Income tax—beyond the noise

The calendar year has started with a bang. A bang so loud that the tax community is scrambling to get up to speed on parliamentary procedures related to legislation (proposed, passed, or otherwise). Somewhere, my high school history teacher is shaking his head in disappointment (I’m sorry). The initial reaction has been chaotic. Chaos breeds confusion. But there’s an old adage that says, “if you have time on your side, use it.” While it may feel like urgent action is needed in the moment, taking a step back to reflect can help gain perspective. Everything feels urgent until you write it down, prioritize it, and put some timelines behind it.

Tax changes that are implemented

Bill C-69 received Royal Assent on June 20, 2024, and included a few tax changes. The key ones from our perspective include:

1. Home buyers’ plan—increase the withdrawal limit from $35,000 to $60,000 per individual and defer the start of the repayment period by 3 additional years.
2. Alternative minimum tax (AMT) —this includes increasing the tax rate to 20.5%, linking the basic exemption to the 4th federal tax bracket and changes to adjusted taxable income and available tax credits for AMT purposes. 
3. Employee ownership trust—adds a $10 million capital gains exemption on the sale of a business to an employee ownership trust (EOT). The creation of an EOT was established with the passing of Bill C-59, which also received Royal Assent on June 20, 2024.

The short and sweet summary is that these changes are law. They apply right here, right now.

Other tax changes

There are several tax changes on our radar that are neither part of a current bill nor included in a Notice of Ways and Means motion:

1. Canadian Entrepreneurs’ Incentive (CEI)—provides an additional capital gains deduction for individuals when they dispose of qualifying Canadian entrepreneur incentive property. The legislative proposal relating to the Income Tax Act and the Income Tax Regulations (Budget 2024 and other proposals) was released on August 12, 2024, with an intended effective date for tax years after 2024.
2. AMT—some proposed changes that were provided in legislative proposals pertaining to the Income Tax Act and the Income Tax Regulations (Technical Amendments) related to flow through shares and half of investment counsel fees paid being deductible for AMT purposes.
3. Charitable donation deadline for 2024—the federal government intends to extend the deadline for making donations in the 2024 tax year to February 28, 2025. This extension is intended to mitigate the impact of the four-week Canada Post mail stoppage. The government intends to introduce legislation effecting these changes once Parliament returns in the new year.

The future of the CEI is unclear, AMT changes are ongoing, and there’s no legislation for the charitable donation deadline extension. The only approach for the first two, we believe, might be a wait-and -see approach. Hopefully, given the rationale for the last one (to mitigate the impact of the Canada Post stoppage), this change could be implemented retroactively once Parliament returns. 

Tax changes being administered

On September 23, 2024, a Notice of Ways and Means Motion to introduce a bill entitled An Act to amend the Income Tax Act and the Income Tax Regulations was introduced by then Deputy Prime Minister and Minister of Finance Chrystia Freeland. This includes two notable changes:

1. Lifetime Capital Gains Exemption (LCGE)—Increased from $1,016,836 to $1,250,000 after June 24, 2024. This limit would remain in place until 2026 when annual indexation re-applies.
2. Capital gains inclusion rate – increased from 50% to 66⅔% for all corporations and most trusts after June 24, 2024. Individuals, graduated rate estates (GREs), and qualified disability trusts (QDTs) are subject to a 50% inclusion rate on the first $250,000 of realized capital gains each year. The inclusion rate for capital gains in excess of that is 66⅔%.

While these changes aren’t law, they are being administered by the Canada Revenue Agency as if they apply. For tax filers impacted by the capital gains inclusion rate changes there are two choices:

1. File their tax return as if the new capital gain inclusion rates apply and in the event that this fails to come into effect, be entitled to a potential refund; or  
2. File their tax return under the old rules as if the capital gains inclusion rate changes don’t apply with the understanding that they’ll be responsible for any interest incurred if the new rates become law.

In 2024, over 92% of individual tax filers filed their returns electronically or by phone. In these cases, they likely used tax software to complete and file those returns. This software is often updated by the developers and certified by CRA. How these changes are implemented will likely determine how a user will be reporting impacted amounts. Be sure to check for updates to your chosen software to ensure you’re working with the latest version before ultimately filing your return.

Timelines

As we look ahead in 2025, there are some key tax dates to keep an eye on for all tax filers (corporations, trusts and individuals).

January 31, 2025—tax forms impacted by the new capital gains inclusion rate changes are expected to be available online for individuals, trusts and corporations

February 28, 2025—deadline for making donations eligible for the 2024 tax year. If this change isn’t implemented, donations made in the 2025 calendar year could be claimed as early as the 2025 tax year.

March 3, 2025—Arrears interest and penalty relief, if applicable, will be provided for those corporations and trusts impacted by the capital gains inclusion rate changes that have a filing due date on or before this date. This is also the RRSP contribution deadline for the 2024 tax year.

March 24, 2025—prorogation of parliament ends. Tax measures that weren’t passed into law can be re-introduced (i.e. LCGE and capital gains inclusion rate) after this date. New measures like the extension of the charitable donation deadline can also be introduced.

March 31, 2025—tax filing deadline for trusts with a calendar year end (December 31). For trusts with a non-calendar year end, tax returns must be filed 90 calendar days after their year-end. This is also the deadline for trusts to pay any taxes they owe. It’s important to note that bare trusts are NOT required to file a tax return or complete Schedule 15 for the 2024 tax year.

April 30, 2025—Deadline for most individual tax filers to file their 2024 tax returns. This is also the deadline for paying any tax balance owing to avoid interest and penalties.

June 16, 2025—Deadline to file taxes for self-employed individuals (if either the individual themselves or their spouse or common-law partner are self-employed). The deadline for paying any tax balance owing to avoid interest and penalties is still April 30, 2025.

Finally, for corporations the deadline to file tax returns is six months from the end of their tax year (fiscal period).

If your trust or corporation has a tax filing deadline on or before March 3, 2025, you and your tax advisor likely already have the wheels in motion to file on time. Time may not be on your side, but you have taken actionable steps. For trusts with calendar year-ends and most individuals, you have time. Time for new forms to be published. Time to make charitable donations and RRSP contributions for the 2024 tax year. Time for parliament to return. Time to digest new information and plot your next steps. These aren’t the ideal conditions for tax filing season, but life rarely provides for the ideal. Reflect, prepare and take action. Focus on what you can control so you can file your return on time, minimizing costs.