Recent Tax Filing Extensions and Updates in Canada

The Canada Revenue Agency (CRA) has recently announced an extension of filing deadlines for certain tax and information returns, including T1 Personal Income Tax Returns, T3 Trust Income Tax and Information Returns, and other filings, providing taxpayers with additional time to comply without penalties. This update is crucial for individuals, businesses, and trusts navigating the latest tax changes in 2025.

Key Filing Extensions for 2025

1. T1 Personal Income Tax Returns - Relief for Capital Gains Filers

• The general filing deadline for T1 Personal Income Tax Returns remains April 30, 2025.

• However, the CRA has granted relief from late-filing penalties and interest until June 2, 2025, specifically for individuals who have capital gains transactions in their 2024 tax returns. This provides affected taxpayers with additional time to complete their filings accurately.

• For self-employed individuals and their spouses or common-law partners, the filing deadline remains June 16, 2025 (since June 15 falls on a Sunday, pushing the deadline to Monday).

2. T3 Trust Returns - Extended Deadline

• The general filing deadline for T3 Trust Income Tax and Information Returns remains March 30, 2025.

• However, the CRA has granted relief from late-filing penalties and interest until May 1, 2025, for trusts reporting capital gains transactions.

• This relief allows trusts additional time to ensure their returns accurately reflect capital gains tax implications without incurring penalties.

3. Other Information Returns - Extended Deadline

• The CRA has extended the filing deadline for T4 (Statement of Remuneration Paid) and T5 (Statement of Investment Income).

• These are information returns that employers and financial institutions must provide to both the CRA and individuals.

• Originally due February 28, 2025, these forms can now be filed without penalties until March 7, 2025.

• Employers and financial institutions benefit from this relief, ensuring compliance without incurring unnecessary fines.

Capital Gains Inclusion Rate Change – Effective January 1, 2026

• The Department of Finance has confirmed that the proposed capital gains inclusion rate increase will take effect on January 1, 2026.

• The inclusion rate will increase from one-half (50%) to two-thirds (66.67%) for:

• Individuals with annual capital gains exceeding $250,000.

• All capital gains realized by corporations and most types of trusts.

• This means a greater portion of capital gains will be included in taxable income, increasing overall tax liability for affected taxpayers.

• This change underscores the importance of strategic tax planning, particularly for individuals and businesses with significant investment portfolios.

Why These Extensions Matter

• Additional time for compliance: The extensions grant businesses and taxpayers more flexibility to prepare accurate returns.

• Avoidance of penalties: Filing within the new deadlines ensures that taxpayers do not incur unnecessary fines.

• Opportunity for financial planning: With the upcoming capital gains inclusion rate change in 2026, taxpayers have more time to consult professionals on strategic tax planning.

Next Steps for Taxpayers

If you are affected by these extensions, take the following actions:

• Review your tax obligations: Identify whether you qualify for the T1, T3, T4, or T5 deadline extensions.

• Ensure timely filing: While penalties related to capital gains are waived until June 2, 2025, for individuals, interest on unpaid balances will still accrue starting May 1, 2025. Therefore, filing and paying by the original April 30, 2025, deadline is recommended to avoid interest charges.

• Consult a tax professional: Planning ahead can help maximize deductions, defer capital gains, and ensure compliance with CRA regulations.

The CRA continues to adjust tax policies to accommodate changing economic conditions and taxpayer needs. Stay informed and take advantage of the available relief measures to optimize your financial strategy.

Get Expert Tax Assistance

If you need help understanding how these changes impact you or your business, our team of tax professionals is here to assist. Contact us today for expert advice on tax planning and compliance.

Understanding the Capital Gains Deferral and Upcoming Tax Changes

The Government of Canada recently announced a deferral in the implementation of the proposed changes to the capital gains inclusion rate, shifting the effective date from June 25, 2024, to January 1, 2026. This decision provides taxpayers—both individuals and businesses—with additional time to plan their financial strategies accordingly.

Key Highlights of the Capital Gains Inclusion Rate Change

The capital gains inclusion rate determines how much of a capital gain is subject to taxation. As per the revised timeline:

• Until December 31, 2025, the inclusion rate remains at 50% for all capital gains.

• Effective January 1, 2026, the inclusion rate will increase to two-thirds (66.67%) on:

• All capital gains exceeding $250,000 per year for individuals.

• All capital gains for corporations and most types of trusts.

Measures to Mitigate the Impact on Middle-Class Canadians

To ensure that middle-class Canadians are not disproportionately affected, the government is implementing several exemptions and incentives:

1. Principal Residence Exemption

Canadians will continue to benefit from the Principal Residence Exemption, meaning no capital gains tax will apply when selling their primary home.

2. New $250,000 Annual Threshold (Effective January 1, 2026)

• Individuals will continue to be taxed at the 50% inclusion rate on the first $250,000 of annual capital gains.

• This applies to secondary properties such as cottages, investment properties, and other assets.

• For couples, a combined exemption of $500,000 will be available when selling shared assets.

3. Increased Lifetime Capital Gains Exemption (LCGE) (Effective June 25, 2024)

• The LCGE for small business shares, farming, and fishing property will increase from $1,016,836 to $1.25 million.

• This increase ensures that business owners and entrepreneurs benefit from tax relief before the new inclusion rate takes effect.

4. Introduction of the Canadian Entrepreneurs’ Incentive (Effective 2025 Tax Year)

• A reduced capital gains inclusion rate of one-third (33.33%) will apply to up to $2 million in eligible lifetime capital gains for entrepreneurs.

• This incentive will gradually increase, reaching its full $2 million limit by 2029.

• When combined with the LCGE, entrepreneurs will see tax relief on up to $6.25 million in capital gains.

What This Means for Taxpayers

The deferral to 2026 provides individuals and businesses additional time to assess their financial plans. Key considerations include:

• Timing the sale of investments or properties to take advantage of the 50% inclusion rate before 2026.

• Maximizing exemptions, particularly the new annual threshold and the increased LCGE.

• Strategic planning for entrepreneurs to benefit from the reduced inclusion rate under the Canadian Entrepreneurs’ Incentive.

Next Steps

The federal government will introduce legislation to enact these changes in the coming months. Taxpayers are encouraged to consult with financial and tax professionals to optimize their strategies based on their unique circumstances.

If you have questions about how these changes may affect you, feel free to reach out to our team for expert tax planning advice!

2024 T1 Tax Deadline Day - April 30, 2025

As we enter April there is something other than April Fools Day and the Easter long weekend that we need to look forward to. Tax deadline day!!! April 30 needs to be marked in the calendar of every individual taxpayer, whether you were a full-time employee, part-time employee, received government benefits or just sat on the couch all year doing nothing. A tax return is absolutely essential. A late filing penalty of 5% plus 1% for every full month you are late in submitting the return (up to a maximum of 12 months) will be applicable, and if this is not the first time you have missed the deadline, the penalties are double. Furthermore, arrears interest of varying interest rates - provided quarterly will also be charged for any unpaid amounts starting May 1 (this rate can change every 3 months; see prescribed interest rates). If you have business income, the tax deadline is extended to June 30.

Qualification for Principal Residence Status – You Could Be Surprised!

Your principal residence exemption is an income tax benefit that generally provides you an exemption from tax on the capital gain realized when you sell the property that is your principal residence. Generally, the exemption applies for each year the property is designated as your principal residence. It came into effect after 1971, just when the capital gains tax was introduced and is a year-by-year calculation.  One must be a Canadian resident who owns and has lived in the property in that year. Currently, you may have one or more properties that might qualify (see details below), so you must designate one property in the year of disposition on your tax return. If you have more than one property and have lived in both, you have a choice of which property you want to designate as a principal residence, however you are only allowed to designate one property during that period. The land area to be included as part of the principal residence cannot exceed 0.5 hectare (50m X 100m) unless the excess land was necessary for the use and enjoyment of the housing unit. The property must be a housing unit, a leasehold interest or capital stock of co-operative housing. The housing unit must be inhabited in the year by you, your spouse or common-law partner, former spouse or common-law partner or your child.

There are several factors that might allow for your claim to be over 0.5 hectare of land. We recommend you get some advice from a professional before you file your return in the year of disposition of your principal residence.

Taxes at the Date of Death

While Canada does not have an “estate tax” there are a few potential taxes that may be incurred at the date of death.

In the year of death, a final T1 return must be prepared and filed by the executor/administrator of the estate that should include all the income that was earned by the deceased up to and including the date of death. Another thing that is included as income is the net capital gain on the deemed disposition of all assets held at the time of death by the deceased (Unless 1. the deceased has a surviving spouse in which case the assets are rolled over at cost, or 2. the principal residence designation applies). In any event the principal residence of the deceased is not taxable at the date of death.

The rule per the Income Tax Act is that all capital property held by the deceased will be treated as disposed of immediately prior to death, thus all capital gains and losses that are not exempt at that time will be realized and included in the final T1 return. For example, if the deceased owned 100 shares of a listed company in a non-registered account that have a cost base of $1,000.00 and a value at the date of death of $3,000.00 then $2,000.00 of capital gain is realized and 50% of that i.e., $1,000.00 will be included in income in the final T1 return (In Canada only 50% of the capital gain is included in income). (see update on capital gains)

For registered accounts, like an RRSP or a RRIF the total value of the account at the date of death will be deemed to be deregistered i.e., it will be deemed to have been cashed out and should be included as income in the final T1 return unless the RRSP or RRIF is left to a surviving spouse, common law partner or a surviving child/grandchild (In some cases).

Navigating estate taxes can be tricky for executors, if you have any questions or require assistance with a deceased taxpayer’s returns, please do not hesitate to give Peter Martin of our estate and trust department a call at (604) 669 9631 at the office or on his cell at (604) 290-6777.