The CRA says it's 'waiting for final legislative details' as it develops 2024 tax forms for corporations and partnerships. The agency says forms will be uploaded by the end of January, 2025.Justin Tang/The Canadian Press
Political turmoil in Parliament is delaying the passage of new capital-gains tax legislation, creating problems for some taxpayers and their advisers.
Canadians most affected include owners of private corporations and estates designated as a graduated rate estate (GRE) with financial year-ends on or after June 25 this year, when the proposed capital-gains tax hike is set to start. Taxpayers in these groups may be subject to the higher capital gains inclusion rate first introduced in the April federal budget.
Accountants say they can’t file tax returns for affected taxpayers because the software isn’t yet available. Tax software companies say they can’t finalize the software until the legislation is passed and the Canada Revenue Agency (CRA) certifies their forms. The CRA says in an e-mail statement sent to The Globe that the forms are expected to be ready in January, 2025, while it waits for “final legislative details.”
The delay puts some affected taxpayers at risk of paying and filing their taxes late, which could lead to financial penalties.
“January is too late to roll out the changes” for corporations and estates designated as a GRE, says Debbi-Jo Matias, a chartered professional accountant in Vancouver. If the CRA isn’t ready until January, she worries it could be at least February before software providers have their forms ready.
Corporations have six months after their year-end date to file their taxes but only two or three months to pay them, depending on the type of company. Estates designated as a GRE must pay and file their taxes within three months after their year-end date. Both sets of taxpayers can choose their year-ends, whereas individual taxpayers have a year-end date of Dec. 31.
‘Tremendous amount of uncertainty’
The Liberal government announced in its spring budget that, as of June 25, corporations would have to pay income taxes on 66.67 per cent of all their capital gains each year, up from 50 per cent. The same increase to what’s known as the capital-gains inclusion rate applies to individuals but only on more than $250,000 in capital gains each year. GREs and qualified disability trusts are also eligible for the $250,000 threshold.
Almost four months after the new inclusion rate was set to take effect, the legislation has yet to be passed amid political battles in Ottawa. The government recently ground to a halt after a standoff between the Liberals and opposition parties over demands for documents related to a green-tech foundation. That, in turn, left the Liberals unable to table new bills, such as the proposed new increase to the capital-gains inclusion rate.
There are also concerns that the capital-gains legislation may not pass in its current form given some of the pushback since it was tabled in the April budget and the Conservatives’ continuing attempts to topple the government and trigger a federal election.
“There’s a tremendous amount of uncertainty, which makes it very difficult for people to plan,” says John Oakey, vice-president of taxation at CPA Canada. “The biggest problem is we don’t know if the government’s going to survive, and we don’t know what’s going to happen to the legislation.”
Mr. Oakey adds the CRA is in a “really precarious position here, especially if they’ve said they won’t have [forms] ready until January because that’s too late already for certain taxpayers.”
The CRA can still administer the capital-gains rate changes while the legislative process unfolds, says Katherine Cuplinskas, deputy director of communications for Deputy Prime Minister and Finance Minister Chrystia Freeland. In an e-mail statement sent to The Globe, she cites the filing of a ways and means motion with the legislative details and published draft legislation, saying the government “has provided a clear signal of intent.”
However, the CRA said in an e-mail statement to The Globe that the 2024 version of the T2 Schedule 6, Summary of Dispositions of Capital Property (for corporations) and the T5013 SCH 6, Summary of Dispositions of Capital Property (for partnerships) are still under development “as we are waiting for final legislative details.” The agency said forms will be uploaded by the end of January, 2025.
The CRA also said the 2024 version of Schedule 3, Capital Gains (or Losses) – for personal tax returns – “is still under development” and will be uploaded by the end of January, 2025. While that could delay some planning, advisers say that’s enough time to meet the April 30, 2025, personal tax deadline.
In an e-mail sent late on Oct. 11, a day after the story was originally published, the CRA answered a follow-up question about whether it planned to penalize taxpayers caught in the legislative limbo, saying it “encourages corporations to comply with the proposed legislative changes.”
The CRA said corporations can use this new rate to calculate their total capital gains and include it in the amount reported on line 113 of the T2SCH1 Net Income (Loss) for Income Tax Purposes.
The agency added that those who use the lower rate would be required to file an amendment at a later date “if the legislation is passed by Parliament and Royal Assent is received” and that any amount not paid “will have the normal impact on the calculation of arrears interest and penalties, if applicable.”
Why manual filing isn’t ideal
Advisers need to account for two different inclusion rates for private corporations or estates designated as a GRE with year-ends on or after June 25 this year: the 50-per-cent inclusion rate before June 25 and the new 66.7-per-cent inclusion rate on or after June 25.
With the new tax forms not yet available, Ms. Matias doesn’t think it’s a good idea to adjust the returns manually to the higher inclusion rate. She notes that other tax balances will be affected by the calculations, such as the capital dividend account for corporations.
It’s also unclear if the CRA would accept and assess a return with the higher inclusion rate plugged in before it finalizes its forms, she says. For now, Ms. Matias suggests taxpayers caught up in the delay estimate and pay what they owe based on the higher inclusion rate to avoid possible late-payment penalties – then file when the software is ready.
Roberto Trimboli, director of product development at TaxCycle, a division of Xero Ltd., says his firm can’t finalize its tax software to include the new capital-gains inclusion rate until the legislation passes, partly because the CRA has to certify the software.
He says the CRA also has to update its systems before it can accept information from tax-filing software companies.
“The CRA is in a similar boat as us, having to wait for legislation,” he says. “We’re in a suspended state.”
Mr. Trimboli also believes there’s a risk the legislation could change before it’s passed, which would mean revising the software before it’s rolled out.
“That’s why many tax preparers are taking the approach of waiting until everything’s formalized and good to go,” he says.