from April 30, 2025.
Final Thoughts
The situation has created unnecessary confusion, particularly during an already short tax season. Given the uncertainty surrounding the eventual implementation of the capital gains rate increase, it would be more practical for the CRA to grant a blanket extension until June 1, 2025. This would provide taxpayers with clarity and reduce administrative burdens for both filers and tax professionals. For individuals who may be affected, we advise awaiting additional updates from the CRA, as it is still early in the tax-filing season.
