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Last updated: March 11 2025
Capital Gains Chaos: Extensions & Unprecedented Delays to Tax Season 2025
Ruth Horst and Evelyn Jacks
Stop! Don’t file a T1 or T3 tax return yet, says a March 11, 2025, news release from the CRA, if you have been impacted by the chaos of the proposed capital gains inclusion rate increase.
CRA recommends, instead, that you wait for its system updates “in the coming weeks” before filing. Given that there are only 50 days left in the season before the April 30 deadline, it’s important to pay attention to the fractured extensions now before us, as explained below:
That Backdrop. It was less than a year ago that a controversial federal budget - April 16th, 2024 – wreaked havoc that has contributed to the events of this week – the installation of an interim prime minister – and wreaked unprecedented havoc in the Canadian tax filing season 2024. Learn how the messy rollout of capital gains tax increases and other measures that were never passed into law are playing out with tax filing delays, extensions and confusing new dates for penalty and interest relief.
Tax Planning Reprieves. Those capital gains measures, largely postponed until January 1, 2026, proposed to increase the current 50% capital gains inclusion rate to 66 2/3% for certain taxpayers with capital dispositions on or after June 25, 2024. From a tax planning perspective, this provides a brief window for tax relief that is certain, for the rest of the year. However, should the next elected prime minister wish to reinstate the capital gains proposals, they could begin, as planned on January 1, 2026.
The Tax Filing Quagmire. However, the immediate issue is when to file a tax return, and as explained below, CRA is recommending that those with capital gains in 2024 hold off on filing until they can get their systems to accommodate the reversal the proposals, some would argue, they should not have proceeded to plan for in the absence of legislation to begin with.
Because CRA began to administer the changes as if the rules were law, slips and forms and schedules were redesigned, and calculations were re-coded in government software. Taxpayers therefore will still record Period 1 (January 1 to June 24, 2024) and Period 2 (June 25, 2024 to December 31, 2024) gains to conform with the slips that were issued.
In addition, on Schedule 3, qualifying small business corporation, farming and fishing property dispositions will qualify for the increased lifetime capital gains exemption of $1.25 Million starting in Period 2. This will assist with the claiming of the enhanced $1.25 Million Lifetime Capital Gains Exemption (LCGE) for qualifying dispositions in Period 2.
Refunds will be Delayed. Therefore, while the vast majority of the proposed provisions were postponed, tax forms and slips will require a longer, careful look this year while filing. As mentioned above, there is really no point in filing until CRA can re-program its computers, date unknown, which also means people with refunds will wait longer for their money this year. For those who owe money, however, the later filing and penalty and interest reprieves are a consolation prize.
Where we Now Stand on Tax Filing Deadlines. On February 19th, the CRA announced that they would grant relief from penalties & interest for the remittance of various types of returns and slips, summarized below:
- T Slips. Issuers had until March 7th for the following late-filed information returns: T3, T4, T4A & T5. The usual due date for these returns is February 28th. This could mean that slips are later than usual, causing delays of tax refunds
- This could mean that slips are received by taxpayers later than usual, causing delays of tax refunds and a more condensed tax season for tax preparers. Tax filers would be well advised to book an appointment early to get things started.
- Recalculated T Slips. Issuers have until March 17th for information returns that need to be recalculated due to the change; this primarily applies to certain T5008 and T5 slips.
- T3 Returns. Certain taxpayers have until May 1st to file T3 information returns. The usual due date for these returns is March 31. Not to be mistaken, most T3 returns should still be filed on this due date. What’s changed for this year only is that trusts reporting a capital disposition on their 2024 T3 return have an extended deadline - until May 1, 2025 - to file without penalties or interest charges.
- T1 Returns. On January 31, 2025, the CRA announced that it would grant relief from late-filing penalties and interest for individual taxpayers impacted by the capital gains proposals until June 2, 2025. The CRA has stated this is “to provide additional time for taxpayers reporting capital gains to meet their tax filing obligations.” That means that there will be no late-filing penalties and arrears interest for T1 returns filed on or before June 2, 2025, in cases where returns on which capital gains were calculated were otherwise due April 30, 2025. For proprietors (or spouses who have a proprietorship) the filing due date is still June 16, 2025 (because June 15, the normal filing due date, falls on a Sunday)
- T2 Returns. The normal filing due date is six months after the fiscal year end for these returns. Relief from penalties and arrears interest was provided for corporations with a filing due date on or before March 3, 2025.
MyAccount Issues. CRA also notes that due to the capital gains chaos, certain information returns (tax slips) may not be available in My Account, Represent a Client, or the Auto-fill my return service when you want it for filing. It suggests you try again, at a later date.
Beware: Avoid Unreported Slip Income. Many taxpayers with investments are anxious to finalize their taxes by April 30th. It is often difficult to have all the information gathered to meet this deadline when the T3 slips are due on March 31st. How will this play out with T3 slips now due later?
Missed slips present a big red audit flag – for multiple tax years. A federal and provincial/ territorial penalty will be assessed when an amount of $500 or more is missed on the 2024 tax return and any of the 2021, 2022 or 2023 tax returns. And it’s expensive; the lesser of:
- 10% of the unreported amount calculated on both federal and provincial/territorial taxes and
- 50% of the difference between the understated tax (or overstated tax credits) for the unreported amount and the tax withheld from the amount missed.
Software Issues - Optimizing Other Returns. Through all of this CRA has not clearly defined what qualifies as an ‘impacted taxpayer’. Does a spouse without capital gains qualify for the tax filing relief? Is there penalty relief for related tax returns, such as the T1135 or must they be filed by April 30th? Caution would suggest that all other returns, without capital gains calculations, should be filed by April 30, unless otherwise specifically noted by the CRA.
The CRA has been notably silent regarding the details and the delays in approving tax filing software that facilitates the efiling of Tax Returns with S3 (Capital Gains) reporting. It wasn’t until a software update was released late afternoon of March 11th that it became possible to efile a T1 with capital gains reporting, with some software providers.
Software certification comes over 3 weeks after efiling opened, creating significant delays for tax preparers and taxpayers relying on this functionality to file their returns. However it is important to note that there are a number of auxiliary tax filing forms that may be required to properly account for capital gains and losses that may still not be ready.
The Continued Chaos and Its Effect on Tax Professionals: For those working in the tax industry, it should be clear that the relief of penalties & interest applies only to certain tax returns. However, the average taxpayer may easily misinterpret relief from penalties and interest to relief for all tax returns. It is easy to imagine someone telling their friend that their accountant just told them they have until June 2nd to file their tax return this year. That friend, hearing only that there is a new filing deadline, may assume they don’t need to file until June 2nd; whether or not that is true. Therein lies the problem for ongoing audit issues in the future.
Bottom Line: This tax season promises to be an interesting one, as it will involve navigating the balance between taxpayers who are anxious to file their returns and receive their refunds, while ensuring that accurate and complete tax returns are filed with all the slips required.
Remember, if an incomplete tax return is filed, an adjustment to the tax return (T1adj) must be filed as soon as the taxpayer becomes aware of any omissions to avoid penalties and interest, not just for the 2024 tax year but potentially for the three prior tax years as well.
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