That deadline has now effectively tripled. 

Under Bill C-15 (Budget 2025 Implementation Act, No. 1), the government has extended the eligibility period for the Subsection 164(6) election from one year to three years. 

Here is what this means for your estate planning and why this is a massive win for executors dealing with complex assets. 

The Old Rule: The “12-Month Sprint” 

When a taxpayer dies, they are deemed to have sold all their capital assets (like stocks, cottage, or private company shares) at fair market value. This often triggers a massive capital gain and a large tax bill on their Final T1 Return. 

However, if the estate later sells those same assets for less than that value, the estate incurs a capital loss. 

Under Subsection 164(6) of the Income Tax Act, the executor can elect to “carry back” that loss from the estate to the deceased’s final return. This offsets the initial capital gain and recovers tax money. 

• The Problem: Previously, you had to sell the assets and file this election within the first taxation year of the Graduated Rate Estate (GRE). 
• The Challenge: Selling illiquid assets like a family business or a vacation home within 12 months is often impossible due to probate delays, market conditions, or family disputes. If you missed the deadline, the tax recovery was lost forever. 

The New Rule: The “3-Year Window” 

Bill C-15 has amended this rule to provide much-needed breathing room. 

• Extended Deadline: Executors can now file the Subsection 164(6) election for capital losses realized in any of the first three taxation years of the Graduated Rate Estate (GRE). 
• New Process: You will file a “prescribed form” to amend the deceased’s final T1 return to claim these losses, rather than just filing a standard adjustment.

This change allows executors to hold out for a better selling price on assets or wait for probate to clear without forfeiting the chance to recover significant taxes paid on the terminal return. 

Who Qualifies?

This change is effective for the estates of individuals who die on or after August 12, 2024.

• Note: If the death occurred before August 12, 2024, the old one-year rule likely still applies. 
• Requirement: The estate must still qualify as a Graduated Rate Estate (GRE) at the time the loss is realized to use this election.

What You Should Do Now 

If you are currently administering an estate for someone who passed away recently (after Aug 12, 2024), you now have more strategic flexibility.  

1. Review Asset Sales: You no longer need to “fire sale” assets within the first 12 months just to trigger a tax refund. 
2. Check GRE Status: Ensure the estate remains designated as a Graduated Rate Estate (GRE) for up to 36 months to utilize this extended window. 
3. Speak to Us: Implementing a 164(6) loss carryback requires precise calculations and the filing of amended returns. 

Official Government Resources 

However, for more technical details about 3 Year Rule for Post Mortem Tax Planning, you can refer to the official announcements and legislation below: 

• Department of Finance – Legislative Proposals (Aug 2024): 
  • See the draft legislation proposing the 3-year extension for 164(6). 
  • Read the Department of Finance Proposals 
• CRA – Preparing Returns for Deceased Persons: 
  • General guide on how to handle capital gains and losses for the deceased. 
  • CRA Guide T4011: Preparing Returns for Deceased Persons 
• CRA – Net Capital Losses: 
  • Explanation of how to carry back losses to the final return. 
  • Net Capital Losses – Canada.ca 

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What Is the Personal Support Workers Tax Credit? 

The Personal Support Workers Tax Credit is a refundable tax credit equal to 5% of eligible earnings, up to a maximum of $1,100 per year. This means that eligible PSWs can receive a direct payment from the government, even if they do not owe any income tax for the year. The credit is available for the 2026 to 2030 taxation years. 

Who Qualifies as an Eligible Personal Support Worker? 

To be considered an eligible personal support worker for the purposes of this credit, several conditions must be met: 

• Employment Role: The individual must perform duties as a personal support worker for an eligible health care establishment during the taxation year. 
• Nature of Work: The PSW must ordinarily provide one-on-one care and essential support to optimize and maintain another individual’s health, well-being, safety, autonomy, and comfort. This care must be consistent with the individual’s health care needs as directed by a regulated health care professional or a provincial/community health organization. 
• Main Duties: The main employment duties must include assisting individuals with activities of daily living and mobilization. 

What Is an Eligible Health Care Establishment? 

Eligible health care establishments include: 

• Hospitals
• Nursing care facilities
• Residential care facilities
• Community care facilities for the Older people
• Home health care establishments
• Other similar regulated health care establishments

The establishment must be regulated and provide health care services as described above . 

What Counts as Eligible Earnings? 

Eligible earnings for the credit include: 

• All taxable employment income (wages, salaries, and employment benefits) 
• Similar tax-exempt income and benefits earned on a reserve 

These earnings must be for employment as a PSW at an eligible health care establishment. Importantly, amounts earned in British Columbia, Newfoundland and Labrador, and the Northwest Territories are not eligible. These provinces and territory have separate agreements with the federal government to increase PSW wages through direct funding, so the tax credit does not apply there . 

Employers are required to certify employees’ eligible earnings in the prescribed form and manner for the credit to be claimed. 

Additionally, Self-employed personal support workers, including those providing in-home support or similar services, do not qualify for the Personal Support Workers Tax Credit as proposed in Budget 2025. Eligibility is limited to individuals who are employees of eligible health care establishments, as defined in the legislation. And whose eligible remuneration is certified by their employer. 

Additional Key Details 

• Tax Return Requirement: Individuals must file a tax return to claim the credit. If an eligible individual dies during the year, a return filed by their legal representative is deemed to be filed by the individual. 
• Bankruptcy: If an eligible individual becomes bankrupt during the year, both pre- and post-bankruptcy eligible earnings are included in the calculation for the credit.
• Employer Certification: Employers must certify the eligible earnings for each employee in the prescribed form and manner. 

When Does the Credit Apply? 

The Personal Support Workers Tax Credit applies to the 2026 through 2030 taxation years. This means the first claims can be made when filing 2026 tax returns in 2027. 

Why Is This Important? 

This credit is a direct recognition of the vital work performed by PSWs, especially in the wake of the COVID-19 pandemic and ongoing demographic changes. It provides meaningful financial support and may help with recruitment and retention in this essential sector. 

What Should PSWs and Employers Do Now? 

• PSWs: Keep records of your employment and ensure your employer is aware of the need to certify your eligible earnings. 
• Employers: Prepare to implement processes for certifying eligible earnings in the prescribed form and manner for your PSW employees. 

Example: How the Personal Support Workers Tax Credit Works 

Maria is a personal support worker employed full-time at a residential care facility in Ontario. In 2026, she earns $40,000 in wages and receives $2,000 in employment benefits, for total eligible earnings of $42,000. 

• The tax credit is 5% of eligible earnings: 5% x $42,000 = $2,100. 
• However, the maximum credit is capped at $1,100. 
• Maria’s employer certifies her eligible earnings on the required form. 
• When Maria files her 2026 tax return, she claims the credit and receives $1,100 as a refundable tax credit, even if she owes no tax. 

Therefore, If Maria worked in British Columbia, her earnings would not be eligible for this credit due to the province’s separate funding agreement. 

Conclusion 

Finally, The Personal Support Workers Tax Credit is a welcome measure for many in the health care sector. If you or your clients are PSWs, or employ PSWs, it’s important to understand the eligibility criteria and ensure all necessary documentation is in place to benefit from this new refundable tax credit when it comes into effect for the 2026 tax year. 

However, If you have questions about how this credit may apply to your situation, please contact us. 

The post Personal Support Workers Tax Credit – What You Need to Know from Budget 2025  appeared first on LRK Tax LLP.

What Is the Home Accessibility Tax Credit (HATC)? 

First, The HATC is a non-refundable tax credit designed to help Older people and people with disabilities (or their supporting family members) with the cost of making their homes safer and more accessible. 

Who is eligible? 

• Qualifying individuals: Anyone who is eligible for the Disability Tax Credit at any time in the year, or anyone who is 65 years of age or older at the end of the year. 
• Eligible individuals: This includes spouses, common-law partners, and certain close relatives (such as parents, children, siblings, aunts, uncles, nieces, or nephews) who support the qualifying individual. 

What is an eligible dwelling? 

• The qualifying individual or eligible individual must own a home in Canada, either fully or jointly.
• The qualifying individual ordinarily lives in the home during the year.

What expenses qualify? 

• Renovations or alterations that are of an enduring nature and integral to the home, and that: 
• Allow the qualifying individual to gain access to, or be mobile or functional within, the home, or
• Reduce the risk of harm within the home or in gaining access to it.  
• Examples: Installing wheelchair ramps, walk-in bathtubs, grab bars, or widening doorways. 

How much can you claim? 

• You can claim up to $20,000 in eligible expenses per year, for a maximum tax credit of $3,000 (15% of $20,000). 

What Is the Medical Expense Tax Credit (METC)? 

Next, The METC is a non-refundable tax credit that helps individuals and their supporting family members with the cost of a wide range of medical expenses, including certain home renovations. 

Who is eligible? 

Specifically, Any taxpayer who has eligible medical expenses for themselves, their spouse or common-law partner, or their dependants. 

What expenses qualify? 

• A broad list of medical expenses, including renovations or alterations to a home that are necessary for a person with a severe and prolonged mobility impairment or who lacks normal physical development, to enable them to gain access to, or be mobile or functional within, the home. 
• The expense cannot typically increase the home’s value or be incurred by someone without a disability.

How much can you claim? 

• You can claim the total eligible medical expenses minus the lesser of 3% of your net income or a fixed amount ($2,759 for 2024; this amount is indexed annually). 

Can You Claim Both Credits for the Same Expense? 

Yes, for 2025, you can “double dip.” If a home renovation or alteration qualifies for both the HATC and the METC, you can claim the same expense under both credits, provided you meet the eligibility criteria for each. 

Example: 

• You install a wheelchair ramp for your parent, who is eligible for the Disability Tax Credit and lives with you.
•  The cost of the ramp is $10,000. 
• For 2025, you can claim the $10,000 as a home accessibility expense (HATC) and also as a medical expense (METC), maximizing your tax savings. 

Furthermore, This “double dipping” is currently allowed under the law. The Canada Revenue Agency confirms you can claim both credits if an expense qualifies for each.[3]. 

What’s Changing in 2026? 

Budget 2025 proposes to end this double claim. Starting in the 2026 tax year, you will no longer be able to claim the same expense under both the HATC and the METC. If you claim an expense under the Medical Expense Tax Credit, you cannot also claim it under the Home Accessibility Tax Credit, and vice versa [4]. 

What does this mean for you? 

If you are planning eligible home renovations or alterations, completing and paying for them in 2025 could allow you to claim both credits for the same expense—something that will not be possible for expenses incurred in 2026 or later. 

Key Takeaways 

HATC: For Older people and people with disabilities (or their supporting family), for renovations that improve accessibility or safety in the home. Up to $20,000 in expenses per year. 

• METC: For a wide range of medical expenses, including certain home renovations for people with severe mobility impairments. 
• For 2025 only: You can claim both credits for the same eligible expense if you meet the criteria for both. 
• Starting in 2026: You must choose one credit or the other for each expense; double dipping will no longer be allowed. 

Planning Tip: 

Finally, If you are considering renovations to improve accessibility or safety in your home, and you or your family member qualifies, completing the work in 2025 could maximize your tax benefit by allowing you to claim both the HATC and the METC for the same expense. After 2025, you’ll need to choose which credit to claim for each expense. 

However, Always keep detailed receipts and documentation for your expenses, and consult a tax professional if you have questions about your specific situation. 

The post Understanding the Home Accessibility Tax Credit (HATC) and the Medical Expense Tax Credit (METC) : What You Need to Know for 2025  appeared first on LRK Tax LLP.

Personal Tax Returns

This section summarizes the 2025 Canada federal budget tax proposals for individuals.

New Tax Credit for Personal Support Workers (PSWs)

Starting in 2026, personal support workers (PSWs) employed in eligible health care establishments will be able to claim a new temporary tax credit. Moreover, this measure will be available from 2026 to 2030.

Value?

• 5% of eligible earnings, up to $1,100 per year.

Who qualifies?

• PSWs working in hospitals, nursing homes, residential care, community care for the Older people, home health care, and similar regulated facilities.
• The worker must provide one-on-one care and essential support to optimize and maintain another individual’s health, well-being, safety, autonomy, and comfort. Furthermore, their main duties of employment for the year must include helping individuals with daily living and mobilization activities as directed by a regulated health professional or a provincial or community health organization

Automatic Tax Returns for Low-Income Canadians

Beginning in 2025, the Canada Revenue Agency (CRA) will automatically complete tax returns for individuals whose income is below the personal exemption amount and who meet certain other criteria.

Aim?

• This ensure that all eligible Canadians receive the tax credits and benefits they’re entitled to, even if they don’t file a return themselves.

Trusts and Estates

The budget introduces important changes that impact executors, trustees, and estate planning.

Bare Trust Reporting Delayed

The government planned new reporting requirements for bare trusts starting in 2025, unless exemptions applied. However, the budget has once again delays this obligation until the 2026 tax year, giving trustees and advisors more time to prepare.

Action for Trustees

• If you participate in or believe you are part of a bare trust arrangement, contact a tax professional. They can determine if the current bare trust reporting rules apply to your situation. So you can begin preparing for the 2026 tax year.

Extended Loss Carry-Back for Estates

When someone passes away, their assets are deemed to be sold at fair market value, and any capital gains realized at this time are taxed on their final (terminal) tax return. 

If the Estate sells those assets within the first year and they lose value, it can carry back the resulting capital losses to offset gains on the terminal return, potentially generating a tax refund.

Current rules

• The primary issue is Graduated Rate Estates (GREs) can remain open for up to three years and some may take longer than a year before they are even able to begin selling assets. Under current rules, only losses realized in the first year can be carried back. So those GRE’s which have losses in years two or three are not eligible, which can mean missed tax savings.

• The budget reaffirms the government’s plan to allow GREs to carry back capital losses realized in any of the first three years to the terminal return. This will apply retroactively to deaths on or after August 12, 2024.

Expected Result

• If this passes, GREs can use capital losses recognized in the second or third year after death to offset gains reported on the deceased’s final return, resulting in a refund for the Estate.

Corporate Taxes

The budget introduces incentives to spur industrial activity and new rules for corporate tax integrity.

Canada Carbon Rebate for Small Businesses

The government reaffirms its intention to make Canada Carbon Rebate payments for small businesses tax-free and extend the filing deadline for rebates from 2019 to 2023.

Aim?

• This ensures small businesses benefit fully from these rebates without additional tax liability.

Part IV Tax Planning – New Anti-Avoidance Rules

Previous Rule

• Previously, some corporate groups used different year-ends for their operating and holding companies. This allowed them to defer Part IV tax in one corporation by paying inter-corporate dividends to a connected corporation. The result was a dividend refund of Part IV taxes for the dividend-paying company and a transfer of the Part IV tax liability to the dividend recipient.

• If the recipient had a later fiscal year end than the payor, this allowed a delay in paying the Part IV tax for up to 11 months or more depending on the complexity of the corporate structure.

New Rule

• The budget proposes new anti-avoidance rules that if in effect, would suspend dividend refunds if Part IV tax is being deferred in this kind of arrangement. The suspended refund would only be released when the top company pays dividends to individual shareholders or to non-connected corporations (those owning less than 10% of shares).

• These new rules would apply to tax years beginning on or after November 4, 2025.

How to avoid?

To avoid these new rules, companies can align their corporations’ year-end dates or pay dividends earlier so as not to defer Part IV taxes into a later year-end. To change an already established year-end of a corporation, a request to change the year-end must be submitted to the CRA.

Enhanced SR&ED Tax Credits

The budget raises the annual limit for the enhanced 35% Scientific Research & Experimental Development (SR&ED) tax credit from $4.5 million to $6 million. This change applies to tax years beginning after December 16, 2024. This means more innovation spending will qualify for the higher credit rate. Read more about SR&ED on CRA updates 2025.

Immediate Expensing for Manufacturing and Processing Buildings

Businesses can now immediately expense 100% of the cost of new or arm’s-length acquired buildings used at least 90% for manufacturing or processing goods. This measure is to encourage investment in new facilities.

Repealed and Adjusted Taxes

1. Underused Housing Tax (UHT) Cancelled

The government will eliminate the Underused Housing Tax starting in 2025. No UHT returns or taxes will be required for 2025 and beyond, but filings and penalties for 2022–2024 still apply.

2. Luxury Tax Changes

The government will remove the 10% luxury tax from boats and aircraft but keep it for vehicles costing over $100,000.

Other Notable Points

Canadian Entrepreneurs’ Incentive
Originally announced in 2024 to provide a reduced capital gains inclusion rate for entrepreneurs. This incentive was not mentioned in the 2025 budget and appears not to be moving forward.

2025 Canada Federal Budget Means for You

The 2025 federal budget introduces new tax credits. In addition, It expands incentives, and targeted anti-avoidance rules. However, If you have questions about how these changes may affect your personal or business tax situation, or if you need help planning for the new rules, our team is here to help.

Therefore, for guidance on navigating the 2025 Canada Federal Budget tax changes, contact our Canadian tax experts today.

You can read Budget 2022 Article also.

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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.

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But here’s the thing – if you don’t report those assets properly, CRA can go back multiple years, reassess you, and hit you with huge penalties. That’s exactly what happened in Azmayesh-Fard v. The King, 2025 TCC 20.

The Cost of Not Reporting Foreign Accounts

In this case, the taxpayer, Mr. Azmayesh-Fard, worked as an engineer in Libya and moved back to Canada in 1997. Before returning, he opened a Swiss bank account with $431,000 CAD, specifically to hide it from his wife. From 1998 to 2013, he never reported the account, its earnings, or filed the required T1135 Foreign Income Verification Statement.

Fast forward to a CRA audit – and the damage was brutal:

• CRA reassessed him for 16 years (1998-2013), adding all unreported income from the Swiss account.
• Gross negligence penalties under s.163(2) of the Income Tax Act (ITA) were applied for multiple years.
• Failure-to-file penalties under s.162(7), (10), and (10.1) ITA were also added for missing T1135 forms.

The Total Cost? Easily Hundreds of Thousands of Dollars

Although the exact amount Kamal Azmayesh-Fard had to pay in taxes and penalties isn’t specified, we can estimate the total cost based on the court’s findings and some reasonable assumptions.

• The CRA reassessed 16 years (1998–2013), increasing his taxable income by an average of 63% per year. If we assume his originally reported income was around $100,000 per year, that means an additional $1,008,000 in unreported income ($100,000 × 63% × 16 years = $1,008,000), resulting in approximately $403,200 in unpaid taxes ($1,008,000 × 40% tax rate = $403,200).
• On top of that, gross negligence penalties (50% of unpaid taxes) likely added $201,600 ($403,200 × 50% = $201,600).
• Failure-to-file T1135 penalties—which could include a $2,500 per year base penalty plus 5% of his highest unreported asset value ($431,000)—may have added $40,000 or more ($2,500 × 16 years + ($431,000 × 5%) = approx. $40,000).
• Interest, compounded daily over two decades, could have easily doubled or tripled the total amount owed, adding at least $400,000 (estimated based on CRA interest rates over 20+ years)

In total, his liability likely exceeded $1,000,000—far more than the $431,000 he originally deposited offshore.

Why Could CRA Reassess So Many Years?

Normally, CRA has three years (for most individuals) or four years (for certain situations) to reassess a tax return. But there’s a major exception:

• Under s.152(4)(a)(i) ITA, CRA can go back as far as they want if they determine there was “misrepresentation attributable to neglect, carelessness or wilful default.”
• In this case, the court ruled that failing to report a foreign bank account for 16 years was at least neglect, if not willful blindness.
• That meant CRA could reassess every single year all the way back to 1998.

Key Takeaways: Protect Yourself Before CRA Comes Calling

1. Own or hold more than $100,000 CAD in foreign assets? You must file a T1135.
   • It’s not optional. Failing to file can trigger daily penalties, and if CRA determines it was done knowingly, the penalties skyrocket.
2. Even if you “forget,” CRA can still go back decades.
   • As this case shows, neglect or carelessness is enough for CRA to reassess beyond the normal three-year limit.
3. Gross negligence penalties are severe.
   • These penalties can be 50% of the unpaid tax, and CRA often applies them when foreign income is hidden.
4. Just because your accountant didn’t ask doesn’t mean you’re off the hook.
   • The taxpayer in this case argued that his accountant never asked about foreign assets. The court didn’t care – it’s the taxpayer’s responsibility to report.
5. Thinking of coming clean? The Voluntary Disclosures Program (VDP) might help.
   • If you haven’t been reporting foreign income or assets, coming forward before CRA audits you could reduce penalties. But once CRA starts investigating, VDP is off the table.

Bottom Line: Don’t Play Games with Foreign Assets

As the court case demonstrates, the CRA is cracking down on unreported foreign accounts. If you have money overseas, make sure you’re reporting it properly – or you could end up like this taxpayer, facing years of reassessments, massive penalties, and a financial nightmare.

The post Have Foreign Bank Accounts? CRA Can Reassess You for Years – And It Could Cost You Big appeared first on LRK Tax LLP.

What Happens During Prorogation?

When Parliament is prorogued, all bills, including those associated with an NWMM, are effectively reset. This means the legislative process must restart in the new parliamentary session unless the NWMM is reintroduced and the corresponding bill is re-tabled in the House of Commons. The bill would then need to pass through the standard stages, including first reading, debates, committee review, and votes before reaching Royal Assent. Consequently, the capital gains inclusion rate changes remain in limbo until Parliament reconvenes and takes action, leaving taxpayers and the CRA operating in uncertainty.

Current Stance of the CRA

Despite the prorogation, the Canada Revenue Agency (CRA) will continue to administer the capital gains inclusion rate increase as if it were already in effect. The CRA has stated it will release updated tax forms by January 31, 2025, allowing taxpayers to file based on the new capital gains inclusion rate. Additionally, the CRA has promised arrears interest and penalty relief for corporations and trusts impacted by these changes that have a filing due date on or before March 3, 2025. However, there is currently no relief for individual taxpayers.

The CRA is adhering to traditional parliamentary procedures. This is consistent with the following parliamentary convention:

“It is the long-standing practice of Canadian governments to put tax measures into effect as soon as the notices of the ways and means motions on which they are based are tabled in the House of Commons, with the result that taxes are collected as of the date of this notice, even though it may be months, if not years, before the implementing legislation is actually passed by Parliament.”   

The Dilemma: What Should Taxpayers Do?

The CRA is updating its forms so that capital gains realized on or after June 25, 2024, will be subject to the new inclusion rate (however, the first $250,000 of capital gains for individuals in a given year will still be taxed under the old 50% inclusion rate).

Taxpayers do have the legal right to file their returns based on enacted legislation rather than proposed measures. The CRA’s audit manual outlines this principle:

“If the proposed legislation is not beneficial to a taxpayer, the CRA cannot require them to file on the basis of proposed legislation. In such cases, inform the taxpayer that they are responsible to apply the legislation according to the enacted legislation after royal assent, and that they may be subject to interest on amounts owing.”

However, there are risks associated with this approach. If taxpayers choose to file based on the current enacted law, which maintains the 50% capital gains inclusion rate, they may later face reassessment and be charged interest (currently 8% compounded daily) if the new legislation is enacted retroactively. This underscores the need for the CRA to consider providing an interest and penalty waiver for such cases, as noted below.

Conversely, if the legislation does not pass and the 50% inclusion rate remains, those who filed under the proposed changes may need to amend their returns, incurring additional tax filing costs and administrative burdens. This scenario also presents a challenge for the government: they would be required to repay overpaid taxes with interest (currently 6% compounded daily for individuals and 4% for corporations), further straining public finances. Note that the

If you have capital gains of up to $250,000, there’s no need to worry. You will continue to be taxed under the previous capital gains rates. This change only affects individuals with capital gains exceeding $250,000. For any capital gains above this threshold, the amount will be included in taxable income at a rate of 66.67% instead of 50%. Therefore, if you have capital gains above $250,000, please contact your tax advisor for a tailored approach.

To provide clarity on the positions of different political parties regarding the capital gains tax increase, the Federal Conservatives are requesting that the Canada Revenue Agency (CRA) assess taxpayers using the previous 50% capital gains inclusion rate until after the election. The Conservatives also pledge that if they form the government, they will “never allow it to become law.”

In contrast, the New Democratic Party (NDP) is advocating for the swift passage of the higher capital gains tax. They have criticized Prime Minister Trudeau for jeopardizing its full implementation by suspending Parliament. The NDP stated, “We firmly believe that the capital gains tax increase on the top 0.1 percent must go forward so the ultra-rich pay their fair share. Canadians are counting on us.”

A Practical Solution By CRA

A potential solution lies in subsection 220(3.1) of the Income Tax Act, which grants the Canada Revenue Agency (CRA) discretion to waive or cancel penalties and interest. The CRA could establish a policy that allows taxpayers to calculate their capital gains using the previous 50% inclusion rate, while waiving interest and penalties until, for example, December 31, 2025—by which time a new Parliament, with a renewed mandate from the people, would likely be in session.

As a result, taxpayers who file their returns using the old capital gains tax rates will have the option to amend their tax returns if the change becomes law. If the change does not become law, no further action will be required. This approach means taxpayers will avoid unnecessary amendments, and the CRA will not need to issue large interest payments, helping to prevent further national debt.

The CRA has set such precedents before. For example, in the case of bare trust reporting, when the CRA temporarily relieved taxpayers from penalties, it stated:

“In recognition that the new reporting requirements for bare trusts have had an unintended impact on Canadians, the Canada Revenue Agency (CRA) will not require bare trusts to file a T3 Income Tax and Information Return (T3 return)…”

The CRA could adopt a similar approach for the capital gains inclusion rate increase.

What Can You Do?

Taxpayers should not have to bear the cost of uncertainty during this transitional period. There is still time for most taxpayers to file for their 2024 year. In response to public concerns, The CRA has, in the past, made last-minute concessions to address similar situations. Consider reaching out to your local Member of Parliament (MP) to share your perspective on the importance of a CRA administrative policy that could provide temporary relief and foster confidence among taxpayers. As John F. Kennedy once said, “One person can make a difference, and everyone should try.”

For further guidance or to discuss your specific situation, Parliament Returns reach out to a tax professional.

The post Navigating the Capital Gains Tax Changes Amid Parliamentary Uncertainty appeared first on LRK Tax LLP.

Why a Tax on Vacant Land Could Backfire

While a vacant land tax might initially seem like a push for faster development, it could create unintended consequences. Free-market economists argue that such taxes can distort economic behaviour, particularly affecting smaller developers who may struggle with the added financial pressure. Larger developers could pass the costs onto homebuyers, worsening the housing affordability crisis. Studies in other countries show that, while the tax might initially encourage more land to be developed, this effect is likely temporary. Over time, developers may hold less vacant land, reducing their flexibility and the overall responsiveness of housing supply, exacerbating the housing shortage rather than solving it.

The Reality in Canada

Some studies on vacant land reveal that the reason for land remaining vacant was not as a result of owners holding it for speculative purposes rather that the cost of development was often too high. Evidence shows that government policies limiting the supply of housing are among the key causes of higher house prices. Studies show that, a single-detached home in Vancouver cost the home buyers $1.3 million more than it would have in a market without barriers to supply. Similarly, homes in the Toronto area now cost homebuyers an additional $350,000.

Instead of taxing real estate developers, it would be smarter to offer tax incentives to build sooner. Immediate tax breaks would motivate developers to start projects now, rather than holding out for higher returns in the future. One example is to reduce the tax rate for developers who successfully build homes, allow them to deduct interest costs during the period of construction, especially for those who reinvest the profits back into the business.

Canada’s Poor Track Record with Recent Tax Policies

Canada’s own history with new tax measures has shown inefficiency. The Underused Housing Tax and new bare trust reporting rules, for example, were poorly implemented, leading to confusion and last-minute relief measures. These didn’t raise much government revenues, and the costs to administer the UHT could “significantly reduce” revenue generated. Given these experiences, adding another layer of red tape with a vacant land tax could bog down the system and hurt productivity, instead of solving the housing crisis.

Recent tax measures like the UHT reveal that the CRA may not be equipped to handle the administration of this tax. There are fundamental grey areas that CRA employees need to make a judgement on:

1. What is considered “Vacant” Land?
2. Does someone’s extra large backyard count as “vacant land”?
3. What if a person can’t develop due to ongoing estate litigation or other hurdles?
4. What if a person can’t develop due to the costs?
5. What is the fair market value of the vacant land?

The CRA will need to employ people who understand zoning laws inside out and add another department filled with agents, auditors, administrators, lawyers, accountants, professional appraisers, and real estate experts. What is all this going to cost the average taxpayer?

Let’s Learn from Ireland’s Example

Ireland’s Vacant Site Levy was introduced in 2017 and phased in gradually. Initially set at 3% of the site’s market value in 2018, it was increased to 7% from 2019 onward. The levy applies annually to vacant or underutilized land in designated residential and regeneration zones, with landowners assessed based on the site’s market value.

Ireland’s experience with the Vacant Site Levy, as outlined in a report by the Parliamentary Budget Office (Challenges in Implementing and Administering the Vacant Site Levy), provides vital lessons for Canada. The report highlights issues like inconsistent enforcement, unclear definitions of “vacant land,” and administrative complexity, which undermined the policy’s effectiveness. If Canada proceeds with a vacant land tax, it will face similar challenges, leading to inefficiencies rather than solutions.

A Tax Incentive: A True Partnership Between Government and Taxpayers

A tax incentive approach represents more than just policy—it’s a partnership between the government and real-estate developers. Offering tax breaks to developers acknowledges their role in solving the housing problem while also providing mutual benefits. Developers receive immediate financial relief and are more likely to act quickly, while the government sees faster housing development and increased economic activity. By working together, both sides align in achieving a common goal: increasing the housing supply to meet the urgent needs of the population.

Why Tax Breaks Are a Better Solution

Tax incentives, such as reduced development costs or tax deductions/holidays, can speed up the decision-making process for developers. They would feel encouraged to start building immediately, knowing they’re receiving direct benefits for doing so. This avoids the potential drawbacks of punitive taxes and keeps housing development on track, with benefits flowing to everyone involved. The UK provided tax incentives such as Land Remediation Relief, which offered a 150% tax deduction for developers dealing with contaminated land, making redevelopment more financially attractive. Such relief will help offset cleanup costs, encouraging the use of previously neglected or derelict urban land.

Conclusion

Canada needs actionable solutions to address the housing shortage, but a vacant land tax is unlikely to provide the results the government hopes for. Examples from other countries show the pitfalls of such policies, and Canada’s recent tax missteps with the underused housing tax suggest a similar risk. Instead, tax breaks and incentives offer a practical way to work in partnership with developers, ensuring mutual benefits and a faster path to more housing. This collaborative approach could be the key to addressing Canada’s housing crisis effectively.

The government is seeking consultations on this new tax, so feel free to email your comments and feedback to VLT-TTV@fin.gc.ca.

The post Canada’s Proposed Tax on Vacant Land: Is It the Right Approach? appeared first on LRK Tax LLP.

Key Reforms Announced

The reforms, as outlined by Chrystia Freeland, Minister of Finance, include several measures designed to help Canadians enter the housing market:

1. Raising the Cap on Insured Mortgages: The government has increased the insured-mortgage price cap from $1 million to $1.5 million. This adjustment reflects the steep rise in housing prices, enabling buyers to purchase more expensive homes with down payments of less than 20%.
2. Extended Mortgage Amortization for First-Time Buyers: The government is allowing first-time homebuyers and purchasers of new builds, including condos, to access 30-year amortizations. This reduces monthly mortgage payments, providing short-term financial relief and increasing eligibility for mortgages.
3. Incentives for New Housing Construction: The federal government has also announced investments in infrastructure to support the construction of 4 million new homes. This move aims to tackle the country’s housing shortage by spurring new builds and enabling more supply in the market.

The Numbers Tell a Different Story

While these reforms aim to alleviate the financial stress of homeownership, an analysis of the numbers tells a more concerning story for young Canadians.

Let’s consider a scenario where you purchase a $1.2 million home with a 5% interest rate and a 30-year amortization. We’ll compare the monthly payments at various down payment levels. To live comfortably and avoid becoming “house-poor,” financial experts recommend keeping mortgage payments within 25% to 30% of after-tax income. We’ll also examine the income a single person and a married couple would need to comfortably afford these mortgage payments while staying within that recommended range.

For example, to afford a home worth $1.2 million with a 5% down payment, without overextending financially, a single Canadian would need to earn approximately $440,000 annually before tax, or a couple would need a combined income of $370,000. In stark contrast, the average income for Canadians aged 25 to 54 is around $68,000. This is why we believe this measure could end up hurting young Canadians than help in the long run. This could strain them financially, and could force them to make sacrifices in other areas of life, which could lead to more stress and increased mental health issues.

What This Means for Young Canadians?

While the government’s recent reforms are designed to help young Canadians achieve the dream of homeownership, the numbers reveal potential pitfalls.

• Stretching Young Canadians Thin: With the average home price in Toronto hovering around $1.1 million, even with extended amortizations, young Canadians will likely find themselves stretched. They may achieve lower monthly payments, but at the cost of taking on more debt and paying significantly more in interest over time. If interest rates go up in the future, variable interest borrowers could face unpleasant surprises in their monthly expenses.
• Jeopardizing Other Financial Goals: Spending a large portion of income on housing can leave young homeowners with little room for other expenses, including savings for retirement or emergency funds. By enabling buyers to take on more debt, these reforms might drive home prices even higher in the long run, exacerbating affordability issues. While the reforms might temporarily ease the burden, they do little to address underlying supply shortages, which continue to drive prices up. Higher debt loads may also lead to long-term financial instability for homeowners.
• Risk to Retirement: While monthly payments may become more manageable in the short term, the overall increase in total interest paid over the life of the loan may leave homeowners with less room to save for retirement or handle unexpected expenses. This could result in an increased reliance on credit or loans, further deepening financial vulnerability. This is particularly concerning in Canada, which has one of the highest household debt levels per capita among G7 countries[2] [3].

Conclusion

While the government’s mortgage reforms may provide some immediate relief to aspiring homeowners, they ultimately don’t address the deeper affordability crisis in Canada’s housing market. By raising the insured-mortgage cap and extending amortization periods, the government may inadvertently fuel further price increases, making it even harder for young Canadians to afford homes in the future. The focus should be on reducing barriers to building more homes, particularly in high-demand areas like Toronto and Vancouver, rather than enabling buyers to purchase homes they cannot truly afford.

For Millennials and Gen Z, these reforms may offer a temporary leg up, but the dream of owning a home remains elusive for many—especially without broader policy changes that address income inequality and the rising cost of living in major urban centers. As housing prices continue to soar, financial prudence and careful budgeting are more critical than ever for those navigating the increasingly difficult path to homeownership.

We’ve helped many small business owners enter the housing market tax-efficiently, maximizing after-tax income so you don’t become house-rich but cash-poor. If you’re a small business owner or incorporated professional looking for tax-smart strategies to buy a home, give us a shout.

Footnotes

[1] Government announces mortgage reform details to ensure Canadians can access lower monthly mortgage payments by December 15 – Canada.ca

[2] Canada’s household debt is now highest in the G7 (bbc.com)

[3] Research to Insights: Disparities in Wealth and Debt Among Canadian Households (statcan.gc.ca)

The post Liberal Government Mortgage Reforms: A Double-Edged Sword for Young Canadians? appeared first on LRK Tax LLP.

The government released draft legislation in August. In this article, we answer some key questions and discuss what we would like to see ironed out in the final version of the legislation.

Who Qualifies?

The Canadian Entrepreneurs’ Incentive is available where all the following conditions are met:

1. QSBC Shares: At the time of sale, the individual Claimant must directly sell qualified small business corporation shares[1]. One requirement is that 90% of the corporation’s value is derived from assets used in an active business carried on in Canada (other than the “excluded businesses” mentioned below).
   
2. 24-Month Holding Period and Minimum Ownership: For at least 24 continuous months before the sale, the claimant must have owned at least 5% of the shares (having full voting rights under all circumstances). The minimum ownership period can be any continuous 24-month period at any time since the business’ founding[2].
   
3. Active Engagement: The claimant was actively engaged in the business activities on a regular, continuous, and substantial basis for three years. This can be any combined three-year period at any time since the founding of the business[3].

Not Available to Which Businesses?

The following are considered “excluded businesses”. If you have capital gains from the sale of the following businesses, you do not qualify for the CEI.

• Professionals: such as accountants, lawyers, notaries, doctors, mental health practitioners, healthcare workers, veterinarians, optometrists, dentists, chiropractors, engineers, or architects.
• Businesses where the main asset is employee expertise or reputation.
• Consulting services.
• Financial Services: handling financial assets, transactions, credit facilitation, or changing ownership of assets.
• Insurance Services: covering underwriting, selling insurance, reinsurance, or related services.
• Property Services: appraising, renting, leasing, selling, or managing real property, including short-term lodging or vacation services, like hotels and campgrounds.
• Food and Beverage: preparing and serving food for immediate consumption.
• Cultural & Entertainment: running events, exhibits, sports, and recreation services, or showcasing historical and artistic interests.

When Does it Take Effect?

CEI would apply to sales that occur on or after January 1, 2025.

What if I Claim the Lifetime Capital Gains Exemption?

The CEI would apply in addition to any available capital gains exemption. To the extent that the seller qualifies for both the lifetime capital gains exemption (LCGE) and the CEI, they can take advantage of both tax incentives. See the example below.

Can I Undertake a Corporate Reorganization to Qualify for CEI?

There are some anti-tax avoidance rules to watch out for.

First, there are rules to prevent using what is commonly known as “butterfly” transactions, where corporate assets are split off or sold to convert the corporate capital gain into a capital gain that qualifies for the CEI.

Second, there are also rules to deny the CEI, where a corporation sells assets to another corporation for less than the fair market value of the assets, and an individual realizes a capital gain on the sale of the shares of either corporation.

Rules to Prevent Converting Dividends to Canadian Entrepreneurs’ Incentive

Normally, dividends are taxed higher than capital gains. Some people might try to avoid paying tax on dividends by setting up shares that don’t pay dividends or pay very low dividends. Instead, they plan to sell these shares later at a high price and claim the CEI. There is an anti-tax avoidance rule that says you cannot claim the CEI if the capital gain you made from selling shares is because the company didn’t pay enough dividends (less than 90% of what would be a normal return on that share). The dividend that should be paid be equal to the rate of return that a knowledgeable and prudent investor would expect to receive.

While this rule aims to prevent tax avoidance, it introduces a level of uncertainty and subjectivity. Determining what constitutes a “normal return” or what a “prudent investor” would expect may lead to inconsistent interpretations. This could create challenges for business owners and shareholders, adding complexity and risk, especially in cases where companies have legitimate reasons for reinvesting profits rather than paying dividends. It raises the question: is the Canada Revenue Agency (CRA) best positioned to make these determinations about what constitutes a reasonable rate of return?

Given the nuanced and varied nature of private business operations, it may be difficult for the CRA to consistently assess what an appropriate dividend payout would be for each business. First, it could discourage reinvestment in businesses requiring growth capital or create uncertainties for entrepreneurs trying to plan for the future. Second, it adds more red tape and work for CRA.

As such, we believe that this anti-avoidance rule may not be the most effective approach and would benefit from further clarification or guidelines to provide more certainty and reduce the risk of inconsistent application.

Example: Sale in 2029

In 2029, Larry sells the shares of his tech business for $3 million. Let’s assume that Larry has $1 million remaining in the Lifetime Capital Gains Exemption (LCGE) and that the sale qualifies for the CEI.

After applying his remaining LCGE of $1 million, Larry has $2 million in capital gains left. Under normal rules, with a two-thirds inclusion rate and a $250,000 capital gains allowance at a 50% inclusion rate, $1,291,667 would be taxable. However, with the CEI, the inclusion rate drops to one-third, so only $666,667 is taxable. At Ontario’s top tax rate of 53.53%, this results in estimated tax savings of around $335,000. As you can see the benefit could be significant.

Canadian Entrepreneurs’ Incentive and Family Trust Structure

Please note that these rules are still in draft form at the time of writing, and further clarification may be needed as the legislation evolves.

One notable comparison is with the LCGE, which allows individuals to claim a deduction on capital gains from the sale of Qualified Small Business Corporation (QSBC) shares. If a trust allocates capital gains from such shares to a beneficiary, the beneficiary may claim the LCGE, provided the shares meet the necessary qualification criteria.

In contrast, the CEI, based on the draft legislation, seems to apply more narrowly. It appears to exclude gains on trust-held property from eligibility, meaning that even if a trust allocates the gain to a beneficiary, the CEI deduction may not be claimed. The CEI is reserved for individuals who directly own and sell the qualifying shares. As a result, gains allocated through a trust may not qualify for the CEI, even if the shares themselves would otherwise meet the criteria.

This is a key difference from the LCGE, which allows trust-allocated gains to flow to beneficiaries. However, if a trust rolls out shares to an individual beneficiary just before the sale, and the beneficiary sells them directly, the CEI may apply. In this scenario, the beneficiary is considered the direct owner of the shares, and if all CEI conditions are met, they may claim the deduction, avoiding the trust exclusion.

Our Comments on the Uninformed Legislation

The benefit is good for entrepreneurs. However, we are hoping future versions of the legislation will:

1. Address Family Trust Structures: Address issues like trust ownership with more clarity so that entrepreneurs with more complex structures – including family trusts – can qualify.
   
2. Expand the list of qualifying businesses: Under the draft rules, businesses whose “main asset is employee expertise or reputation” are explicitly excluded from CEI eligibility. However, these types of businesses, such as a dental practice or a consulting firm, often assume significant risks and play a key role in Canada’s entrepreneurial ecosystem. A dentist running their practice does not qualify. Similarly, a marketing consultancy or software development firm may also be ineligible because their main assets are tied to the knowledge and skills of their employees. Despite this, these businesses require substantial investment, face market volatility, and carry considerable operational risks. By expanding eligibility to include more “expertise-based” businesses, the CEI could better reflect the entrepreneurial spirit across a broader range of industries, aligning it more closely with the LCGE and supporting a broader range of business owners. One suggestion is to allow businesses exceeding a certain number of employees to qualify (such as more than 5 full-time employees).
   
3. Remove Rules to Prevent Converting Dividends to CEI: Many small businesses reinvest profits instead of paying dividends. These rules introduce unnecessary uncertainty and complexity, potentially discouraging small business owners from utilizing the benefit due to concerns that the CRA may later reverse the claim. The business cannot be cash-rich anyway because of the QSBC test, which requires 90% of the value of the assets to be deployed in an active business. So, this may not be required.

Footnotes:

[1] Note the property could also be qualified farm or fishing property, but we only cover this article in the context of qualified small business corporation shares.

[2] Government announces details on new Canadian Entrepreneurs’ Incentive – Canada.ca

[3] See note 2.

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