On September 23, 2024, the Deputy Prime Minister and Minister of Finance tabled a Notice of Ways and Means Motion (NWMM) to introduce a bill entitled An Act to amend the Income Tax Act and the Income Tax Regulations. This NWMM modified the motion tabled on June 10, 2024. For more information about the capital gains tax changes, please visit this NWMM.
Although these proposed changes are subject to parliamentary approval, consistent with standard practice, the Canada Revenue Agency is administering the changes to the capital gains inclusion rate effective June 25, 2024, based on the proposals included in the NWMM tabled September 23, 2024.
For all taxpayers, the new inclusion rate will apply to capital gains realized on or after June 25, 2024. Impacted forms for individuals, trusts and corporations are expected to be on Canada.ca as of January 31, 2025. Arrears interest and penalty relief, if applicable, will be provided for those corporations and trusts impacted by these changes that have a filing due date on or before March 3, 2025. The interest relief will expire on March 3rd. More information will be forthcoming in the coming weeks.
In light of this legislation likely not passing Parliament, how is your firm planning to deal with capital gains that are ostensibly subject to the 2/3 inclusion rate?
I am strongly considering ignoring the proposed legislation, and including all gains at 50%…
Either way there is a probability of extra work we will need to do later. I am recommending to any affected clients that we use the 2/3 rate, explaining that if it doesn’t receive royal assent, they will be entitled to a refund. If we use the 50% rate, and the motion passes parliament, and we don’t have time to file the amendment by the deadline (or fail to track which clients may need such), the client will have penalties. I don’t want that to be our fault.
If I file the T2 assuming a 50% inclusion rate, there will be less tax for the client to pay. Then, if the NWMM passes, it means I should have used a 66.67% inclusion rate, which means the client should have paid more tax. Let’s say the the tax filing due date was Dec 31, 2024 (i.e. June 30 year end). And, let’s say I don’t get around to filing the amendment until some time in 2026. Now there will be late filing penalties based on the difference (increase) in tax payable - 5% immediately plus 1% per month. Even if there is penalty relief up to March 3, 2025 the client will be charged SOME penalties, and it will be MY FIRM’s fault, because WE should have known, and COULD have filed the amendment prior to March 3, 2025.
Will we? I’d say it’s probable, but not 100% guaranteed.
A few weeks ago I was leaning towards filing with the 2/3 rule but it is looking less likely that this motion is going to become law. Justin really needs to take a walk in the snow and if he does I am thinking prorogation would likely follow as a last ditch for the Liberals to get there shit together thus killing the bill. I’m not sure, does anyone know, can he prorogue before the house reconvenes in January? Would they try to pass it as soon as the house sits again? Probably a pretty hostile opposition at that time…
Hard to say what will happen.
Hmm. I’m sure I’ve seen it, but maybe it was CRA reassessments without filing an amended T2. I’ll have to look back through my files to be sure. I’ve seen it dozens of times as a result of adjusting a T1, but maybe T2 is different than T1?
Whether it’s Justin or Pierre P in power (or Jagmeet just to be inclusive), they will need the tax revenue from the 2/3rd’s inclusion rate. It’s crazy that the Libs have let this go so long. That’s not a political statement; just a comment on reliable, responsible governance. Many taxpayer’s (individuals, trusts, and corporations) have crystallized gains based on these proposals. If the Libs can’t get this over the goal line, they don’t deserve to even have the seats to form a party after the next election.
What it might have been was the penalty that the CRA charges if they amend the the T1 for missed slip(s) that they do as part of their slip matching process in the fall each year and it triggers more than $500 in taxes (I think) owing as a result of the missed slips. Normally there is no penalty if you amend the return for missed things before the CRA catches that it was missed as long as the original return was failed on time.
Well then! Maybe I need to start filing objections when CRA levies late filing penalties on T1 adjustments! Does anyone have a reference for this? ITA or CRA administrative policy or whatever?
I don’t ever recall having seen them do it for adjustments in the 30 years I have been doing taxes so I have never gone looking myself. I have only ever seen late filing penalties if the original return was actually late filed and owed money or if it was in a refund position when late filed so no penalties when filed but then an adjustment was filed afterwards that did owe taxes. I expect penalties in those situations. I have argued with them a few times when I know things were filed on time and they charged late filing penalties on the original return. Then it is usually just a matter of providing proof of mailing - which I have when I send things by mail close to the deadline and taxes are owed because I send it registered mail. That has saved my butt a couple of times over the years.
It seems you are correct. I have been reviewing my clients’ CRA accounts and NORAs, and cannot find a single instance where a “late filing” penalty was levied unless the original return was late. I don’t know why I thought that the late filing penalty applied to an increase in tax payable when compared with the original return. And, for years, I’ve been giving credit to clients (i.e. discounting their bill) when I believed there WOULD be a late filing penalty that was at least partially my fault (i.e. didn’'t get their corporate year-end done early enough, and then realized the dividend amount was too low, so had to adjust their T1 later in the year).